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Farriers of the Strategic Inflection Point?

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Change in the way how people buy and use cars is a change in how the services are delivered. With a growing number of people buying cars online without ever visiting a showroom, and many of them starting to wonder why they invest in and pay insurance for an asset which spends 96% of its time sitting in the driveway, the traditional customer value propositions are losing their appeal. At the same time, as cars are evolving into ‘smartphones on wheels’, the industry business models are being redefined and battle lines redrawn as the existing businesses seek ways to replace their diminishing revenues and the new industry entrants challenge them for the customers’ vehicle spending. With no one immune to the industry digital inflection point, all businesses need to actively work to secure their position in the new value chains and ecosystems.

You can be the subject of a strategic inflection point but you can also be the cause of one”

-          Andy Grove, Only the Paranoid Survive

As proven by industries from web-shopping to car-rental, when the customers preference for digital self-service is combined with new digitalised business processes and smart utilisation of data, it invariably happens at the cost of the legacy business models and revenues. And this very same combination is now creating a strategic inflection point practically in every part of the automotive industry, forcing a business change for

  • Car Manufacturers
    As car electrification moves the value to the parts manufacturers, increasing car-sharing changes the use models, and big brands like Google and Apple jostle to own the connected car customer, the car manufacturers are reacting by moving to own the customer with direct-to-consumer brand experience and offering more vehicle services, from leasing. and insurance to their own car-sharing and Mobility-As-A-Service products (e.g. BMW’s car sharing services, Toyota investment in MaaS Global, Porsche acquisition of PTV group).
         
  • Car Dealerships
    With the car manufacturers forced to move towards direct customer ownership, the car dealerships are some of the first businesses to feel the pain. Even today practically all dealership profits come from the vehicle maintenance services and losing the customer connection spells a disaster for the car dealerships. Facing a future of being paid by-test-drive and competing in a how-low-can-you-go maintenance business, dealership networks are taking steps to (re)establish their customer ownership by focusing in digital customer experience and simplifying the customers’ vehicle task with capabilities like vehicle cost monitoring, automated service booking, fleet management features, smart roadside assistance, financing packages, car-sharing services, etc.
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  • Fleet Management Businesses
    At the same time as the connected car technologies help the fleet management companies to reduce their costs and improve their services, the very same technologies also make the market more attractive target for other businesses, like financial institutions, car manufacturers, and large dealership networks. With increased competition and new ‘leasing’ models challenging their revenues (see ‘Car-Sharing – A Fleet Alternative?’), the fleet management companies are seeking to take advantage of their current value-chain position and become ‘connected car operators’, building an ecosystem of business partners all coming together in creating a seamless service  experience and sharing the business benefits. Besides securing their business, the position as a connected car operator will enable the fleet management companies to effectively target revenues in other business areas, from adjacent business opportunities in vehicle insurance to marketing of services and products.
     
  • Insurance companies
    In some ways, the insurance companies are facing even bigger challenges than the other automotive businesses. As shown by the strategic business analysis in all major insurance companies, the combined impact of the new driver-assistance technologies, changing car use models, and increased number of outside competitors, mean that their revenues will continue to decrease at an accelerating rate if the companies stick to their current business model. Adding insult to injury, the connected car and data mining technologies are also removing the actuarial ‘secret sauce’ and enable virtually any business to effectively manage the risks related to car use. To avoid their stock value diminishing, many insurance companies are leveraging their current concentrated industry market position and trusted brand image to initiate their own connected car ecosystems and seek to become the neutral and trusted holder of the customer’s vehicle data. As a result, they can get access also to other automotive value streams and expand their business model from mere risk management to new services.
     
  • Maintenance and repair businesses
    Having long suffered from low customer loyalty and the resulting price competition, the maintenance businesses are facing a total loss of customer ownership as the other automotive businesses digitalise their processes and services. As the customers book the vehicle services and repairs through connected car applications offered by other businesses, the maintenance businesses end up having no connection with the customers and are forced to compete for them - at the terms defined by the businesses owning the relationship. To avoid this, the leading maintenance businesses are starting to build their own connected car services by improving and expanding their current offering with digitalisation, and expanding the services into a full-service ecosystem by partnering with the businesses in other automotive service categories..  
          

“Digitalisation will fundamentally change sales. The key point is that we must own the direct interface with the customer.
 No 3rd party provider should get in between.”
- Dieter Zetsche, Chairman of Daimler, Head of Mercedes Benz

As businesses from different industries compete for the connected vehicle customers and their data, the die is being cast for the automotive 4.0 market but the outcome is still far from decided. With no single winning formula, the market winners are not going to be determined by the businesses’ background or size but, like in the other digital disruptions before, by their ability to simplify the customer’ everyday lives with useful digital services. To achieve this, the automotive businesses can no longer focus on their services in isolation but must become truly customer vehicle use -centric and offer their services as a part of a single, seamless customer experience - to participate in the ecosystem either as the ‘connected car operator’ or a strategic service partner. Failing that, the business will find themselves trying to win back the customer mindshare or end up as a commodity service provider pushed into price competition by the connected car ecosystems bargaining power –they will become the farriers in the Automotive 4.0.

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