At the ICDP Spring Meeting in Amsterdam last month, I presented our thoughts on dealer digitalisation.
The key point that I wanted to make was that as the customer buying journey has evolved, and what can be done through technology has improved, the focus of digitalisation should not be on applying IT to established processes and business models, but rethinking the business model as a whole.
Whilst productivity improvements are always welcome, when the bulk of the customer journey is now online (in terms of time and the steps that take them to the final brand and model choice), we need to think of the journey as a whole as being digitally driven.
Physical interactions will remain critical for the vast majority of retail customers, but the reason they end up in a specific dealership is because of the interactions they have had in the digital world with manufacturers, dealers and third party sites.
The role of digital is to enable the physical exchanges that will hopefully conclude in a sale, and as a means to boost performance of the system as a whole.
You can boost performance by cutting cost, but you get much more leverage by improving outcomes – more sales at better transaction prices.
Part of the digital toolkit is the use of Artificial Intelligence (AI) and in the same meeting in March, we were treated to a masterclass in AI by Marco Marlia, founder and CEO of MotorK, a member of the ICDP programme for a number of years.
Marco provided a truly insightful presentation, explaining the evolution of AI from generating outputs more efficiently than a human, through to being able to take actions on your behalf through analysis and interpretation of some inputs.
He did all of this without mentioning MotorK or any of their products once – which to me is always the sign of a great salesman – and deservedly got rave reviews in the delegate feedback.
Linked to Marco’s participation in the meeting, we conducted a joint research study to obtain a snapshot of how AI is viewed by those at the sharp end of automotive distribution and the opportunities it provides.
Around half the respondents were dealers, mostly franchised rather than independents, with just under 20% from OEMs or independent distributors and the balance involved in the aftermarket, technology and F&I sectors.
Almost all declared themselves as familiar with AI, though only 8% declared themselves as expert. Most dealers were already using AI somewhere in their business, but this was predominantly in customer service and lead generation.
OEMs were generally more optimistic that AI would boost profitability compared to dealers, and benefits were seen in a number of areas, not only in those areas where it is already prevalent, but also in inventory management, pricing and aftersales.
Dealer opinions were skewed to the customer service and lead generation areas, but OEMs universally saw aftersales as the area where they envisage the greatest impact – perhaps reflecting the substantial profits that OEMs make from their parts business.
It arguably overlooks however the very large costs they incur in fixed and variable marketing expense, both of which we believe can be much more targeted as the result of the effective application of AI to lead generation and supply chain management.
A number of barriers were identified – notably data privacy, customer acceptance (both probably linked) and concerns about becoming dependent on a software or service provider, who might become integral to your business.
Key enablers to progress were seen as the need for better systems and data integration, more case study evidence to show that the effort was worth it, and education and training to ensure that it could be effectively utilised. The cost of the technology was less of a concern as long as it was shown to deliver benefit and could be readily applied.
These survey results partially support our view that dealers recognise the need for change and the opportunities to improve their business.
It is less clear that they see the need for a fundamentally different perspective, rather than just bolting AI onto selected parts of the existing business.
This change was illustrated in another guest presentation in Amsterdam from Keyloop, in the past best known as a DMS-dominated IT vendor, but who have backed up new thinking with a series of acquisitions and new developments of their own to come up what they call Fusion.
The thinking behind this – hopefully informed in part by their long-standing membership of the ICDP research programme – reflects this need to focus on the customer experience first.
Dealers (and I include myself in my parallel role as MD of an embryonic dealer group) need to look at the physical dealership as the final stage of the customer journey, one where digitalisation plays an important role in supporting and steering processes.
The greatest performance leverage however might be outside the dealership in attracting and retaining customers for both sales and aftersales.
We need to understand how AI – and in particular the leverage of digital agents that can understand, plan and execute actions – can transform the top line.