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Future of automotive retail - EY - EY - United States

Automotive retail in the future Evolving from bricks-and-mortar to an omni-channel strategy Automotive retail will shift from a product-driven to a customer-centric

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Future of automotive retailShifting from transactional to customer-centricContentsAutomotive retail in the future 03A paradigm shift in auto retail based on five key pillars 04Managing trust and complexity throughout customer life cycle 05Customizing value propositions 06Creating an engaging digital experience 07Redesigning distribution networks 08Crafting an omni-channel brand management strategy 09Key considerations for stakeholders 10How EY can help you? 11 2Future of automotive retailAutomotive retail in the futureEvolving from bricks-and-mortar to an omni-channel strategyAutomotive retail will shift from a product-driven to a customer-centric approach to drive customer loyalty and to adapt to changing customer behavior and expectations. The rise of new mobility concepts and shifting mobility preferences of private and commercial customers ( , private- and business-car sharing, electric vehicles and an increasing role of used cars and fleet) are causing automakers and automotive retailers to rethink their current business are able to quickly interact and easily access information across media and devices anytime, anywhere. This needs to reflect in the customer experience and marketing strategies. Achieving this transformation in automotive retail will not only require a concerted effort from both automakers and dealers, but will also demand an unprecedented level of collaboration with other stakeholders in the ecosystem, particularly insurance companies, auto finance and aftersales market participants. For automakers, they have an opportunity, for the first time, to not only build a relationship with the customer by leveraging connected vehicles, but also to deliver a rich brand experience through seamless integration across all customer-facing channels. For dealers, the transformation is a significant opportunity to streamline their operations by shedding non-value-adding functions and unlocking capital from redundant infrastructure, while taking on a wider service portfolio that contributes to better the short term, there is a clear need for stakeholders across the automotive retail ecosystem to undertake significant change management to catch up with the broader retail is an executive summary of our analysis of the future of automotive retail, where we discuss the key forces at play and steps that stakeholders in this ecosystem should take to meet the needs of customers, and remain relevant and competitive. Randall J. Miller Global Automotive and Transportation Sector Leader, EY3Future of automotive retailParadigm shift in auto retailDigitization, regulations, evolving customer needs and new competitors necessitate a rethink of the retail modelSignificant changes in the operating environment and within the auto retail ecosystem are forcing automakers and dealerships to rethink their model. We believe this will drive a major paradigm shift in auto retailing over the next decade, based on five key pillars. Product evolution Increasing vehicle complexity Faster replacement rates Rapid technology evolutionRetail sector changes Retailers moving from multi-channel to omni-channel Online and boutique stores Increasing use of big data and analyticsIncreasing stakeholder influence Auto-leasing and insurance companies Vehicle comparison sites Online comparison sites and configurators Financial institutionsChanging customer behavior Digital becoming the starting point for a purchase journey New mobility preferences Need for customization Higher demand for used cars and fleet serviceIncreasing competition in auto retail and aftersales I ndependent fast fitters Original equipment supplier (OES) workshopsRegulations CO2 emissions standards Repair legislation Direct sales legislation Safety standardsFive pillars of the paradigm shiftCustomersOperating environment NSCs*/dealers AutomakersCreating an engaging customer journey*National Sales CompanyManaging trust and complexity throughout customer life cycleCustomizing value propositionsCreating an engaging digital experienceRedesigning distribution networksCrafting an omni-channel brand management strategy123454Future of automotive retailManaging customer experience across multiple touch points is critical to build a trusted relationship123456First contactVehicle research and test driveVehicle financingVehicle deliveryWarranty and repairReplacementManaging trust and complexity throughout the customer life cycle to maintain customer loyalty1We believe automakers and dealers must focus on transforming the overall customer experience and ultimately develop into a trusted organization. An integrated customer experience strategy is key to building loyalty, retention, and consequently higher profit margins in sales and aftersales. In order to transform a customer from a buyer to a brand advocate, trusted relationships need to be built by injecting trust-building attributes into every customer can automakers, NSCs and dealers do? Design customer experience: design and implement a customer experience that is consistent with the brand identity and establishes trust across touch points Transform processes and systems: transform processes and systems that impact sales, service, marketing and CRM to enable a seamless customer experience Manage change and realign incentive structures to focus on trust: drive change management to enable employees to deliver the envisioned customer experience Focus on key trust drivers: launch specific programs to build authenticity, transparency and consistency72%Consumers feel that an improved buying process would motivate them to visit dealerships more often70%0rganizations believe that an increasing emphasis on customer experience is driving business growth strategiesMarket indicatorsSource: Car Buyer of the Future, AutoTrader, 2015; The perfect landing: an engaging customer experience, E Y, 2 014 .Building blocks for the new auto retail agenda Knowledgeable customers: with the mobile, digital and social media proliferation, customers can now access diverse information ranging from vehicle performance, to cost of ownership and financing, to ownership and aftersales experiences. This will drive the need for a personalized and relevant customer experience throughout the customer journey. New customer relationship management (CRM) considerations: huge data generated from multiple customer touch points will result in various CRM considerations. These include better customer insights, better segmentation, and proactive sales and service initiation. Consequently, it will also be critical to be transparent with customers on how their data is being handled and used, with clear opt-out options. Customer life cycle management: to increase customer retention, customer experience will be managed consistently across the customer life cycle, from vehicle research to aftersales moving to of automotive retailRethinking value propositions to meet changing mobility preferences of customers and growing aftersales competition2Customers specifying mobility preferences Optimized mobility packages Access to multiple vehicles6Future of automotive retailFor automakers and dealers to continue to be relevant, it will be critical to create value propositions that help customers tailor their mobility packages. This could involve offering choices ranging from buying vehicles to designing a package involving access to multiple vehicles and modes of transport. Thus, the focus shifts from the experience of driving the vehicle, to experiencing the brand. In addition, with regulations pushing for greater competition from independent repair market, an integrated aftersales value proposition may be the only way to create repeat blocks for the new auto retail agenda A market for mobility services: the shifting preference from vehicle ownership to access will require the industry to create new value propositions offering mobility services and follow a service-centric approach to automotive retail. Making alternate powertrain vehicles as attractive as conventional fuel vehicles: the evolving regulatory landscape and increased customer awareness of clean energy vehicles have generated interest, but translation into volumes will require the retail network to be well-equipped in terms of skills and key tools. In particular, sales and aftersales teams will need to be trained on the right competencies, including the ability to package mobility services, and also create smart tools to give customers transparency on ownership economics. Increasing competition in the aftersales market: regulatory requirements related to aftersales will result in several new entrants in aftersales giving vehicle owners multiple options for vehicle service and can automakers, NSCs and dealers do? Reconfigure services, portfolio and processes: introduce and establish tools to create customized mobility solutions and integrated service packages Identify new business models: automakers and dealers will need to collaborate with key aftersales participants to create complementary service offerings that will differentiate, attract and retain customers Manage skill-gap of sales and services personnel: launch specialized training for sales and service personnel and monitor performance Rethinking revenue streams: dealers need to supplement or replace high margin finance and insurance revenue streamSurvey respondents consider car ownership not important and are willing to shift to access and use alternative mobility servicesMarket indicatorsSource: Multi-channel distribution key success factors for automotive dealerships and captives, E Y, 2 014Consumers in Germany, the UK and Russia consider car sharing a viable option to vehicle ownership24% 44%25%While customers currently prefer to purchase a vehicle offline, a large part of the purchasing journey is already digital. While we believe online purchase will certainly pick up significantly, customers need to be given the confidence through an engaging digital experience. Crafting a holistic social media and digital strategy has, therefore, become imperative. The need to efficiently use customer analytics to improve operational performance across sales, marketing and customer service is also critical for automakers and blocks for the new auto retail agenda Enhanced customer experience: digital and social media allow the capturing of consumer sentiment, which is likely to influence customer care and service strategy, leading to higher customer satisfaction. Customer analytics driving performance: large amounts of data generated from customer interactions will be analyzed to impact all facets of the retail organization, ranging from identifying relevant customer touch points to marketing campaigns and sales can automakers, NSCs and dealers do? Define objectives: identify a specific set of objectives and targets for each activity in implementing a digital strategy Review dealership processes: conduct a holistic review of dealerships current processes and organizational structure to identify key sources of critical information and areas of application Identify customer engagement KPIs to measure performance: establish a specific set of measures to assess the performance of digital and social media campaignsMarket indicatorsSource: Changing lanes, E Y, 2 015; Multi-channel distribution key success factors for automotive dealerships and captives, E Y, 2 014Hours spent on average by automotive customers on the web to search for information and to decide when and where to buy10Buyers willing to finance a car purchase online46%Creating an engaging digital experience and leveraging customer analytics to proactively address opportunities and mitigate risks3Preferring offline purchasePercentagePreferring online purchasePercentageFood and beveragesHealth careConsumer electronicsHousehold insuranceHealth insuranceConsumer loansTelephone or mobile contractsConsumers spend more time for online research per-purchase of a car than for any other product. Size of bubble = time spent online looking for information40102030405050607080Cars7Futu re of automotive retailAlthough dealerships will continue to play a significant role as primary channels for building personal contact and relationships with customers, we believe they will need to redesign their infrastructure to improve flexibility and accessibility. Consumer preferences necessitate the development of market-specific mixes of physical and digital presence along with new distribution models. These new distribution models will enable the industry to interact closely with customers, providing them with specific services and ad-hoc product experiences. Building blocks for the new auto retail agenda Streamlined retail networks: to maintain profitability, traditional retail networks may need to be pared down, with investment focusing on reorganizing the floor space to complement the digital experience. Most expansion is expected to occur in emerging and high growth markets where network reach is still vital. Improved flexibility through new formats: new distribution strategies, such as direct selling, mobile stores, test drive centers, boutique stores, mega dealers outside city centers and online platforms, will gain importance. Impact on dealer infrastructure: the new models will impact all facets of dealer infrastructure in terms of reduced sales force, new roles, real estate, flexible CRM systems, and a right mix of physical and virtual can automakers, NSCs and dealers do? Identify and roll out new distribution formats: identify, design and roll out innovative retail formats that suit specific markets and customer profiles. Invest in new, non-traditional retail locations to gain access to more customers Provide balanced physical and virtual experience: develop market-specific mixes of physical and digital presence to reflect the brand, individual models and customer expectationsCustomers will use multiple devices to research a vehicle purchaseNew and used car customers visit the dealer s website during the purchasing processMarket indicatorsSource: Car Buyer of the Future, AutoTrader, 2015; Changing lanes, EY, 2015; Multi-channel distribution key success factors for automotive dealerships and captives, E Y, 2 01480%52%Redesigning distribution networks to improve flexibility and increase relevant touch points4Targeted marketing through new distribution and CRM strategyUse of innovative formats Integrated CRM strategyDirect selling8Future of automotive retailCurrently, automakers and dealers interact with customers using a multi-channel approach, which allows for different sources and ways to collect information. However, these channels often provide an incoherent customer experience. Customers want the freedom and flexibility to move between numerous information sources and receive a similar brand experience across all channels. Retailers need to evolve to an omni-channel strategy to deliver a seamless customer experience at every level of the customer life blocks for the new auto retail agenda Offering seamless customer experience: automotive retailers will ensure seamless and consistent customer experience throughout stationary, mobile and virtual sales and communication channels. Active management of all communication channels: automakers, NSCs and dealerships will have advanced integrated CRM systems that ensure access to holistic customer data and information to all employees at each level of the customer indicatorsSources: Changing lanes, E Y, 2 015; How to copilot the multi-channel journey, EY, 2015; Re-engineering the supply chain for the omni-channel of tomorrow, E Y, 2 015Survey respondents say they can no longer rely on traditional sales channels to drive growthC-suite executives consider delivering seamless digital/in-store experiences, and leveraging online resources to influence choice, as critical to win and retain can automakers, NSCs and dealers do? Assess technology readiness: analyze technology requirements and define the future distribution technology landscape Collaborate: partnerships with aftersales service providers, marketers, etc., will help influence customers perception of the brand Make omni-channel a strategic priority: introduce and implement an omni-channel strategy for the sustainable, long-term success of all parties Personalize: provide personalized content and interactivity based on customers preferences Implementing an omni-channel strategy to enable a seamless brand experience5The legacy The realityThe aspirationThe salvationSingle ChannelMulti-channelCross-channelOmni-ch annel9Future of automotive retailKey considerations for stakeholdersAchieving customer centricity, transforming customer experience and business modelsCustomer experience Establishment of new roles (technical and financial experts, mobile sales force, etc.) to respond effectively to changing customer needs and new technologies Improvement of the customer experience at the dealer Big data management (CRM, social media analytics, connected car data, DMS, etc.) to fulfil customers expectations, effectively manage their life cycles, and steer the overall sales funnelDealer network Manage transformation into a multi-channel approach, such as direct online sales, flagship stores, pop-up stores, network consolidation, etc. Establish subscription or usage-based business models to offer mobility as a service Effective usage and management, including the interfaces, of all different available systems (Dealer Management System, CRM, etc.) Ongoing process management and business improvement in all areas (lean management, customer churn rate, etc.) Training, coaching and consulting of dealer network employees ( , sales, aftersales, used cars, systems and processes) Effective organization and incentive structures for automakers and dealersSales More proactive and better managed customer contact from automakers and dealers (inbound and outbound) Sales processes, technologies and channels to be adjusted to new customer behavior patterns Need to balance global standardization and local adaptation of sales processes Sales performance management and sales process improvements due to a more customer-driven approach at the dealer and the automaker Proper use of sales performance KPIs to achieve targets Transparency in pricingAftersales I ncreased ability of dealers to increase customer satisfaction, loyalty and overall profitability by assessing and (re)defining roles within aftersales Leverage mutual potential of sales and aftersales touch points Professionalize the genuine accessory and parts business to impact dealers profitability, as well as customer satisfaction and loyalty10Future of automotive retailEY Automotive Customer Solution portfolioStrong global networkDeep regional expertiseChange management experience in diverse environmentsWhat we deliverHigher marginHigher customer loyaltySustainable resultsDealer OperationsCustomer Relationship Management ToolsDealer Management System Performance ImprovementDistribution Cost Assessment and ReductionData AnalyticsDealer Audit ServicesDealer Risk Assessment & ManagementDealer Risk ManagementKPI Enhancement and ImprovementCustomer and Sales Satisfaction ImprovementDealer Performance Improvement ProgramDealer PerformanceFinancial Recovery PlansIncentive ModellingFinancial AdvisorySkill AssessmentDealer Training and CoachingPeople & Organizational ChangeOptimization, Integration, Implementation, Roll OutAftersales and Sales Systems/Processes Definition and ReviewDealer System, Process IntegrationBusiness Model EvaluationOperational DesignMobility StrategyAutomakerDealerNSC+How EY can help you11Future of automotive retailWhy EY?Randall J MillerGlobal Automotive and Transportation Leader Telephone: + 1 313 628 8642 Email: ZametGlobal Automotive Retail Leader Telephone: + 49 6196 996 13176 Email: LorenzlSenior Manager Telephone: + 1 312 560 1644 Email: ValsanGlobal Automotive and Transportation Lead Analyst Telephone: + 44 20 7951 6879 Email: GrantGlobal Automotive and Transportation Marketing Leader Telephone: + 1 313 628 8974 Email: Want more? Contact one of our global automotive and transportation professionalsAcknowledgementsSpecial thanks to Christian Hainz, Rebecca C Rydzewski, Federica Pinucci, Giovanni Passalacqua, Stefano de Filippis, Martin Rauh and Rajan Dhawan for the analysis and compilation of this study EY | Assurance | Tax | Transactions | AdvisoryAbout EYEY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit EY s Global Automotive and Transportation SectorIn the Automotive and Transportation Sector, we re doing our part to enhance human mobility, getting people and products where they need to go better, faster and smarter in a rapidly changing environment. Through our globally expansive sector network, we bring a strong point of view on the emerging issues across automotive and transportation, connecting more than 13,000 professionals with deep industry and technical expertise who understand what the trends of the future mean for the present. We work with our clients to deliver innovative yet pragmatic solutions to address their imperatives and deliver tangible business value around the disruptive trends and transformational challenges shaping tomorrow s industry, today. 2015 EYGM Rights no. ED0138BMC AgencyBACS 1002489ED NoneIn line with EY s commitment to minimize its impact on the environment, this document has been printed on paper with a high recycled content. This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific

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