The Coming Automotive Retail Disruption? It’ll be about Price and Convenience (and Nothing Else)
The Coming Automotive Retail Disruption? It’ll be about Price and Convenience (and Nothing Else)
(This is a follow-up to an article I posted on DealerRefresh a couple of weeks ago that focused on the myth that dealers are behind other industries in terms of tech, marketing and the customer experience.)
Can we please stop talking about the customer experience when it comes to industry disruption in automotive?
Seriously, every time someone talks about disrupting the car dealers’ business model you hear about “improving the customer experience” and “allowing people to buy cars the way they want to buy.”
Ugh, that’s so misguided and naïve that it’s bordering on maddening.
Yes, buying a car the traditional way is not particularly enjoyable for today’s consumers. Most, in fact, absolutely hate the experience. Of course, they’ve hated the car buying experience their entire adult lives, so if all it would take is for someone to improve the customer experience to completely disrupt the industry, why hasn’t anyone done that yet? Why do we still have traditional car dealers?
Hint: improving the customer experience – heck, even perfecting it – will not destroy the car dealer business model as we know it.
It Will Take More Than a Vending Machine or Home Delivery
Traditional car dealers, for example, are not going to be displaced by a Carvana (NASDAQ: CVNA) or a Shift because these startups provide “a better customer experience.” No industry has ever been disrupted to the point of extinction because someone else provided a better customer experience. Ever.
“But, didn’t Netflix kill video stores by providing a better customer experience via home delivery? Didn’t Amazon do the same thing to bookstores and many other retailers all because of a better customer experience and home delivery?”
Let’s be clear, Amazon killed bookstores (and plenty of other retail industries) because they offered a price often below the incumbents’ cost, (initially) no sales tax and, yes, free two-day delivery. Similarly, this is how Netflix killed Blockbuster. Neither of these giants destroyed entire industries because of a better customer experience.
Waiting two days to get something that you could get instantly from a local retail outlet is not a better experience. Had Amazon’s prices not been substantially lower and had they not enjoyed the benefit of no sales tax, we’d be laughing about them the way we do Pets.com.
True industry disruption never happens because someone provides a better customer experience. Industries are disrupted when someone provides a better solution… a solution that is cheaper and more convenient; customer experience be damned.
But… Chick-fil-A wins on customer experience, don’t they? People absolutely love Chick-fil-A, right? It’s like a cult, isn’t it?
Yes, yes and yes. And… Chick-fil-A also provides a consistently good product.
Now, make the identical chicken sandwich 30% cheaper and have it delivered to your home or office – hot, fresh and on-time – by a drone or autonomous vehicle with zero human contact. Would most people still go to Chick-fil-A and wait in a line? (Even a relatively fast-moving line?)
Nope. We’d shutter the doors at every Chick-fil-A restaurant in America and lament how the “Amazon of Chicken Sandwiches” provided a better customer experience.
But they didn’t, did they? Chick-fil-A got beat on price and convenience.
But… no one will ever be able to deliver a chicken sandwich as good as Chick-fil-A for 30% cheaper!
Keep dreaming. Some people used to say, “No one will ever want to buy a book online! People love bookstores!”
It’s Price and It’s Convenience and It’s Nothing Else
I regularly record sales training videos and then have these transcribed into text documents. I use the transcriptions to provide an option for those who prefer to read than to watch; and I use these to help me create articles and blog posts from my recorded material.
Years ago, I hired my Mother to transcribe these for me. It was something she liked to do, and I knew the transcriptions would be perfect, so I was happy to have her help. Though we didn’t have a set rate for these jobs, I would pay her a few hundred dollars for transcribing a video training series that might contain 45 to 60 minutes of discussion.
It was a mutually beneficial working relationship and she, of course, provided the best customer experience available (because she’s my Mother). Additionally, her transcription accuracy was 100%. On the downside, it did take her a couple of weeks to return a lengthy transcription. That said, I was never in a real hurry for these.
Then, she went on vacation.
My Mother asked for a break in transcribing my videos when she was about to go on an extended vacation. So… I fired her!
Not really… but, sort of.
I found a company online called Rev Transcription that could turn these transcriptions around in 24 hours (now 12 hours) and do these for about $1 per minute. This was about 20% what I was paying my Mother; and even though the accuracy dropped to about 70% (this means I could find an error in about 3 out of 10 sentences), the online ordering with faster turnaround (convenience) and the 80% discount in price sold me.
The Mother Transcription Industry was officially disrupted over price and convenience… and nothing else. (Don’t worry about Mom, by the way, I think she was just doing me a favor. She didn’t need the money and now she can spend that time reading or whatever.)
Happy with Rev, but always sensitive to price for business expenses, I did a quick Google search to see where industry pricing had migrated since I started using Rev. I found a company called Temi that uses speech-to-text (instead of the humans Rev claims to use). They had mixed reviews, but their price was 90% cheaper than Rev and they claimed they could deliver the transcription in five minutes.
Faced with paying $74.00 with Rev versus $7.40 with Temi for a 74-minute video, I took the risk.
Temi turned my transcription around in about ten minutes (twice the time their website promised) and with an accuracy of about 50% (this means I could find at least one error in every other sentence). Since any transcription not completed by my Mother requires someone else to review it before publishing, the decrease in accuracy from 70% to 50% might be annoying, but it was relatively meaningless.
Temi beat Rev on price and convenience; and the Human Transcription Industry (at least as far as I was concerned) was officially disrupted.
Let’s analyze the three services I’ve used for transcriptions and see how important quality and customer experience are when price and convenience are not equal (using a 60-minute video):
- Price: $300
- Convenience: Average turnaround time 2-3 Weeks
- Quality: Perfect
- Customer Experience: A+
- Price: $60
- Convenience: Average turnaround time 12-24 hours
- Quality: Very Good
- Customer Experience: C+
- Price: $6
- Convenience: Average turnaround time 10 minutes
- Quality: Average (at best)
- Customer Experience: D-
But… Customer Experience Still Matters for Car Dealers, Right?
Yes; yes it does. Customer experience matters when relative price and convenience are equal. For example, assume there are two Toyota dealers near your home; each roughly seven miles away in opposite directions.
Both sell the same new Toyotas for about the same price. Price and convenience are relatively equal in this instance, correct?
What if one of these dealers allowed customers to purchase online and have the vehicle delivered to their home or office? What if that same dealer offered a 7-day exchange policy? Would these two services – if known to buyers like you – make a difference in where you shopped (all else being equal)?
Certainly they would; and this is where the customer experience should matter to dealers.
Improving the customer experience has been proven to improve grosses and market share for dealers. This means there is some volume lost for those dealerships unwilling or unable to improve. That said, this is not an industry disruption, it’s just Business 101: Take care of your customers or someone else will. For car dealers, that someone else is the competing dealer across town.
But, Major Disruption is Coming to Automotive Retail, Isn’t It?
Sure, it’s inevitable, but not for many years and not in any of the ways the automotive press has identified so far. That is, it won’t be because Carvana has a vending machine. It will happen because of price and convenience.
Think about this for a moment: My family of five pays $12/month for Netflix. Over the course of a month, if we each average just one show per day, that’s 150 shows for $12. That’s 8 cents per show.
Be honest; if your own mother ran the video store in your town and wanted to charge just 50 cents per day to rent DVDs, there is no amount of customer experience she could throw at you to keep your business.
It’s price and it’s convenience and it’s nothing else.
March 17, 2018 @ 3:47 PM
Quick update on Temi versus Rev.
I’ve returned to Rev, as their transcription accuracy is now over 95% (that is, they make an error in fewer than one in 20 sentences). I can justify the higher price, because the convenience of not having to verify their work is well worth it.
March 17, 2018 @ 2:55 PM
I’m tired of reading the garbage written by Wall Streeters who don’t understand the car business. Thank you for this thoughtful article. It puts everything into the right perspective!
January 10, 2018 @ 3:30 PM
Jeff Bezos has been quoted as saying: “Your margin is my opportunity”.
October 31, 2017 @ 9:00 PM
You’ve ignored a key value to the customer- the need for trust and relationship.
November 1, 2017 @ 8:50 AM
“Trust and a relationship” are only important when basically all else is equal about a purchase. This is why some salespeople sell 30 cars a month and others sell 8.
But, the need for trust and a relationship go away when price and convenience become factors.
Plus, only 1 in 235 car buyers likes the current process, so I think we tend to overestimate the amount of “trust and relationship” that gets baked into today’s average car deal.
Here’s an example – outside of the car business – where an industry built on trust and relationships was eliminated:
My father-in-law used to own a flooring store in a relatively small market. His customers trusted him and came to him for advice about their flooring needs. He had a great reputation and solid relationships throughout the area.
Then, Home Depot moved into town a few miles away.
People still came to him for advice… but, they bought their flooring from Home Depot. They still trusted him and they still had a relationship, but the retail price of tile at Home Depot was below what my father-in-law could buy it for. Plus, Home Depot had it in stock, where my father-in-law had to order it.
It was price and convenience (and nothing else) that doomed his flooring store.
Trust and relationships – where they still exist in automotive retail – will be meaningless when the cost of owning a car is twice the cost (and less convenient) than hailing autonomous taxis.
Yes… many years away. Plenty of time for dealers to work on those areas they can control – including, as you mentioned, trust and relationships.