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Earlier this month Hyundai launched their ‘Click to Buy’ service, potential customers can buy a new car without having to visit a showroom, speak to a salesman or even leave their house. In May, last year, we explored how some manufacturers were seeking to build a direct relationship with their audience and the reasons why. So, should all manufacturers now be disintermediating and can distributors do anything to protect their market share in these digitally disruptive times?
Pre-digital the car dealer performed an essential role right across the value chain. For a consumer, the dealer provided product knowledge, the finance function and the service centre for the vehicle. For the manufacturer, they simply could not sell cars without the dealer, they provided the geographical reach, existing consumer relationships and the product knowledge.
Intermediary’s added value in other sectors too; travel agents provided a similar role for family holidays; information, logistics and finance if required. In short, intermediaries were the essential link between vendors and consumers and added value to both.
The web has enabled disintermediation between business and consumer. The high-street travel agent has seen their market share severely eroded (1) through the availability of information on the web as well as airlines and hotels selling directly to consumers.
Travel agents and car salesman share a common problem; information about a family friendly resort or the fuel efficiency of a new car are a click or a Google search away.
The number of times a potential customer visits a car dealership has dropped to 1.4 (2), from reportedly over six. Mercedes-Benz has stopped printing brochures altogether. People entering a car dealership or a travel agent (if at all) will know exactly what they want having read about it before on-line. The role of the intermediary, it could be argued, has diminished in proportion to the value they add.
As a small manufacturer by market share, 10th in the list at 3.45% as of Q1 2016 (3) and a relative newcomer to the UK market Hyundai, arguably, had a lot less to lose by launching a digital-first direct to consumer initiative. The Ford’s and Vauxhall’s of the world who have extensive legacy dealer networks would probably need to think twice about making such a bold move.
Outside of automotive and in the world of B2B, as we explored in our first piece in May, the purchase cycle is less linear. To revisit our building trade analogy, the customer may choose to gloss their doors white, but the builder may choose the brand of gloss paint and where to buy it from and often this will be a bricks and mortar distributor.
As we have seen with Screwfix’s next day, fixed time delivery service adding more value to the customer is a clear way for distributors to retain their market share. Outside of the physical distribution and delivery of goods, education and training on new products add value to the customer and the manufacturer.
Large distributors have the benefit of nationwide physical presences, shops or warehouses and yes, salesmen (or women) who perform a valuable role to the customer. Excellent customer service is appreciated in any industry or vertical market.
There are other considerations too; in certain markets and for certain products manufacturers, may be prevented from selling directly due to regulations. Equally, for some products, distributors may need to accept that people (and businesses) will simply buy certain products directly on-line if the product is of low value and the process is entirely transactional.
As we discussed when we first started exploring this topic last year the well-trodden path for a manufacturer is to create a loyalty programme. We can’t see Heinz beans or Weetabix being sold directly to consumers anytime soon as it would add no value to the consumer but they can, and do seek to reward customers for their loyalty.
We have worked with B2B manufacturers to create loyalty programmes for their customers. Building direct relationships with customers adds value to both parties. Simplistically, the customer gets rewarded and the manufacturer creates more margin. There are other benefits too, direct relationships can result in valuable feedback which can then shape product development. These direct relationships can prepare the ground for a disintermediation strategy, should that be a path they chose to explore.
What has held many B2B businesses back from starting their own direct sales channels is the need to invest significantly in marketing, fulfilment and customer services, in short, the bits that distributors are currently experts at.
Looking at Hyundai’s digital first approach again the role of the dealer has not been made redundant but they are no longer an essential part of the transaction between manufacturer and consumer. If the consumer needs to sign a credit agreement, this will happen at a dealer. The dealer will also be the on-going point of contact for continued servicing of the vehicle.
‘Manufacturer Approved’ second-hand car sales are one avenue for car dealers, but this could also be threatened by advances in consumer-facing technology. Virtual Reality and video content could enable a consumer to thoroughly check out a used car from their sofa, on their smartphone.
A good analogy here might be to look at one of the key players in digital disruption, Apple. Second hand ‘Apple Certified’ hardware is sold on-line, and their version of the ‘dealer network’, Apple stores, is generally predicated around product servicing and repairs.
We would suggest that the traditional role of the intermediary will continue to shift from being transactional to a role geared around customer services.
It remains to be seen whether ‘Click to Buy’ will be a success for Hyundai, and whether other automotive companies seek to emulate their approach. Looking back at the patterns of digital disruption over the last ten years, Autotrader and Rightmove for local newspaper advertising or Google for The Yellow Pages, for instance, we can see a shift in the paradigm emerging and an industry ripe for disruption.
We also think, based on those same patterns of digital disruption, that the end-point is often a hybrid.
In B2B, distributors will continue to play an important role but, the way to guarantee that their importance as a channel is maintained is to ensure the value they add is always over and above what is offered by the manufacturer directly.
We have developed strategies for manufacturers and dealers alike to help them not just survive, but thrive in a continually disrupting digital world. If you think we can help you please get in touch, we promise, there won’t be a salesman in sight.