Marketing & Sales

Automakers were among the first to recognize the value of an online presence, creating Web sites and car configurators to attract the digerati. But in more recent years, many original-equipment manufacturers (OEMs) have fallen behind when it comes to systematically reaching their customers online, instead still focusing the bulk of their marketing and managerial resources on offline marketing spending or unsystematically tapping digital opportunities. Eight trends are compelling the industry to sharpen its online game; in view of these trends, companies should take an integrated approach to fully leverage the opportunities of the digital age.

1. Digital is key to driving premium perception. McKinsey analyzed 24 customer touchpoints for more than 9,000 new car buyers to better understand which touchpoints drive customers’ premium perception and hence willingness to pay. A factor analysis identified 7 core touchpoint dimensions of customers’ willingness to pay. Of these, digital experience ranked second most important, just behind live experience. Thus, while the focus on traditional dimensions such as product and retail experience remains key, OEMs need to step up their online game.
2. The digital value chain is becoming a reality. Digital offers opportunities for OEMs throughout the value chain, going far beyond traditional marketing. For example, OEMs can and should use digital tools to gain insights into their product development and revolutionize their retail environments. Moreover, digital will play a key role in generating new leads. Clearly, leveraging digital needs to become a reality throughout the value chain; the vast majority of OEMs have huge opportunities to do even more than they’re doing now.
3. Digital channels dominate the purchasing “journey.” The process of purchasing a car involves a number of phases. From awareness to consideration, shortlisting, purchase, service, and ultimately repurchase, the “consumer decision journey” (CDJ) framework describes the way car buyers move from an initial consideration to their final purchase. Throughout their journey, customers increasingly rely on digital channels, for example, checking brands’ Web sites, reading reviews, and visiting social networks and community forums in the consideration phase. Recent insights have revealed that more than 50 percent of customers make their decision online, emphasizing the importance of managing the online channel for car makers.
4. Digital customers demand seamless integration. Our research shows that a new phenomenon is changing the landscape: customers who research online but purchase offline. These customers compare brands, obtain advice, and often also check pricing online before they move offline to the traditional retail channel to buy their car. This heavy, and growing, reliance on online information sources requires marketers to pursue an integrated marketing approach that cuts across different channels and customer touchpoints. In the future, it will not be sufficient to understand customer needs; companies must also grasp their channel behavior.
5. Digital products can secure loyalty. The digital age is also changing the products that appear in today’s cars. Many OEMs are introducing new levels of digital content and services in their products, with an eye toward integrating the car into consumers’ increasingly online lifestyles. Given that consumer-electronics alternatives are moving into the market, OEMs are developing solutions that allow the integration of external digital solutions yet enable them to keep their position as integrator and gatekeeper.
6. Digital sales are bigger than expected. Traditional physical retail channels still dominate sales of cars, but digital sales are becoming more of a reality, especially when it comes to used cars. In Germany, for example, five million of the country’s six million car sales (new and used) are triggered online (that is, the sales are driven primarily by online platforms). New-car sales are still a very small share of this type of transaction given the perceived risk, as well as the limited ability to negotiate prices. Even in the new-car domain, however, 25 percent of purchasers stated a preference for moving toward online channels in the future.
7. Digital communities influence decisions. Car buyers increasingly rely on the opinion of others when purchasing a car. They go into communities and read neutral online reviews before making a decision. Therefore, it becomes essential that OEMs actively manage their presence and discussions in various online communities. Many OEMs have already realized this opportunity and educated teams to follow the discussions and provide input when needed.
8. Digital communication needs to be strategic and comprehensive. While many inspiring examples of digital-marketing success exist in the automotive industry, only a few players have begun to approach the online opportunity from a holistic perspective. Although having a YouTube channel or an innovative app is a good starting point, in the end, only a systematic approach will allow companies to capture the full potential of the digital age.

As these eight trends demonstrate, digital interactions increasingly influence consumer decision journeys when it comes to shopping for and buying a car. In consequence, OEMs need to address this new behavior systematically. In addition to these eight trends, going digital can significantly reduce an automaker’s channel costs and its expenses associated with loyalty programs and customer-relationship-management initiatives. Given their advantages, digital media have overtaken traditional options with respect to effectiveness, and OEMs are already using them heavily. During the next few years, we believe digital-marketing budgets in the automotive space will experience the largest increases in the industry.

While digital media can reduce costs and boost marketing effectiveness, these benefits come at a price of their own. Automakers, for instance, lose partial control over the information flow that plays a critical role during the consideration and purchase-intention or shortlisting stages. The digital revolution is changing consumer behavior toward traditional buying channels. For example, the average number of showroom visits prior to purchase has dropped from about four in the past to one today, perhaps illustrating dealers are no longer simple information providers but rather play a role focused primarily on direct product experience and price negotiations. This is leading some to reassess their need for showrooms and facilities focused on handling higher visitor volumes.

To address these issues, OEMs can take steps to accommodate new customer behaviors and in the process tap fully into larger digital-marketing opportunities. It has become clear that online resources are not simply another information source for customers; they completely change the behavior of shoppers throughout the information-gathering and purchasing processes. What’s more, we have discovered that brand performance can differ significantly depending on what type of purchasing journey customers take. In order to develop effective marketing strategies and plans that also involve the most efficient budget allocation, companies need to acquire a deep understanding of these purchasing journeys.

We strongly believe that a robust digital-marketing strategy must assume a holistic online-offline perspective, and one way to achieve this goal is to make use of the CDJ. This framework helps OEMs develop a customer segmentation based on a combined perspective on buyers’ attitudes and usage of channels and touchpoints.

By examining the channels customers use when shopping for cars or similar durable goods, marketers can determine which ones will be best for reaching customers. Likewise, analyzing attitudes will help automakers determine what kind of information consumers are seeking and what messages will reach them most efficiently and effectively.

A CDJ-based segmentation can provide critical insights into all key marketing areas. It can answer several kinds of questions: how do we manage our brand portfolio for growth? How should we invest our marketing budget in different communication channels? Which touchpoints will win consumers in the active-evaluation phase of car buying? Which messages should we deliver and where? Which distribution channels should we favor, what should our price position be, and do we maintain customer loyalty?

The CDJ-based approach integrates the “how” of consumer attitudes, which reveals the kinds of information that they seek and the best messages for reaching them, with the “where” of their channel use, which provides insights regarding which channels—and which digital channels in particular—marketers can use to reach them best. By contrasting the traditional attitude dimension with the channels customers actually use to gather information about their next car purchases, marketers achieve much greater transparency into customer needs and behaviors. For instance, in this case, the CDJ reveals two new customer segments—autonomous onliners and quality onliners—that traditional approaches would have missed.

In order to build the CDJ-based segmentation, marketers need to follow three steps:

• Build attitude groups using cluster analysis

  Marketers conduct a traditional, statistical cluster analysis based on the attitude profiles of survey respondents, examine different cluster solutions, and select the one that offers sufficient differentiation with sizable segments.

• Build channel groups

  Next, the team analyzes each cluster’s channel use as reflected in the consumer decision journey and then selects solutions based on actionability, group size, and differentiation levels.

• Combine the two dimensions to create segments

  Marketers then use both elements to build possible segment solutions and select those that provide the highest levels of differentiation, relevance, and actionability.

Once identified, marketers profile each segment to obtain a deeper understanding of the consumers who inhabit it. We can use quality onliners as an example: with regard to attitudes, they are very interested in and knowledgeable about cars and see them as a way to express their personalities. Regarding products, they are ready to pay more for high quality and primarily tend to purchase well-known top brands. What’s more, the specific features and characteristics of the product constitute key purchasing-decision factors. These customers shop in a specific way. Before purchasing they inform themselves online by visiting motor shows and talk to other people who are interested in cars.

Online, their purchasing decisions tend to be especially influenced by forums and blogs. When ready to buy, they enter the dealership very well informed about products and prices and have normally already made up their minds about which car to purchase. These customers are primarily middle-aged men who own more expensive cars, including a high share of sports cars.

By achieving this deeper understanding of customers, an OEM can adapt its marketing plans to increase their effectiveness. As digital takes more power from dealers in key segments, OEMs need to reallocate their marketing spending with the aim of reaching customers through digital channels. That does not mean abandoning dealers and traditional points of sale, which as a group will continue to play a major role in the purchasing decision.

Instead, they should focus on the most efficient ways to influence dealer-level customer recommendations as well as align and integrate their online and offline communications strategies. When an automaker discovers spending categories that have no impact on purchasing decisions, it should immediately suspend those marketing activities. And in cases where communications do not target relevant segments, the new segmentation should help clarify and adapt these messages to reach important customers. The impact of effectively shifting budgets to digital marketing in the industry can be significant. For instance, one OEM that introduced a CDJ segmentation has reduced its large offline consumer-marketing and dealer budgets in order to add 14 percentage points to its online budget. This shift will enable it to increase revenue 10 percent as it moves customers to higher-revenue products, boosts sales, and introduces sustainable price increases.

The fast-moving digital age presents huge opportunities for OEMs. Yet many OEMs and industry players are still a bit shy about fully tapping these opportunities, spending too many marketing dollars in legacy channels. A CDJ-based segmentation is a proven methodology that can provide the insights marketers need to holistically reallocate their spending for the digital age.