How will digitalization shape Car industry?
Automotive is a very exciting area as it is changing in several ways. Whilst the vehicles themselves are sporting the latest tech innovations, the whole customer lifetime experience is being influenced by digital solutions as well.
But how is the market responding to all this? Are retail and business models necessarily changing, too?
We thought it would be worth asking someone who knows the Automotive industry inside out. As part of our interview series with exciting experts, we’ve had a talk with Sarwant Singh, senior partner at growth consulting company Frost & Sullivan and recurring Forbes contributor.
The DNA of car companies and why thinking ‘too much hardware’ is wrong
As part of our talk, Sarwant has shared some truly thought-provoking insights into the future of the industry. For example, which customer segments will gain a growing importance due to their special demands.
Or, why and in what sense car companies should not give up their core DNA whilst working towards more connected experiences. Or, what the automotive company of the future will actually look like and whether we can still talk about purely ‘automotive’ businesses at all.
Read the transcript of the talk here:
Whisbi: Hi everyone, you are listening to a podcast by omnichannel software innovator Whisbi. Our guest for today is Sarwant Singh, automotive industry expert, senior partner at Frost & Sullivan and regular contributor to Forbes magazine on mega trends in Mobility.
Today we’ll be talking about the exciting digital shift we can see in the car industry and how it’s shaping its future.
Our first question is: How are car companies responding to changing customer demands?
Sarwant: The business model of using cars is completely changing. The outright purchasing of cars will decline and sharing of cars will increase.
Car companies are realizing that connectivity between the car and the infrastructure (the car and the home, for example, as part of the connected living atmosphere) and the whole customer journey of buying a car (from starting online until coming into the retail store), then once you bought the car, the whole lifetime, onboard customer experience have to be more connected in the future.
That’s why we’ll see some very interesting new models of management of the customer journey.
W: Will we see more segmentation in the industry? Such as changing demographic needs and demands…
S: Absolutely yes. I think women will be a very important customer group in the future. In the US we already find more women who have driving licenses than men (51% of women). It’s the same across many age groups. It’s changing in many countries like Canada and the UK. In Tier 1 citizen countries like China, more women are buying cars than men.
But, you know, we have a masculine product for women, so we gonna see that the car companies in the future will develop more products dedicated to women.
And, at the same time, in terms of dealerships and also in terms of customer service, they will provide a more unique customer experience.
So I think this is definitely gonna happen.
Also, for maybe the younger generation and at the same time, even more for the older generation, health, wellness and wellbeing in cars will grow tremendously; you might see more health & wellness features.
Because what we are seeing is a trend that people are living longer and in many cases, the older people want more mobility than what they have had in the past in the same age group. Therefore, many car companies (especially in countries like Japan where aging population is a big, big challenge) are developing special solutions for this kind of people.
So it’s actually right, we’ll see more segmentation of the car industry in the future.
W: What are the biggest challenges for car companies?
I think the biggest challenge for car companies is that they think too much ‘hardware’, they think too much ‘car’; they don’t think about service business model so much.
And in the days of this connected experience and connectivity in cars and new business models like car sharing are coming in, car companies need to think about more than just the product.
To me, that is the place where most of them are struggling right now.
W: Is there anything car companies should not sacrifice during this transition?
S: You know, as we find, one-third of car drivers love their cars. One-third of car drivers are just using the cars because it’s a way of them travelling from A to B. And one-third of them are in between, they are no ‘petrolheads’ but they are not completely out of sync with cars either.
And that ‘one third’ who love cars and the driving experience are getting much more sophisticated.
So it’s important that car companies don’t give up their DNA, the ‘DNA of car companies’.
That’s why German car companies do so well, because they bring driving pleasure in cars.
And even if tomorrow the cars become autonomous, those will be times when two-thirds of customers want to have a driving experience. So the challenge for car companies is to completely retain that but also build upon new skill sets like the connectivity in cars and new business models.
So I would always say to car companies: don’t give up your base DNA.
W: Frost & Sullivan predicts that by 2020, 5% of all cars may be sold entirely via online channels. Is this true? What do you see as critical for this shift?
S: I think from a company perspective this is absolutely true. This year we hope to see BMW launch their online platform and we’ll see more and more companies doing this.
I think there are a couple of problems. Legislation is an issue. The dealership lobby can be very strong in countries like Germany and the US. So I think we need some changes in legislation. Like Tesla is not allowed to sell in certain states. It’s just terrible; I mean, these days, to say you can’t sell online, it’s just not the way. So I think legislation and some of the dealership groups need to evolve.
The challenge for car companies is how to keep the channel network involved in this new online sales.
Secondly, the customer journey has to be seamless. You might order the car online, but you might still go to the dealership to pick it up. Or, you might go to the dealership to have a driving experience there. And then go online at home, configure your car online and order it.
So, this is a key one for car companies, ensuring that the online and offline, ‘brick’ and ‘click’ is completely integrated.
W: Which interesting new concepts are we starting to see more of in terms of digitalization? Do you have any examples..?
S: I think in terms of new car buying, the Audi City is a very interesting new concept of retailing cars.
It’s absolutely, completely integrated with an online and offline experience.
It’s a smaller showroom and it’s in the heart of the city. The idea is to give the customer a unique experience. 50% of cars bought from Audi City London are without a test drive. So, it’s a good example.
The other one we are starting to see is car companies trying to develop solutions where the car can communicate with the dealer management solution to book a service, for example. Instead of the human driver calling another human in a dealership and trying to figure out when they can book a service, in the future the car will respond saying you need your battery changed, a tyre upgrade or your service is due: ‘These are the five slots available, which one would you like to book?’
These are some interesting examples we’re starting to see.
W: Will new showroom and dealership concepts continue to evolve?
S: Yes, absolutely.
What we see regarding the conventional showrooms, the conventional dealerships is that 15-20% of them are becoming more digital.
They will have powerwalls, car configurators, holographic coming in. And we will see more and more flagship and lifestyle stores being opened. And more in the city centers of busy cities, in places where people complete the day.
So, I think some interesting technologies we’ll see are powerwalls, holographic, simulators, gaming technology. We will see more of these coming in the future.
W: Lastly, talking about the organizations themselves, what will the automotive company of the future look like? Can we still talk about purely ‘automotive’ companies at all?
S: I think in the future, the lines will get more and more blurred. One of the things we’ve found is that we see more and more connectivity come in. And lots of these mega trends from energy, from connectivity and smart products, what they’re doing is bringing in convergence.
There is a convergence of products, so for example, electric cars are converging with the energy industry and the car industry. That is what Tesla is doing; they’re leveraging the battery, the second life of the battery to sell it for home solutions or utility solutions.
Likewise, what we’re seeing is car companies moving into new areas and companies like Google, Alibaba, Amazon moving into the car industry.
So these lines are getting blurred.
The way I see car companies responding is that some of them are starting to become ‘mobility companies’.
So, it might not be a ‘motor company’ but a ‘mobility company’ in the future. Already we see some examples, like Daimler doing it with Google, or BMW doing it.
But at the same time, some car companies that are more niche will become more like lifestyle products in the future. Some of the luxury companies might go down that road. Whereas perhaps some of the others who don’t innovate may just become commodities in the next 20-30 years.
There is an interesting shift that is going to happen in the next 20 years. Again, driven a lot by technology.
W: Sarwant, thank you very much. Thank you to everyone as well for being with us today. You can find further interesting content by us on whisbi.com
About Sarwant Singh:
Sarwant Singh is a senior partner at growth consulting company Frost & Sullivan, with over 21 years of experience focusing on mega trends in Mobility. He’s a regular contributor to Forbes magazine, bringing the latest insights from the Automotive industry to online readers around the world.