Insights|What Is the Future of Car Dealerships?

What Is the Future of Car Dealerships?

It’s time to harness customer data, invest in training and disrupt the car dealership experience in line with changing customer expectations

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the future of car dealerships
by Matt Fry March 12, 2020 - 5 MIN READ

Mercedes-Benz is a car brand focused on luxury and personal service. It has one of the country’s best J.D. Power in-person customer buying experience ratings. So, when it announces it’s aiming to sell up to 25% of its vehicles online by 2025, the message is clear. Car companies need to reconsider the automotive path to purchase.

When the first car dealership opened its doors in 1897, it was a revolutionary idea. Consumers no longer had to travel to a manufacturer in person to inquire about buying a vehicle and then take that rolling chassis to a coachbuilder to put a body on it. However, in the 123 years since, while every other aspect of the automobile has moved on, interactive displays, free Wi-Fi and a better standard of complementary beverage notwithstanding, the future of car dealerships looks very much like the past while the reset of the industry seems to be racing into the distance. 

Phygital retail

The face of retail has been utterly transformed by new technologies that have enabled new shopping behavior and increased expectations. Consumers now inhabit a phygital retail world – thus called because it blends the best elements of digital commerce with the unique aspects of shopping in a physical store. It’s why over the past five years the typical number of visits a customer makes to a dealership on the path to purchase has fallen from five to two.

This shouldn’t come as a surprise. With the wealth of information available online, from customer reviews and YouTube videos to comparison sites and online vehicle configurators, dealership personnel are no longer the only font of automotive wisdom.

However, the ability to actually see, touch and get a feel for a new car is still crucial. A new car is one of the most expensive purchases the average person will make and like buying a house, very few people would be prepared to sign on the dotted line without seeing it first. This fact alone means that the future of car dealerships will involve a physical element. 

Indeed, when U.S. consumers are asked to list the reasons for visiting a showroom, the responses are always the same – to physically see the car, take a test drive or speak to an expert who can explain the vehicle’s features.

This is why Mercedes also expects 80% of all customers to continue coming to its car dealerships even as more and more of the initial consideration and selection process moves to digital channels. However, car dealerships will need to be ready to optimize this touchpoint and the data suggests customers are getting an inconsistent CX – 68% of U.S. car buyers interviewed by Kantar say they didn’t get a demonstration of their car’s features at the dealership.

Learn lessons from retail

This oversight can be addressed through more focused and CX-led training. Customers potentially have all of the answers to any of their questions in their pocket thanks to the ubiquity of the smartphone. Sales representatives need access to the same types of technology and need to know how to use devices such as tablets seamlessly during customer interactions.

However, there’s another issue. Whether deserved or not, salespeople have a bad reputation. Research from Gallup found that only members of congress are considered less trustworthy or ethical than salespeople working at car dealerships by the U.S. public. Indeed, encountering a ‘pushy’ member of staff is one of the most commonly cited reasons for not wanting to make numerous visits to a car dealership.

Korean carmakers Hyundai and Kia have spent a lot of time considering this problem and their solution was to hire people whose background was in high-end or luxury retail rather than the automotive business, to staff showrooms, beginning with a pilot in London. The result was these car dealerships over-indexed on customer satisfaction because a different type of customer relationship was being created and fostered. 

But unless automotive brands can drive consumers through the dealership doors, salesperson training will be in vain.

Driving customers to your door

J.D. Power research shows the automotive path to purchase currently takes 10 hours and is spread over a three-month period. It can generate up to 120 digital touchpoints and will shift from online to offline channels four times. And, thanks to their experiences in other areas of retail, customers increasingly expect this shift between channels and elements to be seamless. But if data captured on a manufacturer’s website regarding vehicle type and specification can’t be shared across a dealership network, for instance, when a customer makes a first person-to-person enquiry or reaches out by a channel such as voice or live chat, the customer service representative doesn’t have the information needed to quickly optimize that engagement and move the customer to the next step of the journey.

Therefore, manufacturers and dealerships need to address their channel strategy. They need to make certain that all interactions and touchpoints are captured and shared and crucially, they need to be on the channels that their potential customers are using. This could mean paid ads on Google, a video channel on YouTube or Facebook pages or sponsored stories. And this is on top of offering access to an integrated contact center or providing live chat or responses via social channels to potential customer questions.

The current disconnect between channels and customer journey steps is why, according to Cox Automotive, 57% of U.S. car buyers have made no prior contact with a car dealership before arriving for the first visit. In such a situation it’s a huge challenge to meet customer expectations as you first need to ask what they expect.

Use technology to take back control

There’s an argument to be made here that because so much of the journey is now digital and out-of-scope that it’s becoming more and more difficult for anyone other than web search and social media gatekeepers to control the path to purchase. However, brands are finding both hi-tech and low-tech ways of taking back the discovery and consideration stages of the sales funnel.

BMW has turned to big data analytics to understand exactly what makes a consumer a potential customer and uses these insights to target that individual on his or her channel of choice at exactly the right moment.

U.S. luxury brand Lincoln has invested in creating experience centers: reimagined dealership spaces that offer so much more than the chance for a test drive. There’s a calendar of live events, a café and restaurant and crucially, each of these showroom spaces are in areas that are easy to reach. Just like the best elements of phygital retail, the company is providing people with an immersive brand experience and in doing so is learning even more about its potential and existing customer base.

Where the customer relationship is built

With growing competition at each level of the automotive industry from bespoke to mass market, the role of the car dealership in maintaining and building the customer relationship has never been more important.

Post-purchase, it’s the dealership’s responsibility to maintain contact with the customer, to meet their servicing and maintenance needs and increasingly provide add-on or aftermarket services.

The majority of a dealership’s revenues come from providing finance and from undertaking post-purchase maintenance. So they need the technology in place to continue gathering insights on their customers and making sure they’re ready to serve their needs. Yet, according to a 2018 Deloitte Study, 26% of car buyers said that they were never contacted again by the dealership following the sale.

But get the customer experience right and everything else will follow – 74% of consumers who visited a dealership for servicing and maintenance (who were in the final year of their lease or financing deal) and had a positive experience told Cox Automotive they’d return to that dealership to buy their next car. 

To learn more about the challenges facing all businesses within the automotive industry download our white paper: 

Matt Fry
written by Matt Fry VP, Customer Experience (CX) Strategy at Sitel Group
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