The new digital consumer – Who dares wins

The new digital consumer –

Who dares wins Jerry Berowne is Principal of FF2, a strategic research consultancy.

ONLINE IS INTEGRAL

Online research is now an integral part of buying a car for consumers. Almost all new car buyers use online resources, and the purchase journey begins online for about two thirds of Australian buyers. Also, internet research and third-party comparison sites are ranked as the highest influences in getting ‘other brands’ (additional to their initial choice) onto consumers’ consideration lists. Consumers often arrive at dealerships with printouts from their online research. So digital influence continues to increase. FULLY ONLINE PURCHASING?

Will consumers ever move to buying cars online? That is, with the whole transaction conducted online and without time spent in the dealership? Our research indicates that 16% of new car buyers say they ‘definitely would’ be likely to purchase a car online without going to the dealership. Other surveys indicate that up to 25-30% of people would be comfortable with a fully online purchase. Really? Rather than taking such figures literally, maybe we should consider them indicative of consumer interest. The McKinsey Centre for Future Mobility estimates that ‘the new-car purchase journeys will shift to 10–25% digital from 0% today, with used cars increasing to 25% digital from around 6% today’. CONSUMER QUESTIONS

Would you purchase a car entirely online? Without seeing and feeling the car in real life? If I ask myself that question the answer is a resounding: No way! I want to compare the feel of the internal space in different vehicles (‘Is it big enough for my family and what we do?’). I want to feel the finish; haptics for you car afficionados (‘Does it feel like quality?’). I want to look at the colour with my own eyes (‘How does it look in real life, versus on the net?’). I want to understand the features offered (‘Does the 180° reverse camera really look around corners?). There are a whole raft of consumer questions, which might be different for each person, that warrant a visit to a dealership of some description. Consumers are certainly interested in doing parts of the buying process online but I would suggest that most of us still want to touch and see the car in real life.

CHANGING PREFERENCES

Of course we do need to consider the macro trend of e-commerce that is influencing consumer preferences. Have a look at the revenue growth for Amazon (see the graph, right) to remind yourself how fast we’re adopting internet purchasing. A massive 38% increase in revenue in 2020 over 2019.

Which leads me to ask: Even though we’re probably not yet ready to buy cars online, aren’t there other consumer categories that were like that just a few years ago? • Take books. We used to believe that the experience of thumbing through a book in a bookstore was essential.

Now bookstores are almost a thing of the past. Not only did online blow the price model up, it also provides nearly perfect product availability. • Take clothes. Didn’t we long believe that people would always want to try clothes on, in a store? Online has destroyed that model too. My partner orders four things online and simply returns them all if they’re not right.

Much easier than going to the shops. • Take household appliances. If you look at Winnings virtual showroom, you’ll start to understand why a drive to the showroom might not be needed. You can shop for your appliances 24/7 and not have to stalk the aisles to find a salesperson. The list goes on when it comes to things that we were once less inclined to purchase online, for which we now prefer the digital channel. We are more trusting of online buying and more willing to buy bigger ticket items unseen. Plus the convenience of online generally wins when all other things are equal. THE NEW NORMAL

The conclusion of automotive commentators is that car purchasing is becoming an ‘omnichannel’ process. Which makes sense, because a seamless, blended, on and off-line retail experience is becoming the new normal. Consumers are comparing their experience in other categories with automotive and with those comparisons come heightened expectations. Using the term omnichannel feels to me like a bit of a cop out, as it’s an each way bet. It doesn’t really address where the balance of influence will be: Online or faceto-face?

EMERGING FORCES

Three emerging forces push the pendulum towards a fully online buying process becoming dominant. These three trends are additional to consumers’ increased propensity for online shopping and the e-commerce boom. First, innovative players will normalise online interactions. Tesla has captured the consumer imagination in several ways and the combination of online shopping with in-store guidance is just one part of the brand’s innovation and disruption of norms. Look at the very first screen on the Australian web site video, ‘Ordering a New Tesla’. The video goes on to knock off a range of pain points that are still part of the traditional process; e.g. getting a test drive, choosing vehicle options. Partly because of the positive brand halo, Tesla will help make the online ordering process desirable and aspirational. In the used vehicle space, new entrants such as Carvana, Shift and Vroom are introducing online purchasing and aiming to overcome risk and confidence issues for the buyer. The longer-term consumer uptake of such offers is debatable, but you’d have to bet on at least one of these succeeding.

Second, shared vehicle ownership will shift the emphasis to service over product. If the consumer is buying a mobility service rather than a fixed asset (i.e. vehicle) they will be more willing to transact online and have less need for physical visits to dealerships. OEMs are now experimenting with different ownership models and becoming involved in carsharing. For example, BMW and Daimler are investing in a platform designed to compete with Uber and Lyft, which will also offer carpooling, parking, trip planning and charging services for electric cars in big cities. Other examples are Toyota investing in Uber, GM in Lyft, and locally in Australia Hyundai teaming up with Carnextdoor. OEMs have traditionally been product-centric businesses, building inventory in their factories, and then pressuring the sales function to shift this inventory. This mindset is changing but probably lagging behind consumers. The new mobility perspective is that consumers don’t want cars or other transport devices that tie them down – they want mobility and they value the service, including the convenience of digital interaction with the service provider. Of course, people will still want cars and some people will still want to own vehicles outright, but the point is that the consumer will judge value more by the service. Third, augmented reality (AR) has the potential to equalise the digital and real-life experiences of a vehicle. Just to be clear, a technical understanding of AR is, as they say, above my pay grade. In simple terms, AR adds to reality, projecting information on top of what you’re already seeing. Virtual reality (VR) replaces reality, taking you somewhere else; and these technologies are now overlapping. AR and VR applications are being explored and adopted in a range of different ways as the automotive players seek a competitive advantage. Many new cars are now using AR features, with head up display projecting data such as speed, lane guidance, and direction onto windscreens. AR is also being used for instructions and product guides to replace those long and complex manuals. The rubber hits the road when consumer experiences such as virtual showrooms, product customisation, 360° vehicle exploration and digital test drives become so close to reality that they are as good as the real thing. We’re probably not there yet, but these powerful technologies are still developing and are yet to make their impact fully felt with the consumer. LOOKING FORWARD

Automotive retailing has improved over the past several years. Our data indicates that consumers feel more positive than negative about dealership visits, and that they recognise the customer experience is improving. Both OEMs and dealerships have incorporated a lot of digital interaction, aiming to meet consumer preferences and create a seamless omnichannel experience. However, there are still many pain points in the customer journey. Buying a car can be a grind, with time-consuming research and difficult to understand pricing and financing. Add to this three emerging forces that are transforming the landscape: • Innovative automotive players normalising online purchasing, • Shared ownership shifting the emphasis to valuing service, and • The potential of AR and VR to replace physical interaction.

Whoever adapts with these unpredictable forces and aligns with the evolving consumer will reap the rewards. I think you get the picture. Who dares wins. Jerry Berowne, FF2.