IBM Global Business Services Automotive IndustryExecutive ReportIBM Institute for Business ValueTransforming retailEngaging customers through information, influencers and interactions
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IntroductionBy Kalman Gyimesi and Benjamin StanleyThe automotive retail landscape is in the midst ofrevolution. Confronted by consumers who demand highly personalized products and services,automakers must cast aside traditions more than a century old and pursue innovative new retailbusiness models. They must embrace the expectations of sophisticated consumers, enablecollaboration across a broader sales ecosystem and facilitate new revenue streams. To navigatethis changing marketplace, automakers can solve the retail puzzle by demonstrating excellenceacross four dimensions that can turn today’s discerning customer into tomorrow’s valuedadvocate.The automotive industry’s retail model is at a crossroads. Other consumer-focused industries have seen their businessHaving sold cars essentially the same way for more than a models upended as a result of the wealth of information andcentury – based on a carefully built brand image, on-road number of choices available to almost everyone today. Auto-performance, safety features and freedom of ownership – the makers must follow a similar path to that forged by suchindustry must now look to create differentiated offerings that industries as electronics and telecommunications, where use ofappeal to today’s digitally connected, sophisticated consumer. multiple technologies to research, compare and purchase products and services has created new opportunities forConsumers are now turning their attention to their mobility individualized offerings, new distribution channels andneeds and are expecting their cars to deliver the same capabili- profitable partnerships.ties and conveniences as their other smart “devices.” They areviewing their cars in the same light as their tablets and mobile Already many industries are changing how they reach out anddevices, which means they are not only looking for quality, safe, win over these consumers. The retail industry, for example, isreliable transportation, but are also beginning to view their customizing in-store shopping experiences, adding digitalvehicles as another extension of their digitally connected lives. distribution channels and providing a seamless segue from online browsing to brick-and-mortar purchasing.1 Other B2C enterprises, across almost every product category, are capturing information at every touch point to improve the consumer experience with their products and services.Connectivity and use of multiple technologies istransforming retail across a broad array of industries.
2 Transforming retailFor the automotive industry, the retail model in place is nearly Automotive executives are keenly aware of how their customersthe same as when the first Model T rolled off the assembly line are changing. In a recent IBM Institute for Business Valuemore than a century ago. From the beginning of mass manu- survey of more than 100 automotive executives, customerfacturing, cars have been targeted to generalized market management was cited as the part of the automotive valuesegments based on performance, appearance, reliability, safety chain that will change the most over the next decade.2 Overall,and price. To capitalize on today’s new generation of 67 percent of the executives we surveyed recognize thatconsumers, however, the industry must become more creative substantial changes are ahead in automotive retail. Thesein how it introduces new products, develops services and executives recognize that, with all of the new ways to interactengages with its customers. Automakers, their partners and with customers across the commerce cycle, rethinkingsuppliers recognize that traditional methods of selling and customer management will be the most important ingredientpromoting their products must give way to the mandates of the to developing new retail models.digital age. In just a few years, the industry has begun movingfrom limited, infrequent transactions with customers to a One of the key ingredients to developing stronger, ongoingrapidly developing network of information and interactions customer relationships is the integration of data from thosethat enables automotive companies to know and understand activities that generate the most frequent customer interactionbuying preferences and habits in new ways (see Figure 1). (see figure 2). Historical customer touch points New touch points that enable greater customer understanding Search optimization Social networking Mobility services E-mail/text In V Viral marketing e n eh Onli Portals Connected icle Retail services Blogs/user Purchase Finance communities History packaging Retail Warranty Service history historySource: IBM Institute for Business Value.Figure 1: Automakers are increasingly using online tools, vehicle connectivity and mobility services to connect with customers.
IBM Global Business Services 3 What will be the most valuable aspects of integrated customer information? Vehicle service history 82% • Data is important but is Vehicle purchase history 73% semi-annual or less frequent • Touch points with customers are Finance/profitability history 61% transactional and not interactive Mobility service usage patterns 54% • Data is weekly to dailyOther online/social media interaction 52% • Touch points with customer are Connected vehicle usage patterns 52% frequent • Enables relationships through Call center interactions 49% ongoing engagement with OEM website interactions 44% customers, deeper insights to their needs and marketplace patternsSource: Transforming Retail Survey (n=110), 2011.Figure 2: Stronger, ongoing partnerships with customers require greater investment in developing and integrating data from the activities thatoccur most often.The extent to which this data is used and shared differentiates To capitalize on the opportunities presented by today’soutperforming organizations from others. In the 2011 IBM hyper-connected, empowered consumers and the vast amountGlobal Chief Marketing Officer Study, outperformers of customer information this connectedness provides them,indicated they apply customer data extensively in every aspect automakers must solve the retail puzzle by demonstratingof the customer lifecycle.3 While enhancing customer loyalty innovation and excellence across four dimensions: Disruptiveand advocacy is the highest priority for automakers, their Differentiation, Connected Experience, Social Reach andapplication of data is lowest across the “usage” and “advocacy” Channel Transparency (see Figure 3).customer lifecycle phases.4
4 Transforming retail What to buy? How to buy? Disruptive Differentiation Social Reach Accelerate Engage development of customers through differentiating offerings social innovation Connected Experience Transparent Channels Capitalize on Enable opportunities to new channels for product, ensure loyalty services and revenueSources: IBM Institute for Business Value.Figure 3: Transforming the retail puzzle requires excellence across four dimensions to turn today’s consumers into valued customers.Disruptive DifferentiationThe path to successful retail starts with outstanding products. Study methodologyFresh new vehicles, electronics, connectivity and services are Quantitative data for this study was obtained through ancoming to the market at an ever-increasing pace. The potential online survey of 110 automotive industry executives in 18exists for the industry to consolidate these trends and create countries. Of these responses, 38 percent were from OEMsnew offerings that disrupt the status quo through innovation and 20 percent from dealers, with the rest of the responsesthat changes the market and even creates new value or markets. representing executives across suppliers, captive finance organizations, solution providers and others.Product development, in fact, trailed only customer manage- Additionally, follow-up interviews were conducted with ament in the assessment of executives in our survey of what number of these industry leaders. We also used data fromaspect of the automotive value chain will change most over the the IBM Global Chief Marketing Officer Study, in which 70next decade. And automotive CEOs interviewed for the IBM senior marketing executives from the automotive industry2010 Global Chief Executive Officer Study said they expect were interviewed, to corroborate and amplify our findings.5new or different products and services will be their leadingresponses to changing customer expectations over the next fiveyears.6 Automakers are already acting in this regard. In apresentation at an automotive conference earlier this year, onemanufacturer indicated it is pushing for 20 new productintroductions over the next 24 months.7 “We need a customer-centric mindset. We must commit more time to incorporating the “voice of the customer” into our offerings.” President, Automotive OEM, Japan
IBM Global Business Services 5While a vibrant vehicle pipeline has been a core competency Automakers will also need to think beyond the vehicle andfor automakers for decades, the industry is now recognizing offer mobility services that address traffic congestion, providethat products themselves account for only half the picture in integration with other relevant transportation modes andattracting and retaining new customers. New services that decrease the cost of ownership.appeal to today’s connected consumer are also critical. Nearlyseven of ten automotive CEOs said new or different services Capitalizing on personalizationwill be the biggest area of customer demand over the next few In today’s connected society, where consumers are openlyyears.8 vocal about their individual likes and dislikes, differentiation usually means personalization.To respond to these changing customer expectations, auto-makers will need to bring offerings that supplement traditional Personalization can be considered across two dimensions: thevehicle buying options. (see Figure 4). These include such physical vehicle itself and the electronic customization ofofferings as highly efficient vehicles that are economical and everything in it. OEMs make a strategic determination abouteco-friendly. In addition, embedded and connected services how to offer physical customization through more build-to-that offer many opportunities to respond to desires for greater order options, dealer customization or by simply leaving it topersonalization, safety and driver assistance may have the others in the aftermarket. Electronic customization is enabledpotential to be disruptive offerings. Rate the change in vehicle buying criteria Between 2008 to 2020 Increase Fuel efficiency 170% Eco-friendly 160% Traffic congestion 105% Personalization 101% Safety 96% Alternate transport modes 95% Cost of ownership 89% Traditional buying criteria Reliability Increasingly important Still important, but expected Brand Products and services must rather than the basis for respond to these growing differentiation Price concerns to attractSources: IBM Institute for Business Value. customersFigure 4: Traditional buying factors are still important, but new criteria are emerging as the basis for consumer decisions about vehicles.
6 Transforming retailby providing customers with the ability to control various Finding and capitalizing on customer touch points should be avehicle features from any location though software and apps. benefit of enabling new vehicle features, regardless of whetherFor example, many manufacturers provide a remote vehicle they are proprietary or open. Through continuously collectingstart through the key fob; however, on very cold or hot days data about customers and their vehicle usage, automakers canthis will not help the vehicle be more comfortable unless the target specific solutions to individual preferences. Ultimately,climate controls are set properly. A more personalized solution OEMs can build customer reliance upon a particular methodwould offer access to the entire climate system through a smart of electronic control and create customer “stickiness” to thephone. Climate and vehicle adjustments could be made products and services of their specific brands.remotely, removing the need to preset the vehicle manually. Componentizing and repackaging the right products andElectronics can be further personalized by offering various services into compelling offerings will afford automakersinterfaces, or “skins,” that appeal to different target audiences. flexibility in both pricing and selling their products to diverseThe virtual interfaces for highly connected young adults might audiences. Packages can be tailored for differentiationlook very different than interfaces to more selectively according to individual needs, climate, parking location or,connected seniors. Reducing electronic components to their even, the needs of additional passengers. Vehicles can also bebasic building blocks will allow them to be creatively bundled componentized according to generational needs (see sidebar,and packaged for various demographic groups. “Complex multi-generational families”).While build-to-order remains within the direct control of Differentiating for successautomakers, electronic customization is likely to become a Vehicles have become increasingly difficult to differentiatebattleground between OEMs and third parties – such as from the similar offerings of competitors. The acceleration oftelecommunications and media and entertainment companies development of fresh vehicles, products and services that– that are already far along the personalized electronics disrupt the current value expectations of customers giveslearning curve. automakers the opportunity to break away from this paradigm.To influence that segment of electronics customization beyond Differentiate the platformtheir direct control, OEMs must work with selected partners to Determine the best opportunities to differentiate product andimplement open-standard vehicle enhancements and conve- service offerings physically, electronically and virtually. Theniences. They should not waste resources trying to control extent of physical customization offered through the design offeatures that are easily supplied by others, but, instead, focus the vehicle is a strategic choice. It can be offered eitheron enabling and amplifying these capabilities to the best through online configurators, pushing toward build-to-orderadvantage of their product offerings. sales models or through dealer-driven personalization. However, electronic personalization will be a necessity to effectively compete in the future. Strategically, automakers must separate the electronic personalization they can control from what can best be left open to external innovation.
IBM Global Business Services 7Create the building blocks Package to the audienceEvery aspect of the vehicle and the interaction with it is being Automakers have long excelled at packaging physical vehicleelectrified. Automakers should aggressively incorporate features into bundles. Electronic components can be treated inelectronic components and enable control through remote similar fashion. However, electronic components provide muchapps. Even previously obscure aspects of personal comfort greater flexibility into how they are bundled based on indi-should be fully electrified and available for customization. By vidual preferences, demographics or geographic locations. Thisreducing these features to their core building blocks, they can provides a new differentiating capability of appeal to allthen be packaged and positioned according to diverse needs relevant audiences and the ability to sell and price flexibly.of customers based on their preferences, geography andvehicle use.Complex multi-generational familiesCould automakers more effectively help extended families Seniors are the fastest growing demographic on the Internet,single-source their transportation needs across generations? but are likely to be more selectively connected in their vehicles. They will want easy and simplified access toAuto companies have long understood and targeted their navigation, driver assistance and vehicle service. Theirvehicles at specific demographic groups. Young adults often families will be interested in safety, security and locationlook for basic entry-level vehicles. Growing families require tracking.larger, more spacious cars to move their children. Finally,after the children grow up, active seniors refocus on smaller, Often the middle generation exerts significant influence incomfortable vehicles. helping both their children and parents select vehicles and services. Connectivity and electronic personalization canThe right vehicles also have to be coupled with the right help tie the generations together into interconnected,mobility services. Young people are often more urban and collaborative families. As their families grow, they will wanthave less discretionary spending. They need access to electronics that are portable across different vehicles andpublic transit. At the same time, growing families may need will be interested in infotainment and information services.occasional access to different types of cars from their Their mobility service needs would entail occasional accessprimary vehicles. to a variety of vehicles for many uses, such as a van or SUVYoung adults are already highly connected and will welcome for family highway trips, or a small sports car or hybrid forthe ability to select the electronic “skin” to their vehicles. longer one-or-two-person trips.They will want to extensively configure electronics. Parents If automakers can reduce electronic capabilities down towill be concerned about safe driving and usage of social their components, they can then be reassembled intomedia in cars for their children, as well as proactive vehicle packages that appeal to various demographic groups andmaintenance alerting. The younger generation may also need managed across interconnected collaborative families. Byto have occasional access to vehicles while traveling or considering how to bundle offerings to whole family units,away at college. automakers have the potential to develop lifelong customer advocates.
8 Transforming retailConnected experience Capitalizing on the wants and needs of today’s empowered consumer requires providing individuals with a Connected Experience (see Figure 5). Connected vehicles open endless“C ty.” options for new services, such as speech recognition, driver- focused instrument clustering and attention monitoringVice President, marketing, global automotive manufacturer systems. While these features offer automakers the opportunity to generate revenue, they also create daily touch points for automakers with their customers and offer the potential to create customer loyalty. Rate the importance of each aspect of connected Automakers and dealers jointly recognize the vehicle services potential to connect with their customers Navigation advice 68% (routing/alternatives, parking...) 76% Vehicle service 60% Safety and Multimedia/ (prognostics, diagnosis) security entertainment 81% Infotainment 56% Intelligent Traffic and (Music, movies, other content) driving navigation 65% Vehicle service Information Mobility services 43% and health services 53% Mobility Mobility commerce 32% Revenue commerce Productivity (paying for things in vehicles) Loyalty 42% Loyalty, OEM and dealersSources: IBM Institute for Business Value.Figure 5: Connected vehicles bring new revenue opportunities to how vehicles are used, but provide even greater utility for winningcustomer loyalty.
IBM Global Business Services 9The spectrum of connected servicesVast opportunities are available for automakers to serve Automakers should focus on enabling and amplifyingdrivers and passengers through connected vehicles. With connected services that customers will likely bring intothe rise of smart devices, it’s inevitable that customers will vehicles. For example, they can allow easy access to powerbring these devices into their vehicles and want to use them sources and recharging from every seat in the vehicle.to enhance their experience as they are moving about. “Dumb screens” that enhance display and content viewingAutomakers must consider what aspects of telematics and to passengers through their devices can be added. Signalvehicle connectivity they will be able to differentiate boosters can be embedded in vehicles to detect andthemselves with and what will be ultimately co-opted by increase wireless reception. OEMs must resist trying tothird parties. compete for content with smart device providers, which have greater resources and more sophisticated solutions. Instead,Additionally, they will have to decide where to concentrate they should pick the elements of the connected spectrumlimited IT resources to compete across a spectrum of where they can provide differentiated offerings.connected vehicle services. Safety, security, vehicle serviceand mobility between vehicles may be areas that OEMs candifferentiate. Services such as infotainment and informationservice will likely be more challenging (see Figure 6). Closely controlled Potentially open Safety and Intelligent Vehicle Mobility Productivity Information Traffic and Multimedia/ security driving service and commerce services navigation entertainment health Controlled by automakers Control point Battleground for revenueSources: IBM Institute of Business Value.Figure 6: Automakers must consider what aspects of vehicle connectivity can be opened to third parties and how to best control revenue.
10 Transforming retailThe rapid growth of vehicle and device connectivity provides Automakers then can provide solutions to seamlessly move agreater opportunities to link customers to products and customer’s persona between any of its vehicles to make theservices for long-term relationships. For example, by 2016 in experience uniform. Vehicle interchangeability allows auto-the United States, there are expected to be 150 million in-car makers to sell the appeal of the entire brand and vehicleInternet users and 30 million Internet radio users. More than portfolio to all customers rather than just focusing on indi-210 million connected cars are expected to be sold in mature vidual models.markets. Application usage will accelerate 40 fold, with morethan 129 million users of smartphone applications in cars.9 Ultimately, integrating vehicles with other modes of transpor- tation allows automakers to sell mobility as a subscriptionThese projections are in line with what we learned from the service across transportation modes. As urbanization continues2011 IBM Global Chief Marketing Officer Study. In that study, its multi-decade transformation of population centers, the64 percent of automotive marketing officers told us that ability to move between modes easily will be a key componentenhancing customer loyalty and advocacy was their highest to ensure that cars remain relevant and retain their place in thepriority as they begin enabling digital technologies. That transportation mix.jumped even higher to 70 percent when considering CMOsfrom just automotive OEMs.10 Connectivity also provides the opportunity to delight customers by changing the service equation. Very few customerAll members of the automotive value chain should recognize experiences with their vehicles are as unpleasant as havingthe potential to connect with customers. To accomplish this, them serviced. The Connected Experience offers an opportu-gathering and sharing the increasing amount of customer data nity for remote service of vehicles and less direct maintenance.available across the value chain is essential if OEMs, dealersand other partners are to understand and be able to meet the Capitalizing on connectionchanging demands of today’s consumers. Automakers should take every opportunity to use vehicle connectivity to link customers to products and services.Connectivity making a differenceOne of the inevitable byproducts of connectivity may be the Connect for loyaltyinterchangeability of vehicles. Enabling a single persona across Connected vehicles present the best opportunity for auto-a vehicle portfolio differentiates from feature, function and makers to interact with their customers every time they useprice comparisons of models with competitors. Customers their car. They can use this information to developed personal-could personalize on several parameters, including: ized solutions and enhance customer loyalty by making it difficult or inconvenient for them to switch brands. The most• Vehicle settings and adjustments valuable connected features are those that help drivers get• Customization of the layout and information presented on the where they are going most efficiently and keep them informed dashboard about their trip and their vehicle. Ultimately, this gives• Music, media and other content automakers the opportunity to focus on customer trust and• Calendar and business applications loyalty. Trust drives advocacy, which, in turn, drives customer• Navigation and routing through varying parameters. spend.11 Concentrate on loyalty and the revenue will come.
IBM Global Business Services 11Focus on opportunity Despite this unpreparedness, both OEMs and dealers mustThere are many opportunities for connected services from learn to engage customers and prospects through social mediawhich third parties can be excluded, such as safety, vehicle and other channels. Social engagement and conversations areservice, remote control of vehicle parameters and full porta- increasingly differentiating the most successful automotivebility of a personalized electronics profile between vehicles. offerings and reinforcing that consumers still have an ongoingInvest and protect connected applications that cannot be easily passion for automobiles and their brands. In fact, OEMs andreplicated by third parties or competitors. Automakers have dealers are generally aligned in the role social media plays inlimited IT resources, which should be concentrated on their businesses (see Figure 7). The only real point of discon-providing exciting solutions in areas others cannot reach. nection our interviews revealed is that dealers would like to be more aware and engaged in OEM social media initiatives.Integrate and amplifyConnected vehicles provide numerous opportunities. In areassuch as infotainment, productivity, e-mail or social mediausage, it will be difficult for automakers to compete with other Rate the benefits of social media/business activitysolution providers. Instead, they should partner with for automakerscompanies adept at these types of services, such as telecommu- Understanding public perception 85%nications providers. OEMs should accommodate devices that of company and brands 91%drivers and passengers bring into vehicles and improve their 80%experience while there. Focus should be on inexpensive Building brand image and loyalty 91%enablers, such as easy access to power, simple screens for device Building overall corporate image 78%connection and signal boosters to improve reception. and reputation 86% Understanding new industry 63%Social Reach developments 59%Social media is booming and is no longer the exclusive domainof the younger generation. Yet, 62 percent of automotive Chief Generating sales leads 53%Marketing Officers indicated social media is the factor for 64%which they are least prepared to address.12 Though both Communication with 40% business partnersOEMs and dealers recognize the value of social media in their 55%businesses, they are still learning how to use it effectively. OEMs Dealers Sources: IBM Institute for Business Value. Figure 7: Dealers and OEMs are aligned in many ways in the role of“Until recently, we didn’t realize how powerful the social media in their businesses.impact of social media is in our marketing success.”CMO, European automotive trading company
12 Transforming retailConsumers are increasingly focused on their mobile devices. segments, as well as sending these messages to the mediaThese devices have now grown to 23 percent of their time individual consumers prefer. Perhaps that’s why 63 percent ofspent on media.13 Yet, mobile still accounts for only 1 percent automotive CEOs identify creativity as the top leadershipof total advertising spend. Conversely, the time they spend quality needed in their organizations over the next five years.15engaged in traditional print media has plummeted to 6 percent,but organizations still invest nearly a third of their total Collective Intelligence: Listening toadvertising budget in print. the crowd The traditional automotive sales model has, historically,Why the disconnect? Part of the reason is that digital adver- consisted of a close, albeit tumultuous, working relationshiptising is still maturing, and approaches need to be developed between OEMs and dealers. In today’s world, that relationshipthat will reach consumers in a manner they will accept. Unlike must not only be strengthened, it must be expanded to includetelevision or print, for example, saturating devices with mobile partners, customers and others across the extended automotiveadvertising is counterproductive. Such an approach only ecosystem.alienates the target audience, ensuring that relevant messagesare ignored, or worse, result in a backlash. Even so, automakers The rapid rise of the social technologies is increasing theare looking to expand the use of these technologies over the ability of companies to tap into Collective Intelligence – thenext three to five years. Eighty-eight percent of automotive distributed knowledge and expertise of individuals locatedCMOs plan to increase their use of social media, and 82 inside and outside the formal boundaries of the enterprise.percent are looking to grow their deployment of mobile Applying this knowledge can deliver tangible benefits inapplications.14 developing new products and services, sharing best practices, distributing work in new, innovative ways and predicting futureEven the most traditional marketing executives admit that new, events.16digital tools will become the primary means for engagement incoming years. Unlike more traditional media, the consumer is For the automotive industry in particular, this requires OEMsin almost complete control of what he or she receives or to effectively engage the public with tactics that creatively drawrejects. More than ever, automotive marketing and communi- attention to their respective brands and vehicles, such as video,cations professionals will need to be highly creative in selecting promotions, contests and games. Dealers can provide localthe right messages for the right highly targeted market context and action to pull in those customers who connect to the OEM. Understanding the customer’s practices with social media gives OEMs, dealers, suppliers and other business partners direction on which initiatives to employ, to whom and through which media.More than ever, automakers and dealers will need tomake sure they have selected the right messages, targetedto the right audiences, through the right media.
IBM Global Business Services 13Finally, engagement by all parties through public listening Influence customers through engagementprovides the opportunity to capture and sort customer data Automotive executives need to engage customers through theand respond rapidly with relevant content. Listening to the vast reaches of social conversation by synthesizing and drivingpublic requires sophisticated automated sorting and analytics the discussion. The must become key influencers in theengines that help automakers and dealers find the most customer decision making process through active participationmeaningful social media opportunities. There have to be in social networks.effective processes to not only find effective engagementopportunities with customers, but also to subsequently engage Align your ecosystemthem with speed. Aligning employees, dealerships and other partners as active collaborators in social business is essential for effectiveTo capitalize on the intelligence to be gleaned from social customer engagement. Everyone matters, so finding new waysconversation, both OEMs and dealers must be able to to bring innovation and creativity forward is critical to creatingovercome respective organizational obstacles. They must work the disruptive differentiation needed to succeed. By elevatingcollectively to gather and assimilate marketplace intelligence collaboration, sharing of ideas and seamless interactionthrough social collaboration (see Figure 8.) through social networks, your people and partners can connect to customers to learn what they “really” want.To capitalize on intelligence to be gleaned from social conversation, both OEMs and dealers must beable to overcome respective organizational obstacles. OEM Integrate into workflow Dealers as well as culture Address sources Commit to take of resistance and action based objections on results Operational objections: Address sources Integrate workflow: Integrate Collective Commit to act: Act on what is discovered, of resistance, including operational Intelligence efforts directly into the work communicating value and outcomes to challenges, conflict with existing charters, environment, both technologically and both the organization and the individual perceived loss of control and shifting roles culturally and responsibilitiesSource: IBV Collective Intelligence: Capitalizing on the crowd, 2011.Figure 8: OEMs and dealers must collectively work to gather and assimilate marketplace intelligence through social collaboration.
14 Transforming retailListen widely and engage quickly Transparent ChannelsDeveloping sophisticated listening engines and rapid engage-ment processes will facilitate learning about customers and Innovating new channelsidentifying new opportunities. Listening and engaging in social While the priority for automakers will remain on sellingconversations provides better insight to sentiments about your vehicles through dealerships, many new products and servicesbrand and opportunities to influence those perceptions. with revenue-growth potential will face intense competitionEmployees can serve as brand ambassadors, engaging potential outside the industry and be sold through multiple channels.prospects and turning them into revenue-generatingcustomers. Dealers are a critical component to extending social More vehicle products and services will be available virtually.reach as they own the local face-to-face connection with This opens the door for OEMs to initiate direct consumercustomers. contact through a variety of digital channels. Just two years ago, less than a third of automotive CEOs indicated theyMove beyond the obvious expected to develop new sales channels.17 Today, many newAdvance social media outreach by exploring emerging, channels for products and services are already in place andgrowing tools and platforms that stretch beyond the “Big more are coming at a rapid pace. Automakers will have toThree” of Facebook, Twitter and YouTube. Engaging and determine which third-party channels best help their growth,connecting customers to brands through social sites further which channels they will develop themselves and whether someenables unique customized experiences with specific products channels present a challenge to their primary business. (seeand services. Creating these social connections across products, Figure 9.)the ecosystem and customer networks also drives new innova-tions and business models discussions. Simply listening to the Overall, OEMs will need to develop a multi-channel strategycustomer is not enough. Customers want to engage and have as growth opportunities emerge from a number of newinput into new products and services. A social business directions. They will have to develop their own direct channelsconnected to social and product networks is highly advanta- and engage new partners. In the process, they will be chal-geous in truly knowing and wowing customers. lenged by others outside the traditional industry. Media and Entertainment companies and telcommunications companies already have significant advantages with connected services and apps. Independent retailers will challenge for all types of products and services. Conventional banks will compete with captive finance companies for both loans and financing dealer“Transforming sales channels and providing low-cost floor space.products are particularly critical in rapidly developingcountries.”CEO, Japanese OEM
IBM Global Business Services 15What channels might sell the following automotive products or services by 2020?Channel/product selected by more than 50 percent of executives Competitive focus will be virtual OEMs develop new opportunities for sales of connected product offerings Traditional focus is physical100% Dealerships continue to dominate Products and services that can be traditional vehicle sales and service distributed virtually will have competition from many channels75%50% ICE vehicles Service, Electric Financial In-vehicle Mobility Vehicle apps warranty, vehicles products connectivity services repair OEM direct Authorized dealership Independent retailer Telecom provider Source: IBM Transform Retail Survey/Interviews (n=110), 2011.Figure 9: New sales channels are developing and competing for products and services that can be sold virtually. Dealers remain traditional while seeking everything from comparative research on vehicles, to configu- ration, financing and price negotiations. Dealers are also new opportunities challenged to keep the customer’s business after the vehicle is Dealerships have been consolidating into larger dealer groups no longer under warranty. Customers traditionally move for some time. Since the economic crisis, this trend has been rapidly away from dealer service to less expensive alternative accelerating and, according to half the executives in our most options. recent survey, will continue to do so over the next several years. Larger dealership groups will have greater resources and Where does this leave dealers? Dealerships, like OEMs, will investment capability to devote to effective, coordinated digital have to work to redefine their value proposition to customers. marketing strategies, including greater use of social campaigns, They should be exploring mobility services, where they can tablets and mobile devices. While dealerships remain the key become a hub for moving customers to various types of channel for the traditional sale and service of new vehicles, vehicles and helping to establish more hubs across their local third-party buying sites are emerging that help consumers with area. They can also help customers enable peer-to-peer
16 Transforming retailtransactions for sharing everything from their vehicles, to rides, These can be summarized into three general categories ofto parking. Dealers might also lead the way in offering vehicle revenue innovation:customizations and accessories, as well as providing rapid-charging services for electric vehicles. • Pricing innovation, focusing on new ways to charge for your product, in terms of both the amount of money charged andFurthermore, service can become a competitive advantage for the point(s) in time when the customer is required to pay.dealers. For example, connected diagnostics and prognostics, Examples can include selling components by parts or creativewhich are not easily replicated by third parties, can simplify the bundling.service effort. As well, innovative dealers have begun using • Payer innovation, focusing on finding customers who are notservice visits as an unsolicited sales channel to move customers ultimately the consumers of the product or altering who paysto new vehicles. for a given good or service. Examples can include advertising- supported offerings or social networking-based communities.Revenue innovation can be its own • Package innovation, focusing on new ways to expand productchannel or brand value to different customer behaviors and segmentsCustomers are increasingly supplementing their vehicle or new ways of offering the product to the customer.experience with virtual products. More automotive customers Examples can include demographic-based packaging andwill look for connected services and opportunities to integrate brand extensions.their smart phones into their vehicles through apps. Also, theywill look more for mobility services that consolidate their Other industries, such as media and telecommunications, havetransportation costs and help them figure out how best to been aggressively experimenting with revenue innovation inmove around regardless of mode. Automotive companies can recent years. Their business models have been upended byoffer mobility services to capture more of the spend that is such trends as ubiquitous low-cost communications, rapidcurrently fragmented across many providers. technological innovation, nearly unlimited low-cost bandwidth, real-time data processing power and the expectations forAs automakers offer more of these services, an opportunity will personalization and control by users. These trends are almostarise to innovate the management of revenue as a channel in certain to extend into connected vehicles.itself. Conventional subscription models are not the only waysto generate revenue. Several strategies will be needed to Linking to build customer connectionsprovide customers with choice and flexibility in virtual As more products extend into the virtual world and can beproducts. configured in a variety of ways, consumers will expect to discover new products through their Connected Experience, regardless of the device. Automakers must develop online and mobile experiences that link customers to new products and services. Developing the virtual channel increasingly involves OEMs and puts them in a stronger position to build individual customer relationships.
IBM Global Business Services 17Watch the dealer landscape Automakers, their dealers and partners must understand theseAs dealerships consolidate and get bigger, they have the customer wants and provide flexible, personalized, packagedopportunity to be stronger business-to-business partners as and componentized products and services. Connectivity givesthey’re able to better match investment. Dealerships are also automakers, dealers, suppliers and partners a wealth of infor-resetting their value proposition to customers as more online mation they can use to learn about their customers. Along withoptions marginalize their customer connections. Dealers and this comes the opportunity to create direct, personal relation-OEMs can find new opportunities to collaborate through ships with individual customers and the ability to bettermulti-tiered social media campaigns and enable mobility position the brand, as well as products and services.services and vehicle services through this connectivity. AuthorsCreate paths to new revenue Kalman Gyimesi is an Associate Partner with IBM GlobalAs more products in and about vehicles become electronic and Services and is the Industrial Practice Leader within theare virtually consumed, there is new potential for automakers Institute for Business Value. He has over 20 years of experienceto deploy a number of revenue innovation strategies. Develop in industry and consulting, where he has led the implementa-opportunities to deploy pricing, payer and package innovation tion of business solutions to difficult problems. He has workedwith apps, as well as with connected and mobility services on business strategy and technology deployment with bothmodels. Examples of success and failure are increasingly automotive OEMs and suppliers. He can be reached atdocumented across the media and entertainment industry, firstname.lastname@example.org has seen its long-standing business models affected byubiquitous connectivity. Revenue innovation can become its Benjamin Stanley is an Associate Partner with IBM Globalown channel for revenue. Services. He is a subject matter expert in strategy and emerging markets. He is also the Automotive Industry Leader for theConclusion China Global Delivery Center. He has over 35 years ofThe revolution initiated by the empowered consumer has consulting and industry experience in the automotive industry,caused numerous companies to revisit their business models. including strategy, product engineering, supply chain, organi-Starting with industries like telecommunications and media zational transformation and emerging markets. Mr. Stanleyand entertainment, this transformation is now altering the uses his background and experience to develop insights andautomotive retail landscape at a frenetic pace. It’s time for direction with innovative business solutions for global automo-automakers, their dealers and partners to step up. No longer tive clients. He can be reached at email@example.com products and services targeted for the masses create thedifferentiation needed to build brand advocacy. Today’sconnected and empowered consumers expect to be servedaccording to their individual preferences.