Digitization? No, the Automotive Retail Revolution Starts with Product
Car brands need to ditch endless customization, features and packages
2021 was arguably the worst year to buy a car in recent memory. The chip shortage and supply chain bottlenecks emptied out dealer inventories, and the industry was left scrambling to connect customer with product.
Unfortunately, I was one of those customers. My lease ran out last year and I had to go through the “automotive retailing” experience. I am not a fan of that process, even in a normal year. 2021 just piled on the pain.
Unlike Europeans, North American drivers such as myself are used to buying from available inventory. Which means we get to see and feel exactly what we are getting. But since there were no cars left at dealerships, I factory ordered (a first for me) my model — a premium German compact SUV.
My car arrived — after six months, and well past the end of my previous lease. It was missing several features I had wanted because the chips driving them were not available. No upgraded audio system, no wireless charging, no motion-activated liftgate. Disappointing for sure, but given the year it was, you couldn’t blame the brand or the dealer.
But that was only half the issue. I also found out that, in the endless customizations available through the brand’s digital builder, I had made some “wrong” choices. Here are a couple of examples:
- I wanted leather seats. But I did not realize that the sports package I had selected came with a leather and suede combo. It wasn’t very clear in the vehicle builder.
- I like a cutoff sports steering wheel. However, opting for a heated version overrode the cutoff selection and I received a standard wheel instead.
These might seem like minor quibbles. One could also argue that I should have been paying more attention during the ordering process. But I consider myself a pretty advanced car shopper (you have to take my word for it!). I think I can make a safe assumption that if I missed those variations, others could too.
The supply chain crunch might be transient, but virtual car shopping is here to stay. Both dealers and automakers are spending millions of dollars into digitizing the buying process as more and more customers go online. While these digital tools still have plenty of room for improvement, I think my “little” problem —the disconnect between product expectation and reality —sheds light on a deeper issue: buying a car online is just too complicated. And this complexity will not go away with increased ease of digital shopping, because the problem lies not in the process, but the product.
Killing Sales by Choice
In 2000, Columbia School of Business professor Sheena Iyengar and Stanford University psychologist published a revelatory study on choice. The researchers observed how people reacted to varieties of jam — or rather too much of it.
The experiment was simple. Customers were asked to sample 24 flavors of jam from a display at a grocery store on one day. Then, on a different day, they were given a choice of six. The psychologists found that the larger spread drew in more people, but the smaller display generated more sales.
A Harvard Business Review article cites this study and others to demonstrate the impact of “choice paralysis”, which results in poorer outcomes for both sales and customer satisfaction. The findings have been consistent cross various industries and products. Too many options only seem like a good thing but never is.
Clearly, legacy automakers haven’t received the memo. Over the years, car brands have buried buyers under an avalanche of trims, packages and options. Things have turned more complicated in recent times with the constant race to add more tech to cars. The quote below from a TechCrunch article on “feature bloat” perfectly sums up the issue:
“Do we really need 30-way power adjustable seats with five massage-pattern options? Or sequential taillights, multi-zone automatic climate control and audio systems with concert hall and studio settings?” — Sam Abuelsamid, principal research analyst for e-mobility at Guidehouse Insights
The current chip shortage has already exposed the shortcomings of unlimited features and infinite customizations. But the future might be worse.
After years of recalcitrance, the auto industry is finally pulling itself out of the traditional purchase process and finding its footing in the era of digital buying. But, for people to buy the right product from the comfort of their homes, the right virtual customer journey is only the start. Automakers will also have to drop the any-flavor-you-like approach, and rein in the choices available to customers online, to provide a flawless, customer journey. What was acceptable on the dealer lot is retail suicide on the digital lot.
Think of the most successful online categories — books, music, electronic goods, toys. In the chart below, you can almost match their digital sales penetration to their level of uniformity.
To buy a book online, all you need to know is the title, publisher and format. Very little opportunity to go wrong and be disappointed post purchase.
Ditto for personal electronics. If you want to buy a smartphone, tablet or computer, you only get a few choices. Again, very little opportunity to go wrong when ordering online.
Now find the category with the lowest ecommerce share in the chart above. No points for guessing!
The Tesla Template
Not surprisingly, the only automaker who currently gets product-purchase fit is Tesla. Buying a Tesla model is not unlike buying an iPhone. You select your model, choose the color, and opt from the 3–4 options available. These options exist because they are critical to both drive and function — AWD vs. RWD, battery range, etc. Rest are pretty standard. If you buy a model S, you get the same screen, audio system, seats and so on.
For Tesla, customization / personalization begins, not during the car purchase process, but after that. Driver profiles in a Tesla can be tailored to an extent not possible in any other brands. A Tesla model knows more than your seating preference. It can adjust your entire driving, comfort and infotainment experience sans the glitches. No need to constantly implore the vehicle — Hey [insert your brand here], play Spotify — just to keep from dropping the Bluetooth connection.
Even better, Tesla vehicles allows you to change your vehicle over time and stand out from your peers (isn’t that the whole point of the endless stream of trims and packages anyway?). Depending on your initial base model, you can upgrade your seat climate control, self-driving status, infotainment, among other things throughout the ownership period.
So, once again no points for guessing where Tesla sits on ownership satisfaction.
The Product-Purchase Fit
What works for Tesla may not fit every brand. Some lower-end, mass market models will need more options to balance affordability with profit. But premium brands should not be tied to those limitations. They need to ditch menu-styled packaging — for both their electric and internal combustion lineups.
Vehicle product planning has a tanker-like momentum — it takes years to turn it around. But the industry is well poised to make a strategic shift, as cars become more software driven. Yes, legacy automakers tend to buy pre-programmed, function-specific chips (one of the key reasons why they continue to suffer through the current shortage) — which means vehicle features need to be firmed up at point of purchase or production. But the growing trend of coding blank chips (once again, Tesla is showing the way) will allow car companies to push customizations / upgrades to the ownership phase.
Automakers need not worry about turning off consumers by killing choices. As I mentioned earlier, research has repeatedly shown that a buffet of options leads to confusion, abandoned sales, and product dissatisfaction — particularly in a digital environment.
Packaging advanced features into the price may also be a profitable approach for automakers. Customers tend to be less resistant to spending additional money when the cost is baked into the product than when dollars are itemized.
Marketing and sales have made great strides in bringing the car sales process to the 21st century. But online shopping is also a classic case of putting the cart before the horse. It’s about time product planning caught up to new millennium retail.
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