OEMs at the Crossroads Part 1 | Customer Intimacy and the Rise of the Agency Model
Written by Jason Craker on
Earlier this year, I delivered a keynote presentation at the Vehicle Electronics and Connected Services (VECS) conference in Gothenburg (and yes, it is possible to be honoured and terrified at the same time!). My talk included a few items I'd like to expand upon in this series of five short articles. Together, we can explore how the automotive industry might transition to a model that creates lasting relationships with multiple value exchanges. I believe this change isn't just desirable but crucial.
The automotive industry has reached a point of no return in terms of change. Political, economic, and environmental factors are propelling us forward whether we like it or not. Listen to discussions or read articles on the current state of the industry, and you'll find a few words crop up again and again: "upheaval, "disruption," "transformation". Scary words if you regard change as something to fear but energising if you view it as an opportunity.
In these articles, I'm going to look at what I believe are key factors for successfully navigating this tectonic shift in the automotive retail sector: transitioning to service-driven revenue, adopting new business models, and embracing a transformational leadership mindset. In this first article, I'm going to focus on the need to redefine the relationship between OEMs and their customers because I think it's a foundational change - and arguably the one OEMs are least equipped to pull off.
It's almost hard to believe that until relatively recently, there has been no direct relationship between car manufacturers and the people who drive their products off the forecourts. The downsides of this model are finally dawning on OEMs (thanks in no small part to the exhortations of the consulting firms who advise them). If they want to increase revenue and reduce the cost of sales, influence their customers and sell directly, and be data-driven, they must own the customer relationship.
That the "hands-off" dealer (or wholesale) model is being replaced by the "hands-on" agency (or direct sales) model isn't up for debate. The only discussion points are how quickly it'll happen, whether individual OEMs will make the transition, and how much market share they'll lose while they try to figure it out. The forces driving this change are many and complex, but in my mind, the overriding benefit for an OEM is increased understanding of and influence over the end customer. Simply put, if OEMs are to successfully transition from a short-term, transactional model with a single value exchange that occurs at the point of purchase to a long-term, "sticky" relationship with multiple value exchanges throughout, knowing what makes their customers tick is a prerequisite.
The Agency Model for Automotive
Understanding your customer requires effective data gathering and customer experience analysis, which, in turn, requires control and interpretation of the touchpoints at each stage of the customer journey. This is why I believe a transition from a dealer model to an agency model is a prerequisite for success in a service-driven world (and indeed for future business in the 21st Century).
Unfortunately, winning in this new competitive landscape isn't simply a matter of building a great digital interface. If only it were that simple! A car is a significant purchase, and as consumers, we value the human touch. My view is that success requires the combination of digital excellence with exceptional customer care to provide a seamless omnichannel experience. It's an opinion supported by Capgemini's 2020 report on the agency model. In a survey of 6,000 consumers aged 18 to 65 across six global markets, Capgemini found that 75% of respondents expected to make their next car purchase online; however, 92% also indicated that a human touchpoint was an essential part of the process. Only 25% wanted to buy a car without dealer involvement.
As with the changes we'll discuss in the following four articles, the shift from the dealer model to the agency model won't be easy. There are disparate stakeholders to persuade, regulatory and compliance challenges to navigate, organisational changes to be made, and new capabilities to be developed. It'll require skills and experience that OEMs don't necessarily have at present. They'll also need to adopt a different mindset and jettison some long-cherished beliefs, which will be even harder. However, I also believe it's a transformation they're capable of making if they take the time to build a vision and a plan, adopt a strategy of "try, learn, and adapt," and gather the right people to advise and help.
As I said at the start, I believe the automotive retail industry is at a pivotal point, perhaps the most significant in its history. The cost of failure to transform might be loss of market dominance or maybe even becoming irrelevant. And if you think that's overly dramatic, ask Nokia or Kodak or Blockbuster.
Catch up with the full series...
Part 2 | Who Wants to Own a Car?
Part 3 | Are Cars the New Smartphones?
Part 5 | How to Thrive in the New Normal
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