Of Digital Transformation and Automotive Disruption.
Digital transformation as a précis to disruption in the automotive industry
The original intent of this article was to explore disruptions the automotive industry will be facing in coming years. However, while researching I was distracted by the abundance of articles, agency mantras, mission statements and, consulting research regarding the need for ‘digital transformation’ in business.
While the term is still relevant for many businesses, by now you’ve either bought in or you haven’t (or you just think it is an outdated buzz-word). Regardless, we’ve reached a point where we aren’t arguing the why anymore, but need to know the what and the how and the knowledge gained through the digital transformation experience.
Businesses that have adopted digital transformation should be looking to make the appropriate cultural shifts in order to accelerate innovation and gain the ability to rapidly pivot.
I’ll attempt to use the digital transformation discussion as a forward for the automotive disruption discussion, as I believe they relate and can be bridged. Please bear with me.
What does a post transformation workplace look like?
Is the digital transformation paradigm over, or at least the constant advocacy of it? And what do we replace it with?
Transformation to incubation and innovation
By now, all affected businesses should be beyond justification for digital transformation and well into innovation programs with broad business implications; from product design, service design and marketing systems, to internal agendas such as workflow automation, open systems, data and, most importantly, cultural changes.
These businesses should have vision statements inclusive of, if not centered on, design thinking, digital innovation and customer experiences that are mandated and propagated organization-wide.
The top three digital transformation drivers are improved customers experience, increased speed of innovation and improved-time-to market.
Leading Digital Business Transformation, Forrester, 2016
Eager businesses have sprung up incubation hubs to incrementally increase the speed of business innovation while their traditional business units move to optimize for efficiency, and foster the nimbleness and open collaboration required to keep pace.
Inspired businesses have implemented innovation programs with profound and essential cultural impacts; shifting mindsets away from traditional models that suffer from product complacency, heavy reliance on advertising/marketing and plagued with internal ecosystems consisting of politically siloed business units, conflicting roadmaps, convoluted workflows, ineffective collaboration and deprecated enterprise systems — weighing innovation down like an anchor. Instead, these businesses are shifting employee mindsets towards holistic design based thinking, innovation, open collaboration and extensible enterprise systems that facilitate rapid deployment of new experiences.
20% out of 1700 board-level excecutives around the world believes that design thinking will be NO. 1 approach to drive profitable growth for their companies.
Source: pwc.com/innovationsurvey
The Hallmark Initiatives of Digital Transformation Build Agility
As such, these businesses should have complete c-suite executive buy-in that is sponsoring a number of initiatives including business intelligence for informed decision making, multi-disciplinary innovation programs for business acceleration, diverse talent procurement for knowledge and idea generation and the acceptance of business experimentation — including failure. All of these are essential building blocks required to mitigate the risk of being ‘leap frogged’ by the competition and gaining the ability to capitalize on new opportunities.
One could argue that ‘Digital’ is an antiquated term. We may still be using this word simply due to the age of digital. Many of us were around before digital systems were as prevalent as they are now.
However, for a younger generation, there is no digital revolution. There is no breakthrough — digital is an embedded reality, and change a natural bi-product.
For businesses, digital should be assumed and expected. It’s an integral building block that requires constant innovation. The time for preparing and planning for digital transformation has passed. The time for accelerating innovation is now.
Therefore, digital transformation is over, or at least the message has been heard. Let’s move on.
Operational Agility Makes it Possible to Survive Disruption
While the new buzz term to describe this new initiative will not be coined in this article, directionally the next business goals are about building the agility for businesses to rapidly pivot.
“the next business goals are about building the agility for businesses to rapidly pivot.”
Businesses should be prepared for a landscape where new channels, products, services and competition threats frequently present themselves, facilitated through technology and design thinking. Without the ability to foresee, recognize or even respond to this new landscape, traditional businesses will not fare well. Incumbent businesses that have not successfully entered this digital transformation age face a fate similar that articulated in the Inventors Dilemma — where business leaders recognize new technology and business opportunities on hand, but are unable to act. This is due to a lack of understanding the long term opportunity or not possessing the operational ability to address new initiatives. Leaders fail to incubate radical new business ideas or effectively embrace new technology. Eventually it is too late, and the competition has passed the point where incumbents are able to compete. They’ve been leapfrogged.
“The biggest threat to innovation is internal politics and organization culture, which doesn’t accept failure and/or does accept ideas from the outside, and/or cannot change.”
Financial Services Innovation Survey, Gartner, 2016
Digital transformation is still very relevant for some businesses as they undergo change, but it’s not a term that needs to be reiterated. Either you were on board long ago, are in the process of change, or you have a tsunami of disruption headed your way.
Twenty-seven percent of senior executives rate digital transformation as now being “a matter of survival.”
The Digital Advantage, Capgemini, 2016
Let’s stop discussing the need for digital transformation and start discussing innovation agility as a result of an improved business culture and open infrastructures; cultures that foster collaboration, seek change, promote experimentation and welcome failure for its knowledge that it imparts. All supported by open, flexible and extensible business architectures and systems.
The Disruption, the Deniers, the Disruptors and the Consumer
For almost a decade we’ve witnessed several traditional industries disrupted by digital innovation and convergence. Feeling some of this disruption are the Media & Entertainment, Telecommunications, Financial Services and Retail industries. Yet every industry is feeling the pull from the ‘digital vortex’ and the disruption it’s causing.
The Digital Vortex is the inevitable movement of industries toward a ‘’digital center’’ in which business models, offerings, and value chains are digitized to the maximum extent possible. As industries move toward the center of the Digital Vortex, physical components that inhibit competitive advantage (such as manual, paper-based processes) are shed. Whatever can be digitized is digitized.
Global Center for Digital Business Transformation
The Disruption Pattern.
A pattern has emerged when industries are disrupted, incumbents are displaced and the landscape is forever changed. In this pattern we can pin-point the technology and the actors playing a role in it.
The Disruption — the technological innovation that facilitates the disruption or allows the opportunity to arise from either hardware or software innovation. For example, faster processors, smaller computers, beacons, peer-to-peer networking, wireless technologies, internet speeds, VR/AR, touch screens and software advancements.
The Deniers — these are the incumbent businesses/brands providing a service or product within a legacy business model and systems, and they have a sense of complacency that often denies, rejects or is unable to react to disruption in time.
The Disruptors — these are typically the start-ups that understand the opportunity the disruption brings and how it’s paired with enhanced consumer experiences and value. They often leap frog the deniers with a better service or product.
The Consumer — everyone that does (or doesn’t but eventually) understands the personal value the disruption brings and recognizes the delta between deniers and the disruptors — the value in either convenience, affordability, entertainment or otherwise. They speak with their actions and their wallets.
For example, in the media and entertainment industry we had the technology advancement of streaming digital video, broadband internet-in-the-living room (the disruption) with accessible pirate services providing a better experience than most traditional content providers (the deniers). This lead to the rise of Netflix (a disrupter) — a platform that mimics some of the best attributes of the piracy platforms, but now has one of the largest content budgets out of all the incumbent networks and cable providers and is widely recognized by audiences (the consumers) for its value; first convenience and affordability, and now superior entertainment value through proprietary content, (powered by business intelligence). And Netflix still has no ads!
We see similar patterns across industries. This is not just in consumer products or services, but also in the way we market and sell. Smaller brands are disrupting larger incumbent brands in customer journeys through a better understanding of omni-channel marketing platforms, social networking, acquisition techniques, subscription sales models and having a transparent two-way communication with target audiences through new channels.
Many examples of disruption can be cited across all industries, some more prevalent than others. The point is that there is ample evidence, research and data to predict potential disruptive threats.
And yet, we still have deniers.
While these deniers may not be deniers at all, because individually they may understand the importance of disruption innovation and try to effect change within the reach they have, they are likely part of a business or industry that is so fundamentally and culturally unprepared for change, it’s near impossible to effect any. For these incumbents, it’s similar to steering an ocean liner through an obstacle course hoping to only receive a scratch.
An example of a large industry that still contains legacy incumbents, and is poised for change, is the automotive industry — from design and manufacturing to the marketing and sales — this industry is primed for a considerable amount of disruption.
“The auto industry is poised for more change in the next five to ten years than it’s seen in the past fifty.”
Mary Barra, CEO, General Motors
Automotive Disruption
Automotive will be facing a multi-faceted front of disruption affecting every aspect of the industry, all while changes in personal mobility and customer demands occur. Innovations will be made in the industry as it strives to predict and meet a shifting landscape and external influences. However, the accumulation of these disruptions may be complex and difficult to respond to.
While the ‘big auto’ incumbents are currently the masters of their own domain, and many are responding to coming disruptions, some Original Equipment Manufacturers or OEMs appear to show cracks in their ability to effectively keep pace with disruptive innovation — holistically, and at every level of their industry and brand.
For large auto incumbents, new products and innovation come with enormous costs that can be fiscally wasteful if not correctly aligned with market needs or government regulations. However, the consumer demand for new expensive technology is only gaining momentum. To mitigate risk and costs, OEMs are looking to reduce and share platform innovation while focusing on their brand/model distinction elsewhere.
In the long term, OEMs may not be able to recoup these R&D investments as these innovations may be misaligned with coming disruptions. Additionally, these technical innovations may ultimately work towards a different take on personal transportation, a commodity based transportation market rather than a product based market. But I digress, more on that later.
There may also be the sense that ‘big auto’ is too big to fail, and that timely innovation investments will be made at the right time. But if examples from other industries are any indication, once the disruption pattern occurs, it’s typically too late to respond.
Incumbent carmakers have the resources now to respond and mitigate future market loss, either by appropriately shifting budgets or partnering with/acquiring new technology platforms or disruptive businesses. However, for some, this may only slow the inevitable. The race is on, and new players are in the game. The ability to think longer term and with more agility is critical to sustain business relevancy.
The automotive disruption will be on all sides for incumbents. The deniers may find it costly and be culturally unprepared to effectively respond to each disruptive front. Ultimately, some incumbents will face irrelevancy, declining market share and find themselves open for acquisition or obsolescence.
Threats, disruptions and considerations
The following are just a handful of ideas potentially causing disruptions for the automotive industry. All of them are related, however, some are more distant disruptions than others. With each disruption idea we’ll touch on the influencing factors and perceived preparedness of incumbent carmakers.
- Shifting Landscape
Overall landscape influencers such as technical advancements, environmental issues and the future of transportations that is changing the consumers’ perception of transportation and vehicle ownership. - Vehicle Design
Vehicle design and technical innovation alignment to customer needs, expectations and mindsets. - Marketing and The Customer Journey
From awareness and brand perception to seamless and holistic customer buying journeys. - Sales and Retention
The innovation required to align aging sales paradigms with self-serve digital customer journeys, simplified pricing, and full lifecycle automotive ownership experiences from awareness, to sales and retention.
Shifting Landscape
Aspects of the automotive market hasn’t changed much since our parents purchased vehicles. For over 100 years personal vehicles have dominated the market. While there has been an introduction of digital to the customer journey, global competition changes, brand mergers and acquisitions — the underlying marketplace has remained somewhat the same.
For many carmakers the mandate has been to compete with the competition primarily through emotive enticement through cosmetics and capability wars, incrementally improving features year-to-year, introducing new vehicles where applicable, and marketing vehicles through all modern channels. Dealer associations cover most parts of sales, service and sometimes retention. Simple.
OEM’s are typically competing on 4 levels with each other:
- Tier 1 (corporate brand) for brand perception and product positioning
- Tier 2 (corporate dealers and dealer associations) for consumer pricing and sales
- Tier 2 & 3 (franchised dealerships) consumer service experience and retention
- Commercial and fleet vehicle sales through all their tiers above.
A logical structure from a traditional sense, but a fragmented and cumbersome structure when trying to optimize for modern consumer experience expectations.
This marketplace is about to become more complex for OEMs to operate in. Emerging technical innovations, transportation shifts, new competition and digital customer experience expectations will converge to augment this ecosystem.
While some are predicting “peak car ownership”, which may be a stretch in the short term, below are a collection of the factors driving disruptions now and paving the way for new ones in the future. These disruptions may force carmakers to rethink their culture, structure, products and, fundamentally, how their brands meet consumers’ transportation demands of the future.
1. Autonomous Vehicles
There are no surprises when it comes to autonomous vehicles; in 1964 General Motors explained, “it anticipates the day when the family will drive to the super-highway, turn over the car’s controls to an automatic, programmed guidance system and travel in comfort and absolute safety at more than twice the speed possible on today’s expressways.”[1]
Autonomous vehicles pose a threat (and opportunity) to the automotive industry as they increasingly become assimilated into public infrastructure and normal everyday consumer life.
Autonomous transportation’s future offers a dramatic shift in how consumers experience vehicles and, in turn, the way carmakers design and market them. We already spend a considerable amount of time looking at our connected devices, oblivious to the physical world around us. So the idea of freeing our attention from the road while commuting to work in an efficient and safe manner is an appealing notion.
Eventually this technology will describe personal mobility as a commodity rather than an expression of personal brand and utility as it is now. When the automotive marketing pillars of safety, interiors and comfort can be marketed as differentiators in this future, the “freedom machines” that came out of the 1950’s and 60’s will be long gone. Consider a future where people care little about what a vehicle looks like, or even how it gets us from destination to destination, and more about if the mode of transportation offers door to door service, whether it’s compatible with their IoT devices, and what the monthly subscription fees are.
Personal and utility vehicles still have a long future. However, for the masses, autonomous vehicles, along with environmental issues, customer convenience, and economic demands will lead to the rise of transportation-as-a-service. This will cause a fundamental shift the automotive industry from a product based business to a service based business.
Despite the GM prediction in 1964, some big auto incumbents are behind in this area, forcing them to make large innovation investments, acquisitions and/or partnerships for licensed autonomous software and systems.
Most OEMs are now promising some sort of self-driving vehicle by 2020 with the help of partnerships. Disruptors such as Google and Tesla saw the innovation gap and opportunity and forged ahead despite scrutiny and opposition.
Google has logged over 2 million miles — that’s over 300 years of human driving experience into machine learning autonomous systems, and is well poised to be a leader, if not the standard in self-driving AI. We may see a time when government regulation only permits a couple of highly tested systems in this space due to safety concerns and standardization. Vehicle to vehicle communication for swarm-like behavior and standardized communication with public infrastructure (why wait for that traffic light if there is no one around?), ensure unobstructed and efficient ambulance trips.
All Tesla vehicles currently being produced have self-driving hardware and software just waiting to be activated [2]. Uber has proclaimed it will buy 500,000 vehicles if they are ready by 2018.
In the short term, human piloted vehicles will remain but in the long term they may only remain to the hobbyist or elite as a premium vehicle. A minority amongst the autonomous masses.
Autonomous transportation is a long term but looming, major disruption. The race is on, and trailing incumbents may lose out on growing fleet sales, incur smaller margins due to autonomous software licensing and become increasingly obsolete in the marketplace.
2. On-Demand, Vehicle Sharing
Uber and the ‘uber-izaton’ of everything is a current buzz term, but the reality of the disruption cannot be denied. Service design disrupters are making their way into many markets including automotive, and some are predicting the end of product ownership. Vehicle sharing and on-demand vehicle services are real disrupters to OEMs. As new car buyers in urban areas start to decline, the prevalence of car sharing programs will only rise. Coupled with autonomous mobility, this new on-demand and subscription based market only predicts a future of declining personal vehicle ownership.
Not only will OEMs need to forge stronger partnerships with vehicle sharing programs, they will need to re-invent their fleet lines of business with optimized vehicles, marketing, sales and distribution of models that are more in line with this new market.
While fleet and commercial sales can currently be a large segment of OEM sales, this line of business is often segregated from the rest of the organization, with limited funds and resources to effectively innovate and prepare.
With disrupters like Uber pledging hundreds of thousands of autonomous vehicles by 2020, incumbent OEMs should be prepared with the appropriate investments in fleet design innovation, sales, distribution and partnerships with on-demand vehicle platforms. Even new brands such as Tesla are hinting at not just being a manufacturer but also a service provider to compete with sharing programs and ensure fleet vehicle sales.
3. Multi-Modal Transportation
In urban or suburban areas, model-modal transportation is an additional threat that compounds the autonomous and vehicle sharing disruptions with advancements in public transportation and integrated mobility service design.
By providing integrated transportation as-a-service via a subscription fee, commuters will have access to various modes of mobility including rail, light rail, bus, shared vehicles, autonomous vehicles and bicycles. Multi-modal transportation aims to solve the ‘last mile’ issue that currently plagues public transportation by providing a holistic approach to public transportation.
The evolution of this has begun with transportation services partnering with public transit and bicycle share programs. Autonomous vehicle fleets will be added to address the personalization that public transit is in desperate need of, and the perception towards personal vehicles in urban areas will continue to decline and politically, paths will be forged for these programs.
For incumbent OEMs, the importance of autonomous innovation, partnerships with sharing platforms and the ability to prepare for modern fleet sales becomes imperative.
4. Electric Drivetrains
Big oil’s influence over automotive and its inability to properly incubate electric vehicles has left the market place with a disruptor that has a strong brand, the momentum and the technical capability of offering a superior electric vehicle (EV) product at general consumer affordability.
In the coming years environmental and government regulatory pressures for carbon free transportation will require a serious focus on EVs. The cost of fossil fuels will rise as they become less accessible, and premium oil will decrease. Renewable energy generation and consumption will become more efficient, affordable and investment ready.
This is nothing new. Big auto has been responding with hybrids and electric vehicles for some time now, however, they have been moving at a surprisingly cautious pace during this transitional time. A pace that is similar to displaced leaders in other industries. This pace is leaving room for disruptors with technical superiority and elevated brand perceptions. Both of which will be difficult for lagging carmakers to catch up with.
Tesla just announced profits and no longer requires funding. It’s acquisition of Solarcity creates a potential for an end-to-end ecosystem of consumer based renewable energy generation and consumption. On top of this, Tesla is aiming for a clean sweep in all automotive pillars with product superiority — the safety ratings have literally broken the charts, and they have their eyes set on middle-class consumer affordability; a dangerous tri-fecta of superior product, brand and affordability.
Electric drive trains are an immediate threat due to the change in energy generation, fossil fuel costs and in-turn customer needs. Manufacturers are playing catch up in this area, but are at risk as far as brand perception, due to government regulations and consumers demanding carmakers to be proactively environmentally conscientious and ethically compliant.
The biggest threat may be the accumulation of all these factors on the perception towards vehicle ownership. These disruptions will be within an industry of incumbent brands that are historically accustomed to selling products to individual consumers. Carmakers will have to shift away from this business model towards business models that facilitate service based platforms, providing commodity based mobility via on-demand and subscription transportation to customers, businesses and municipalities.
From a cultural perspective, some incumbent carmakers may struggle with the identity crisis of displacing the tradition of brand strength, marketing and advertising of the personal vehicle to just being a cog or a commodity element supporting greater ‘service designed’ transportation platforms.
Vehicle Design
For the immediate future, brands need to focus increasingly on designing vehicles based around meeting future consumer needs via technical innovation and the highest quality. Emotive purchases based on style and performance will still be around for some time. However, for most consumers, the mindsets have been shifting towards the pillars of convenience, safety and efficiency.
Innovation and quality in these pillars will be key for OEM brands. In other industries, top brands are being recognized for a similar pillar structure — whether it be a capable smartphone with superior personal security or reliable home appliance with convenient abilities. These brands focus on consumer needs, innovation and product quality.
Product capabilities and quality will need to speak for brands rather than their marketing, advertising and brand rhetoric.
1. Technical Innovation
From a technical innovation standpoint, OEMs are realizing the risk and opportunity from external disruption and will need to increase partnerships and collaboration to spur innovation.
For example, carmakers are finally experimenting with 3rd party in-vehicle entertainment systems over obsolete proprietary technologies. As the landscape evolves with strong mobile platforms in place, carmakers will need to open their doors to partnerships, allowing for collaboration with other industries in the design and manufacturing business to ensure forward compatibility and integration of popular consumer mobility platforms and channels.
The “connected car” is a future channel that OEMs would like to rely on as a revenue stream in the future. However, most proprietary entertainment, navigation and connectivity systems lack the innovation, familiarity and ease of integration with popular consumer platforms. Securing a revenue stream in this new channel may already be a lost cause for carmakers due to the established mobility platforms and channels.
2. Product Line up and Consumer Choice
Incumbent car makers can take a cue from the new competition and other industries on the simplification of product line up. Carmakers have traditionally flooded consumers with multiple nameplates, model/trim lines ups and optional configurations in order to compete against, well… everyone in the market. If you were not a ‘gear head’ or heavy utility based user like most consumers, the choices are overwhelming and usually do not mean too much at the time of purchase.
From the vehicle design space, the immediate needs are to continue to align technical capabilities with changing customer demands as quick as possible through key partnerships. Simplify the product lineup, leverage core technical capability and obtain differentiation through emotive/cosmetic features and brand experience across the customer journey.
Marketing and The Customer Journey
Disruptions are occurring in the customer buying journey across all industries. The term ‘digital transformation’ came out of the realization that most incumbent’s businesses maintain legacy cultures, structures and systems, and this creates challenges and opportunities.
Disruptions in this space are more immediate and are occurring regardless if any of the predictions mentioned earlier in the article come to fruition or not. Legacy brands need to continually re-position themselves amongst new players in an evolving market place, where consumer experience expectations are on the rise, and status quo will not suffice.
In the case of automotive, digital transformation occurs in the marketing space and the path to purchase with digital experiences facilitating awareness, research and decision making for the consumer. Personalization and marketing automation is powering some of these experiences along the consumer journey albeit not holistically.
Brands now need to compete for positive customer perception and experience along the entire customer journey.
Current marketing strategies may not hold up against the continual disruptions coming from the commerce market and consumer expectations. Businesses need to align themselves with the consumer expectations that demand immediate, complete and seamless journeys across an eco-system that is constantly evolving with new touch points, channels and platforms.
This disruption is not just about leveraging new channels, mobile devices, beacons or any other new technology. It’s about how brands are perceived and quantified by consumers across all channels and touch points. Traditionally, this was achieved through marketing and advertisement, but now it’s through product innovation, thoughtful service design and customer experiences in an end-to-end, full lifecycle journey that meets and exceeds expectations.
“Customer Experience is the new marketing”
Steve Cannon, President & CEO of Mercedes-Benz USA
If customer experience and seamless experiences are now vital, are incumbent carmakers positioned well to address this shift in the market place?
There are two parts of this conversation; Experience as the Brand and in practice, Seamless Customer Journeys.
1. Experience as the Brand
Brands are now scrutinized for their corporate behavior and experiences across all consumer touch points, with a viral, persistent and real time prevalence. A brand is no longer solely defined by the products they sell, services they provide or advertising they deploy. It’s about ability to exceed customer expectations and meet customer needs, in totality, across brand experiences, services and behavior.
The idea of segregating corporate brand from marketing, product from services and sales from design should be a legacy mindset. Brands are required to holistically manage their corporate experience and behavior, internally and externally.
Apple has lead a charge on holistic corporate experience, with many other brands following suit, by attempting to control their experience in totality, from product design, marketing, sales and service — end to end in every channel, digital or otherwise.
In this holistic approach, the experience defines the brand for consumers.
From a corporate perspective, this approach provides the agility to pivot much more efficiently and effectively.
In automotive, Tesla is reaching this status by being able to tightly control their brand and experience. Not through advertising, as they do none from a traditional sense. Telsa is unique in automotive as it is one of the few that can control the customer journey, from awareness, to purchase, to service and to retention by going directly to consumers, by-passing dealer associations and traditional marketing structures. Telsa also focuses energy on the product rather than the marketing with an understanding of future consumer and societal needs.
As brands become judged more by the behavior they exemplify, experiences they provide, and the consistency in their language, it’s imperative that carmakers culturally restructure the internal fragmentation between lines of business to allow for holistic control of brand experiences. This would promote seamless customer journeys and consistent experiences.
2. Seamless Customer Journeys
It’s common for internal fragmentation within business to be reflected in external customer experiences. Aspects of digital transformation are about open systems and data, but they are also about the cultural and structural changes required to combat internal silos being externalized in a consumer experience.
Have you ever encountered a poor customer experience and could not fathom why the obviously correct experience is not presented? The cause is likely internal fragmentation of some sort, whether it is systems and data, or people and departments. Often businesses will blame budgets for poor experiences, but budgets are just a reflection of a business’s ability or inability to think creatively, iteratively and collaboratively towards common goals.
Typically, internal business rules, technical constraints, legacy business models and infrastructure usually conflict with modern customer experience expectations.
As digital transformation and the perception of ‘experience as the new marketing’ roles out across industries, businesses strive to make the internal adjustments required to provide consistent messaging and seamless customer journeys — without breaking the bank.
This transformation is not an easy one to make, and it can be costly to adapt legacy information technology systems. It can be disruptive from a cultural standpoint. But the cost of doing nothing is much greater as the eco-system and consumer continues to evolve and consume in a different way. The speed of this evolution may make it impossible for traditional business to keep pace without a fundamental change in mindset.
In marketing, managing brand messaging and perception and customer experience across touch points is already a difficult task for many businesses. Maintaining the consistency and quality in advertisement and marketing, digital and physical shopping experiences to post-purchase experiences, is getting arduous and difficult to navigate.
Omni-channel is turning Uber-channel as digital platforms, connectivity, purchase models and communication channels continue to innovate. Businesses now deal with new devices, social channels, touch points and changing customer behaviors. On top of this, consumers’ expectations are calling for continuity of brand and contextually relevant experiences across this evolving eco-system.
The rise of headless commerce, customer relationship, marketing automation and content managements systems are a direct response to the shifting landscape. These platforms attempt to provide a single source of truth for content, customers and contextual relevancy regardless of the device, channel or 3rd party system. These platforms are not a single answer — businesses will need to adapt culturally and organizationally in order to effectively leverage these platforms. Software does not save businesses. People save businesses.
In the automotive industry, OEMs that maintain traditional organizational structures will find this landscape increasingly difficult to compete in without structural reform, technical investments and innovations.
If we revisit the typical structure of an OEM, we see fragmentation between business areas and tiers; product design, marketing, sales and service. Often these business areas are maintained and supported by different internal groups, with competing budgets and executives. In addition, they are often supported by different internal IT groups and external marketing/digital agencies.
Managing the ‘experience as a brand’ in such as structure with evolving consumer expectations becomes increasingly difficult and creates the risk for new disruptors or more adaptable competition to fill.
If we align the automotive customer journey with the current organizational landscape of some OEMs, we see where the internal fragmentation is externalized in consumer experiences.
OEMs need to become more holistic in their approach of managing their brand experience across the customer journey, shifting from business silos into business structures for customer experience powered by design thinking and collaboration.
Holistic customer journeys require integrated consumer profiles, personalization and self-service tools that are unaffected by any internal fragmentation.
Customer data and personalization is a good example of where internal fragmentation is hindering good design thinking. Capturing data across all touch points for both explicit and implicit personalization tactics are vital for creating seamless, assistive and delightful experiences. However, often this precious data is segregated across the automotive tiers and lines of business, resulting in lost opportunity, and poor brand perception due to unintelligent consumer communication and disjointed experiences.
As consumers demand more self-service tools, seamless journeys and integrated experiences, the personalization platforms and tools will also need to become integrated, holistic, and intelligent organizationally-wide.
OEMs will need to break down internal fragmentation, leverage single points of truth for customer profiles to support holistic customer experiences, and present a cohesive brand experience across a full customer journey lifecycle.
Sales, Service and Retention
For over a century, the dealer franchising has been the primary way customers interact with and purchase vehicles from brands. Even the largest and relatively newest vehicle market, China, has adopted this age-old dealer model from the North America market.
This model is being tested against a rise in customer behavioral changes and experience expectations, thus exposing the lack of innovation and fragmentation between OEMs and their dealer associations.
Dealers Associations and even local state laws hold a lot of power and will be adamant about maintaining the current model. This will force OEMs to find integrated solutions with dealers in order to keep pace with new competitors.
While this may be an unfavorable opinion, the current franchise model appears to be holding OEMs back from innovating and simplifying the customer buying process due to the structural disconnect between brand and dealer experiences.
Dealers are beneficial in extending a brand’s reach, connecting with consumers, and differentiating the brands. However, sales and retention position of the automotive customer journey is often lagging in innovation and integrated experiences. This disconnect will leave OEMs open to disruption from direct-to-consumer competitors and/or new 3rd party automotive sales models.
OEMs are now just experimenting with selling, or at least reserving, vehicles online, but the ability to innovate rapidly is impeded by this fragmentation between OEMs and dealers. OEMs and dealer associations need to collaborate and innovate faster in order to stay relevant.
In some cases, OEMs are experimenting with entirely new brands in order to go direct to customers — by-pass any innovation stifling, due to dealer/OEM politics.
For the most part, automotive sales, service and retention aspects are left up to franchised brand dealers that largely maintain their own local marketing and, more importantly, purchase and post-purchase experiences. In this model, OEMs do not have the ability to control the experience as a brand or effectively provide seamless customer journeys.
Why do we need innovation in this space?
The following are contributing factors that are influencing changes in customer purchasing behavior and setting the stage for disruptors.
1. Customer Behavior
Ecommerce sales are forecasted to be $4.058 trillion in 2020, making up 14.6% of total retail spending. Brick and Mortar retailers, and dealers for that matter, have nothing to fear though. Physical store experiences will be a way for brands to differentiate and connect with consumers as the online space gets crowded. However, consumers are now accustom to the ease of online shopping.
Customers have long been performing their pre-purchase research online and, in some cases, by the time of purchase their knowledge can exceed that of a common sales person. Behaviors have also changed since having access to mobile devices and having the ability to browse, research, consider and purchase in micro-moments from wherever they are.
The customer expectations are for immediate, responsive and seamless tools and experiences across touch points; experiences that can traverse a 5-minute browsing session on a desktop, to a research session on the couch with a tablet and finally a transaction on a mobile device on the way to work. This sequential screening is not just across devices, but also across consumer locations and scenarios. Seventy-five percent of in-store shoppers are using their mobile device for research and pricing comparisons.
Self-service is another trend that conflicts with traditional dealer models. Due to the increase in immediacy of relevant information and tools, consumers are becoming more informed and able to perform self-service experiences.
All of these factors create a threat to the traditional dealer model, especially when dealer sales agents commonly have poor consumer perception. That said, it also creates an opportunity to re-imagine the dealerships of the future.
Dealerships in the future may resemble an Apple store or an experience showroom that fully complements and completes the customer journey. They can present exciting representations of the brand with integrated self-service tools that live in a seamless customer journey while interacting with customers through every touch point along the way.
In order to create these seamless experiences, OEMs will need to collaborate with dealers, define experience goals and governance, develop integrated marketing customer tools and experiences and, finally, work with dealers to adjust dealer perception and pricing models.
2. Dealer Perception and Pricing
It comes with no surprise that dealers themselves have acquired poor customer perception over the last several decades. Perception is a major hurdle for dealers and will only get worse over time, with more and more consumers looking to not have to haggle on prices, and be able to self-serve and transact on their own terms. The idea of actually finalizing a purchase of a vehicle is not something most consumers look forward to. The haggling, the features and options, the paper work, and hours spent at the dealership are considered a hassle.
“One of the biggest challenges is countering customer skepticism.”
Brad Miller, Honda of Seattle and Toyota of Seattle [source]
Dealers have bad reputations in sales as they are perceived as the middle man trying to squeeze as much margin out between the OEM and the consumers. Vehicle service is also an area where dealers receive unfavorable reviews and are commonly reported on by investigative news agencies for unethical tactics.
Because of this, disruptors are coming in and influencing this space by offering haggle-free and fixed prices for consumers. This cuts out or reshapes the way consumers interact with dealerships.
Due to the structure between franchised dealers and OEMs, the haggle-free, fixed price and self-service sales options are lofty goals to meet.
Dealerships and OEMs needs to break old paradigms, by beginning to collaborate more effectively, and examining examples of other brick and mortar retail spaces such as Apple, Microsoft and Amazon.
Putting product, quality and customer experience above all else, will elevate brands and change customer perception, causing increased engagement.
TL;DR
The ‘why’ of digital transformation is over, and most industries and business should be looking for the ‘what’ and ‘how’- striving for cultural change that is required in order to rapidly innovate and pivot.
The automotive industry, with its several legacy aspects, is poised for minor disruption in the short term, and profound disruptions in the longer term; from the immediate need to reorganize to support brand marketing experiences and seamless customer journeys — to the not so distant future, where adapting to a fundamental shift in how transportation is consumed will be imperative. There is a need for change from an industry with a legacy of strong brands that focus on marketing vehicles to consumers to a future that focuses on supporting a commodity industry of mobility as-a-service.
Nigel Hudson is a digital strategy and experience consultant based out of Toronto, Ontario, Canada. His thoughts are his own, and not necessarily those of his employer. Feel free to reach out to discuss this article or related themes around digital, experience and marketing.
Upcoming Articles
The following ideas are forming into future posts. They will be linked here if and when they are published.
- The State and Future of Mobile Applications
- Loyalty and Loyalty Disruptions
- The Uber-Channel
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