Dealerships can learn lessons from other retailers like banks.
The January new vehicle retail sales numbers for Canada have been described as an expected softening in a more stringent economic environment and sales for January are still touted as one of the best (January) performances on record.
That’s one way of looking at it. I believe though, that 2018 sales patterns and the slower start to 2019 are just a part of a true shift that we’ll see taking place in our industry over the next decade.
We can’t look at sales patterns in isolation of some of the fundamental changes that are happening across all aspects of the industry. When it comes to the consumer, there are four major areas to look at when we try to understand what the future looks like.
The Canadian population is changing in many ways – don’t miss the big picture
It seems just a short while ago when Canada’s population hit 33 million, then 35 million. We have the fastest growing population of the G7 countries over the past five years and, unlike some markets like Japan and Italy, our population is not aging as fast as many other developed countries.
The median age has moved from 40.5 years in 2014 to 40.8 years in 2018.
Not only is our population growing, but it is increasingly concentrated in just four provinces.
In July 2018, the four provinces contained just over 86 per cent of the Canadian population. In all the hype about the changing structure of the population (millennials, etc.), we can often miss the bigger trends that are fundamental to business and the economy.
A key one is that immigrants are by far the most important part of the growth that’s taking place.
This means is that whatever business you’re in, there are indeed more customers out there. But the growth is largely in four provinces and the cultural and ethnic mix is changing fast.
Especially among new Canadians, economic lifestyles, preferences and priorities will begin to change the landscape in many markets.
This is not really new news, but very important in an industry that is becoming more concentrated and going through changes that have real implications on where and how businesses like car dealerships invest for future success.
Using technology in the dealership – what can we learn from the banks?
“Not much!” I hear many of you say. Until a few years ago, bank branches were almost at the same level as telecom companies in terms of the customer experience.
They still have a long way to go, but watching some of the approaches being adopted by major players in Canada and abroad gives an insight of what’s to come.
It’s been fascinating to watch the retail banking sector moving through the transition from a very slow and cumbersome branch environment to a much slicker and more customer-friendly experience. Technology has been at the core of their transition.
Early on, ATM’s were the pinnacle of banking technology and were seen by many as the beginning of the end for physical branches. But both customers and banks realized that their dealings were often more complex and required face-to-face interaction to be completely effective both for the bank and for its customers.
In just the past year, a number of our major banks have embarked on initiatives to transform both the physical environment and the operations in their branches as they deploy the necessary changes to meet the requirements of a digital world.
At one time, the common perception was that banks would significantly reduce their physical branch networks and that did happen to some extent.
But now, the same banks are rethinking their branch strategies, using technology as a key tool. Bank branches are not going away as some predicted — they are being transformed because customers still need and want human interaction at some time.
A report from McKinsey (“A bank branch for the digital age”) says “Far from rendering the bank branch obsolete, digital technology holds the key to the branch of the future.” They envisage a future with four distinct branch formats: box branch, standard branch, segment branch, and flagship branch. See chart on page 42.
The four distinct branch formats of the future:
Source: McKinsey, July 2018
Things are never easy, though. A recent comment by Terri Currie, head of Canadian retail banking at TD points to the reluctance of business to see the need for a balance.
She noted that she often got the question from investors: “How are you reducing your expenses in the physical channel to be able to afford your digital investment?”
She also noted that despite customer preference for doing more and more transactions digitally “the bulk of customer acquisitions kept coming through the branches.”
Can we see these examples as applicable to a car dealership? With advances in technology in vehicles, in vehicle servicing, in dealership operations and with shifting consumer expectations, I think we need to look beyond the obvious differences and try to see the underlying principles in what’s happening.
In a previous column, I wrote how important I feel it is for dealerships to strike the right balance between technology and human interaction.
I believe strongly that we can learn from wins and missteps in other customer-facing sectors to provide dealership customers with the right balance between the technology and human interaction they want. The secret will be to deploy technology that does indeed benefit the customer and hire the right people to use it.
Consumer values and preferences. They’re changing and they’ll challenge us
It used to be that the two biggest acquisitions that many consumers made were a house and a car or truck. That’s probably not the case for many of the new cohort of potential car buyers coming your way over the next decade or so.
In this context, a recently published consumer trends report by global market research firm Mintel identified a number of consumer trends that will shape the years ahead.
Mintel also found that, when asked where Canadians will spend discretionary money “39 per cent said entertainment (up from 25 per cent in 2017), 38 per cent said dining out (up from 30 per cent in 2017, and 35 per cent said travel (2018).
These findings tell you a lot about the customers who will be meeting you online and walking through your door in the future.
The comments about millennials not feeling confident dealing face-to-face with strangers is a clear signal of the critical importance of the first live contact with a customer. Even though there might have been some interaction online, the moment of truth is when that first contact is made.
How will car ownership fit into the lives of the customers of tomorrow?
A new car may not be at, or even near the top of the list for many consumers in the coming decades.
Much has been written and said about new ownership models and whether ownership of a vehicle will even be required in the future.
If consumers are looking more for “experiences over things.” ownership of a depreciating asset (and one that consumes discretionary money) will become less and less attractive.
Both manufacturers and dealers (and finance providers) are deeply involved in developing strategies for the changes that are coming and for consumers, there are now far more mobility options available. The range of options and the convenience and quality of these options will continue to increase.
This is where the banking experience becomes relevant for us. Banks realized the importance of the human interface at the appropriate times and when customers wanted it. They still have a long way to go, but I believe the physical footprint of banks will undergo more changes.
I can also see changes in the physical footprint of dealerships with a spectrum — from an almost entirely automated and non-personal engagement, to a highly personal and complex face-to-face engagement.
Just as we said twenty years ago when the Internet was becoming ubiquitous, the role of the dealership will not disappear.
But now, it’s not a matter of just adapting to a new way of dealing with customers. The sands have shifted in a much more fundamental way and adaptation will mean looking at fundamentally different business structures and practices.
Softer sales, despite a growing population, may be an early indication of what’s to come.
Another clue is that, according to Deloitte Canada, the average age of a new car owner (bought in the last three years) has crept up to 51 from 48 in both 2017 and 2018.
It’s the older consumers who have been powering the market and younger consumers are standing on the sidelines. Are they just waiting, or are they sending a message?
