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Automotive retail goes digital

Anuj Monga, Team Leader, Aftermarket Research, and Neelam Barua, Industry Analyst, BSIG, in Frost & Sullivan’s Automotive & Transportation unit, discuss the new wave of digitisation in automotive retailing

Audi virtual reality experience 1

The automotive retail revolution can be attributed to productive use of advanced technology. Pictured: Audi virtual reality experience

The digital age has simplified the process of buying a car, allowing customers to research car models, compare prices, and even avoid the hassle of dealing with pushy car retailers. Today, all that is required is visiting a shopping centre and choosing your new car digitally as you shop for food, apparel and gadgets. In the future, buying a car at home using a virtual car showroom or remotely connecting to service centres and authorising repair work on your car is expected to become a reality. Car ownership has become a lifestyle element with a technology-assisted environment deriving brand awareness and experience involving customers at all phases of the digital cycle.

The disruptive influence of connectivity is changing the way business is being conducted in the automotive industry. High real-estate costs, expensive resources, global presence and the need for innovation to stay afloat have compelled many automotive dealerships to shrink store space and resort to digitisation for interaction with the customer. As the traditional bricks-and-mortar sales model gives way to a bricks-and-clicks sales model, automotive retailing is undergoing a revolution by offering an experiential-based approach at all levels of the customers’ journey toward a new car purchase.

Automotive retail revolution

Frost & Sullivan Automotive retail revolutionsThe automotive retail revolution can be attributed to the productive use of advanced technology, especially modern IT systems that bring together mobile platforms, computing power, and interactive solutions. OEMs and dealers are embracing the retail revolution by considering the cost of new technology as an investment, not as an expense. Global passenger car companies are being pushed to innovate and adopt a new retail model for the next generation of young car buyers. This is a generation that engages through collaborative consumption and targeted digital marketing campaigns.

Chart 1.1 indicates the new wave of digitisation in retailing, which has become a major consideration for all future retailing programmes in the automotive industry.

Emerging automotive retail formats

The most prominent automotive retailers run by dealership groups follow the traditional model of showcasing physical inventory. The majority of their sales activity takes place offline. For example, in the US, they are mostly owned and operated by an independent dealer group under the franchise model. In Europe, OEMs and independent businesses are owned and typically operated by an independent business or dealer group.

Frost & Sullivan Chart 1.2 Emerging automotive retail formatsThe upsurge of digitisation in automotive retailing led to new channels of retailing involving digital showrooms, online retail stores, virtual stores, and short-term stores called pop-up stores. Car companies are also using fashion merchandising and combining lifestyle elements into retailing globally. New business strategies amalgamating ‘bricks’ and ‘clicks’ allow OEMs to sell vehicles online and associate with the dealer network for order fulfilment. For example, Volvo Cars (controlled by Geely group), as part of its global marketing strategy, is planning to introduce online sales and increase its digital initiatives for its entire product line.

Chart 1.2 represents multiple emerging automotive retail formats and the shift focusing on in-store digitisation of existing showrooms to enhance the customer experience and improve the sales ratio.

Digital retailing becomes a megatrend

One of the key macro-to-micro implications of this megatrend is that dealerships will be digitised and interactive with a key focus on the customer. The current role of the salesman will change and become more of a facilitator, while sales force training will need to evolve to cater to the new generation. OEMs are expected to invest in a global integrated channel strategy and IT platform solution. Car retailers will have to look toward futuristic technologies such as augmented reality and gamification to effectively train dealership staff.Premium automotive OEMs are taking guidance from leaders in the consumer industry, especially in luxury (Burberry) and electronic retail (Apple), to understand the implications to their future retail strategies.

Audi in London, Beijing and Berlin; BMW in Paris; and Tesla in the US and European cities have consciously opened stores in high-traffic retail locations which provide opportunities to interact and educate potential customers in a less formal, more digitally experiential environment. Digital showrooms utilise state-of-the-art technology to deliver a variety of informative experiences in a relatively small space (400-500 square metres) – about one-third of a typical showroom space. The inviting showroom allows customers and enthusiasts to spend time creating, modifying and saving their car configurations to be revisited on PCs and tablets. A seamless experience across devices in connected stores integrates retail shopping into a continuous, measurable service experience. This is extended to after-sales, warranty, insurance, and finance aspects of retailing.

Aftermarket e-commerce boosts the value chain

Aftermarket retailing of parts and services is converging toward convenience and experience, which is evident from the growing worldwide popularity of purchasing parts online. The US and regions in Western Europe are some of the leading markets with high penetration of eCommerce in aftermarket retail. These markets have their own unique characteristics, visible from the success of mass eRetailers in some, and pure-play aftermarket retailers in others.

In terms of channels, eCommerce’s potential is being realised both in the B2B and B2C channels. OEMs also are now looking to leverage their established dealer networks in conjunction with the potential offered through eCommerce to expand their reach into the aftermarket.

Another key trend that could impact the future of aftermarket retail in a significant manner will be the growing penetration of connected cars, which has already fuelled the growth in solution providers. These solutions, like Delphi Connect, have real-time diagnostic capabilities further aimed at creating an end-to-end solution that will enable in-vehicle sales for retailers. General Motors in early 2015 showcased its prognostics features and also an in-vehicle sales platform for different retailers to sell their products on the go. Use of technology will be instrumental in shaping the purchasing pathway in the future, with the bricks-and-clicks model leading this change.

Digitisation will also be seen as a key enabler in transforming in-store retail with the use of technology at every step of the customers’ purchase pathway. From electronic labels and digital signage, which will help attract customers, use of gamification and augmented reality will entertain and assist customers in searching for the right product. On the other end of this pathway, self-ordering kiosks and mobile POS will enable easy check out, thereby making the shopping experience more convenient.

Conclusion

With the current state of franchise laws and trends, it is expected that more OEM-led, standalone digital formats will be in Europe, while digitisation within the existing franchise model will continue to dominate in North America. Soft digitisation technologies such as digital tools, signage, and kiosks will see strong growth in the short term, and thus 60-70% of new car sales leads are likely to be generated via a digital platform by 2020.

The advent of digitisation in car retailing has also led to the development and introduction of new performance indicators. Factors such as brand awareness, digital customer engagement, customer age, lead response time and vehicle configurability satisfaction will be of increasing importance in future digital retail formats.

Anuj Monga and Neelam Barua

This article appeared in the Q2 2015 issue of Automotive Megatrends Magazine. Follow this link to download the full issue.