Before I begin unpacking what car dealerships need to do to keep up with digital transformation, let’s all agree that it has been mobility unusual. One thing I’ve come to believe in, is that one can’t predict the future or even plan for it, which prior to the pandemic one wouldn’t have thought. Now as we’ve all been affected by the pandemic, we’ve seen big companies like Edcon, Comair and others closing down. For me, this was a clear testament that the future is certainly uncertain.
Lockdown caused a shift in consumer car shopping behavior
The lockdown caused a fundamental shift in consumer car shopping behaviour. We noticed two driving forces that impacted this shift:
- Macro-economic factors
- Shift in consumer mindset
Prior to lockdown, whilst we were expecting a -5% decline in the car retail industry, lockdown hit and the first COVID-19 case was recorded on the 5th of March 2020. It was a dark time for the South African automotive industry and no one could predict what was going to follow. I recall sitting at home and thinking about how we as the automotive industry were going to sustain ourselves during this unpredictable time.
Then it struck me that if we’re not active as a business or as the automotive industry, we’re not going to do the industry a service. I quickly hopped on calls with other industry leaders to ask what we should do to uplift our industry including lobbying to government. Fortunately, 4 – 8 weeks later, the automotive industry began trading again – thanks to a combined effort from everyone.
Consumer car shopping behaviour has changed
As lockdown hit, there was an immediate shift in the consumer car shopping behaviour with lowest points of traffic on AutoTrader the day before lockdown. Where were you on the 26th of March? On this day the traffic to our site decreased by 45% and we could only assume that car shoppers were out panic buying.
Surprisingly, consumer searches started to rise the next day – a trend that hasn’t stopped till now. All I can say is that car buying consumers are resilient.
As we eased further into lockdown, we started seeing a few more interesting trends:
– car buying consumers became insomniacs with most searches occurring between 11pm and 3am
– there was a 78% increase in consumers searching for cars at 2am – what were people doing searching for cars at that time? Now consumer car shopping behaviour has shifted, with searches at midnight exceeding those done at 9am on an average day.
– there was a buying-down trend with the R50k car category increasing by 15%
– whilst the R100k car category increasing to 29% – which is starting to stabilise.
– there were 10 x more searches for armoured vehicles as we entered level 2 and level 1 of lockdown
Just from these trends, we can all agree that these changes were bound to happen at some point, it’s just that the pandemic accelerated them at an alarming rate.
The innovation curve has compressed for car dealerships
The pace of digital transformation that’s happening right now, changes the innovation curve more than ever before to a curve that is more compressed.
It’s because of this compression that businesses are now in a rollercoaster to innovate at a faster rate and many businesses are not sure what to make of the compression of the innovation curve.
I would like to help car dealerships with ideas that we used at AutoTrader to build our platform as we were transitioning into a digital platform.
Producers & Platforms, which type of business are you?
There are two types of businesses: Producers & Platforms:
Producers: They have existed for the longest time, and it’s these kinds of businesses that produce actual products e.g. cars, cellphones, etc. Value creation in this type of business comes from within the company, where the company produces a product which they sell and revenue growth comes from the sale of those products.
Platform business: Value creation happens outside this kind of business. Spotify is an example, they track the songs people listen to and they suggest songs to the users of the platform, same for Facebook too. That’s one of the great benefits of a platform type business; is that they learn from both users and suppliers of the content – and, therein lies the value.
AutoTrader used to be a producer, as a magazine business till 2017, with high print and distribution volumes, we had limited network effects – something that platforms have the benefit of. What does this mean? Platforms benefit from the users on the platform being connected to each other.
Example: If we give our users access to search volumes on a particular listing, this in turn informs the user on how popular a specific car is and in return that user can decide on whether they are still interested in the car or not.
Platform businesses are valuable
There’s something unique about platform businesses and that is they become incredibly valuable. The value of platform businesses is different from producers. Why is Uber valued more highly than BMW? Many people think that this is a bubble – how can a business that doesn’t product a product be so valuable? To understand that this is not a bubble, I will explain two different types of effects i.e. Viral Effect & Network Effect.
1. Viral effects are short lived and travel in one direction. When interacted with its over! Example, have you ever watched a viral video more than twice, maybe, but have you ever watched it over ten times? Maybe not, but maybe if it’s that good.
2. Network effects are different and that’s where the power of platforms lay. Network effects have a different type of digital connection and it’s in this connection that businesses and customers engage with, and engage with each other.
And this is where Digital Transformation begins – in the building of network effects and platforms.
4 competitive advantages that include network effects
I’d like to propose 4 key competitive advantages that include network effects because your world at the moment would look like this:
1. Vertical Integration: we would be able to drive vertical integration to our business by buying up the value chain. It’s a way to reduce the cost of your product.
2. Brand: Building a brand is very important
3. Scale: Getting to scale like what Henry Ford did. He found a way to bring a very expensive product into the market and use the effects of scale by reducing the cost of production for the product
4. Network effects: if we can harness network effects on a platform, it could be much bigger than the other three – something AutoTrader has lived to see its success.