Direct to Consumer VSC Sales

Direct to consumer (D2C) service contract sales can be divided into two broad categories: with and without dealer consent.  This, along with the lifecycle “touchpoint,” determines the choice of tactics. Today’s post will discuss the state of the art for dealer-driven D2C selling.

Direct-to-consumer marketers price VSCs to absorb high cancellation rates and can generate margins in excess of 25% – Gina Cocking

Outfits like Car Shield market directly to consumers using their own advertising and their own lead lists.  These are generally brokers, selling service contracts from their chosen administrators, outside the dealer process.  Car Chex does this, and also does marketing for dealers.  Endurance, whose ads you may have seen on television, is actually an administrator.  On the dealer side, obviously, D2C marketers will offer whatever service contract is sold in the dealership.  The leaders here are APC and Dialog Direct.

The traditional tactics are telemarketing and direct mail, but there are some exciting new entrants.  The image above is from Tec Assured.  Their 2-8-28 contact program uses a combination of digital and phone messages directing the customer to a branded website.  The site handles credit cards and premium finance.  Instead of a call center, Tec Assured leverages the dealer’s BDC.

So, the ideal approach would be some Hegelian synthesis of the old and the new.  First, though, let’s talk about touchpoints:

  1. Second chance – this is around thirty days after the vehicle purchase, and the talk track is something like, “hope you’re enjoying the new car, and you forgot to buy a service contract.”
  2. Warranty expiration – this is a few months before the factory warranty expires. A postcard is traditional.  Directing the customer to your website, via digital marketing, is more modern.
  3. Service visit – dealers have the inside track here, because they can follow up a service visit with something like, “lucky thing that repair was covered.”

Thinking about these touchpoints, you can see the power of adding digital tactics to traditional D2C marketing.  You may also have noticed the eligibility issue and the financing issue, because the sale is happening outside the dealership and after vehicle purchase.

Servicecontract.com offers monthly subscription pricing, which may begin during the factory warranty period.  This means the customer is paying in advance for coverage that hasn’t started yet.  On the other hand, if the factory warranty is expired, then they require an inspection at Pep Boys or a 30-day waiting period.

Financing is key.  No one is going to buy a $2,000 service contract on their credit card.  This is why Dialog Direct is affiliated with Budco, a well-known premium finance provider.  APC also has a financing arm.  Servicecontract.com is essentially an innovative form of premium finance.

In my experience, the hardest piece to build is the call center and support infrastructure.  Whoever handles the finance contract has to support accounting, cancellations, and customer service.  Even if you’re not doing telemarketing, you still need a call center.

Digital marketing means using email, text, social, and retargeting to direct the customer to your website, following a contact program like Tec Assured.  As a Salesforce trailblazer, I would call this a “customer journey.”  The journey should be driven by some analytics, and culminate in the customer clicking a Personalized URL that links to the website.  The journey can also include phone contact and direct mail.

The website can change its skin to match the dealer’s branding, based on the PURL.  When I was at MenuVantage, we supported a dozen different brands, like GMAC’s IntelliMenu, all from a single code base.  The site UX will include the usual shopping and checkout features, along with sales tools like testimonials and TCO data – not unlike an F&I menu system.

Also like a menu system, the website must be able to originate contracts via API for whatever product provider the dealer chooses.  See my various posts on this topic, as here and here.

This is classic digital transformation.  The challengers bring new tactics, and these tactics will certainly become the norm.  The incumbents are well entrenched, though, and tactics can be copied.

Corona News Roundup

I spent my sequester time looking for smart people with fresh takes on the crisis.  First, in the “obvious” category: a lot of people got hurt, and dealers who could sell online got hurt a little less.  By the way, if you’re in need of some encouragement, click on over to Megadealer News and check out some of the philanthropic efforts underway.  I have been actively seeking positive news for my Twitter feed.

I like to frame this in terms of people developing new capabilities. 

Going forward, buyer behavior is going to change.  Some of this is an acceleration of existing trends.  Balaji Srinivasan writes that corona is putting an end to the Twentieth Century:

  • Offices → Remote work
  • Stadium sports → eSports
  • Movie theaters → Streaming
  • TV news → YouTube news
  • College → MOOCs
  • Public school → Internet homeschooling
  • Corporate journalism → Citizen journalism

He might have added socializing by video conference.  We had our kids staying with us, doing remote work by day, and Zoom parties in the evening.  I like to frame this in terms of people developing new capabilities.  Here is Andrew Tai talking about people in his neighborhood having groceries delivered for the first time.

I got to know Max Zanan from watching Joe St. John’s webcasts, talking about touchless car delivery and service pickup.  In a pandemic world, we are not just worried about dirt on the floormats.  Interior prophylaxis is part of the service.  Max also points out that, if you can’t sell service contracts in the dealership, you can still sell them Direct to Consumer.  This is something I know a little about, so maybe I’ll do another post just on that.

Ridership on New York’s transit system is down 90%, and experts say this could portend a permanent change in the mobility equation.  The alternative to a personal vehicle used to be public transit or, in drivable cities like Atlanta, ride hailing.  Both are good ways to get sick.

Guns, ammo, and survival gear sold out rapidly, as if everyone is suddenly a “prepper.”  I imagine these people will want to have their own vehicle, with four-wheel drive.  I can relate, because I lived in South Florida for many years.  You don’t want to be waiting on Uber when there’s a hurricane bearing down.

My last few findings are from the world of computer networking.  Infrastructure becomes a challenge when the dealership shifts to online work, notably network security.  Virus scanning and security procedures may not be up to speed when people are working from home.  Also, not all dealer software is web-based, so VPN access becomes a requirement.

Be safe out there.

Digitally Disrupting Dealer Systems

I hesitated to use the D word here.  So much of digital is normal, healthy evolution, that saying “disruption” is like crying wolf.  So, I will digress briefly into that discussion before presenting my thesis, which is: traditional dealer-system providers are about to be whipsawed bigly by digital retail.

According to Gartner, digital disruption is “an effect that changes the fundamental expectations and behaviors … through digital capabilities.”  This idea of changing expectations is echoed by Aaron Levie, to the effect that businesses “evolve based on assumptions that eventually become outdated.”

If your UI even vaguely resembles an airline cockpit, you’re doing it wrong – John Gruber

Another common theme in studies of digital disruption is that people will come from outside the industry, bringing new attitudes and techniques that incumbents can’t match – something I like to call “advanced alien technology.”

Modal’s Aaron Krane came from online sports betting, and famously wondered why there is no “buy now” button on the Mercedes-Benz web site.  Andy Moss of Roadster came from online fashion retail.  I think I am on solid ground arguing that DR pioneers bring something fundamentally different.

In fact, I can identify the baseline assumption which is now outdated.  In olden times, the user of auto retail software was an auto retail employee.  These were experts, executing an esoteric process, and they could be trained to deal with crappy user experience and disjointed workflow.

Today’s user is, of course, the car buyer.  A few years ago, I wrote that each of the six canonical tasks in DR would need a “buddy” on the dealer side, with which to share information.  For example, the website may disclose prices for protection products, and it would be nice to pull retail markup from the menu system.

It’s hard to believe how quickly DR has evolved.  Roadster had just launched Express Storefront when I wrote that article, and already the buddy system is dead.  If a car buyer can desk her own deal, at home in her pajamas, why use a different system in the dealership?

The advantages to using the same system in store and at home include trust, transparency, cost savings, and reduced demands on the salespeople.  The new generation of in-store DR means that salespeople can be experts in customer service (and cars) instead of complicated software.

This marks the culmination of important trends in auto retail, from “one experience” at Sonic to “single point of contact” at Schomp, and it should serve as a wakeup call to old-school software vendors. Digital retail will drive a gradual shift in dealer process, but a rapid one in software.

Digital Retail Taxonomy

The tech buzz at NADA this year was Digital Retail.  Tagrail has a new partnership, with dealer site provider Fox, and Moto showcased some of their OEM projects.  Roadster has an aggregation marketplace, which I’ll get to in a minute, and Modal (Drive) was conspicuously absent.  I hope they’re okay.

All dealer site providers are now claiming the hip acronym DR, including some that are way off the mark.  This week I want to cut through the clutter and taxonomize a bit.  We’ll see how well my predictions from five years ago have held up.

Dealers will migrate onto the most capable of the platform sites, and … the winning platforms will not be mere lead providers.

I am going to skip the consolidators and the used-car sites, to focus on DR solutions for franchised new car dealers.  That was the context for the earlier article (and the pull quote).  The grid above divides the DR space into four segments: True DR, Pivoters, TPC, and Marketplaces.

True Digital Retail

A true DR solution must handle the six canonical functions, do the paperwork online, and save the deal (not a lead) for use in the dealership.  True, not many customers will do the full process online, but you have to offer the capability.  Qualifying questions here are along the lines of “can you sell a service contract and book it online with the administrator?”

I don’t want to be pilloried for omitting someone, but my short list (when asked) goes: Roadster, Moto, Modal, Tagrail, AutoFi, and CarNow.  I can find CarNow dealers pretty easily online, paired with a variety of site providers.  Here in Atlanta, Ed Voyles is an example.

Pivoters

Anybody with a foothold in the dealer’s website is using it to pivot into DR.  The first group of pivoters are what I call “finance first” sites.  AutoGravity, DriveTime, and AutoFi are sites customers use to check their buying power before going into the dealership.  Based on intel from Ricart Ford, I would say that AutoFi has successfully pivoted into the DR segment.

Gubagoo is using their foothold in chat to pivot as “conversational commerce.”  SpinCar is adding protection products to their VDP real estate, which is right where they belong.  Even popular F&I menu Darwin is moving online with Darwin Direct.

Third Party Classifieds

My model for a marketplace is Autotrader plus its DR feature, Accelerate.  However, the other incumbents have not followed suit.  In fact, Cars.com “does not sell vehicles directly and is never a party to any transaction between buyers and sellers.”  This space is inhabited only by brave new entrants like Joydrive, GoGoCar, and Deliver My Ride.

As I wrote here, this model has plenty of challenges, like finding UX and services that will appeal to all dealers – not to mention the customers.  Dealers may prefer a simple clickthrough to their own DR solution.  This is the backdrop for Roadster’s Express Marketplace.

Roadster Marketplace

Roadster’s marketplace operates just like a TPC site.  It has the familiar VSP/VDP with faceted search, but then it segues into a full digital storefront.  The reference site I looked at, Cochran group in suburban Pittsburgh, lists 3,500 new vehicles in 18 makes, from 26 rooftops – with transparent pricing!

My first reaction, I have to say, was “Holy crap, they’ve actually done it!”  They have made their own private Autotrader.  Of course, the same market area lists ten times as many new cars on Autotrader but – funny thing – they all use Accelerate.  Competition is wonderful that way.

The arrows on my grid suggest some strategic directions:

  • Single-function solutions will pivot to become storefronts. AutoFi is an example.
  • Third-party sites will add DR functionality. Accelerate is an example.
  • As storefronts grow to serve dealer groups, they will tend toward marketplaces.

I guess the only remaining frontier would be for two unaffiliated groups to cooperate on a single platform, as I wrote in Toward a Digital Auto Marketplace, maybe in contiguous nonoverlapping markets.  The eCommerce term is “coopetition.”  Or, maybe Accelerate will gain some traction.

Schrödinger’s Combo Product

NADA has recently published a model policy for properly selling F&I products, i.e., without running afoul of the Attorney General.  It includes the disclosure formerly known as the AutoNation Pledge, and a new procedure which seems to be taking the place of the old-school waiver form.  I say “seems” because there is no mention of the old form, which I believe has something to do with nuclear physicist Erwin Schrödinger.

Prior to the sale of a VPP, the Dealership will request the customer’s acknowledgement of the election to purchase or decline each selected VPP or VPP bundle.

As everyone knows, subatomic particles exist in an indeterminate state until they are pinned down by measurement.  For example, if you have a radioactive isotope of Cesium, you can’t tell whether it has decayed until you aim your Geiger counter at it.  Not only can you not tell what state the atom is in, it is not definitely in any state until you measure it.

To show how this contrasts with traditional physics, Schrödinger proposed the following thought experiment.  Imagine there is a cat in a box with the Cesium rigged to kill the cat when it decays.  According to the Uncertainty Principle, the cat is both alive and dead at the same time.

Similarly, the F&I waiver requires each product to be either accepted or declined.  You bought the dent protection, so it prints in the green column, but you turned down roadside assistance.  It prints in the red column.  To save a few dollars, you are willing to leave your family stranded.  Please sign here to confirm.

But what if dent and roadside – and key and windshield – are part of the same bundle?  You only bought one of the components, so it would be misleading to print it in the green column.  On the other hand, you are not going to confirm declining the bundle, because you did buy part of it.  So, in which column does this product belong?

Here are some ideas:

  • The menu system should account for the child products and print them individually on the waiver. It should also count them separately as product sales.
  • The menu system should print the coverage description, and the coverage description should state which components were accepted.
  • Providers should offer bundles all or nothing, and not allow them to be split up.

Unlike Schrödinger, you will not win the Nobel Prize for solving this one – but you can provide some guidance to your fellow F&I practitioners.  Click the link below to register your answer.

REST Primer for F&I

I have worked with more than a few APIs, both “F” and “I” – pretty much all of the product APIs, plus the original open standard for credit applications – and I write about them occasionally.  See here, here, and here.  Mostly these have been SOAP, but REST is the standard for a growing community of digital retail players.

The first thing you need to know about REST is that it’s not synonymous with JSON.  If you get this wrong, you can produce a really bad API.  I saw one once, where the developers had simply converted all their old XML payloads to JSON.  You could tell because every call was a POST, even the rate requests.

Why is JavaScript more successful on the Web than Java? It certainly isn’t because of its technical quality as a language – Roy Fielding

The key to REST, as you can read in Roy Fielding’s dissertation, is making appropriate use of the Web’s native HTTP environment.  Practically, this means knowing a little bit about HTTP and how to use its commands, URLs, parameters, and headers.  For a concise guide, see The REST API Design Handbook by George Reese.

Philosophically, it means thinking about your API in terms of resources and not services.  This is completely different from SOAP APIs, which are called web services.  For example:

  • GET rates from a product provider, but
  • POST a new contract, and then
  • PUT status codes on the contract to void or remit

Fielding’s achievement was not only to define the REST style, but to derive the style from a specific set of requirements: stateless, client-server, code on demand, etc.  If you have ever wondered why JavaScript has become so popular, it is because JavaScript satisfies the code on demand requirement.

When you build a RESTful API, you should never break existing client code. Really, never. You don’t deprecate – George Reese

The URL in a REST call looks like a path, so you can do groovy things like:

  • GET /rates/{dealer} – gets all applicable rates for this dealer
  • GET /rates/{dealer}/{product} – gets only one product
  • GET /rates/{dealer}/{product}/GOLD – gets only the Gold coverage
  • GET /text/{dealer}/{product}/GOLD – gets the rich text description for Gold

For some live examples you can run right now, check out the NHTSA Vehicle API.  It has many handy methods like:

  • /vehicles/DecodeVin/{VIN}
  • /vehicles/DecodeVinExtended/{VIN}
  • /vehicles/GetAllMakes
  • /vehicles/GetEquipmentPlantCodes/{Year}

Note that you are making the request with straight HTTP and a query string, and you can have the response as JSON, CSV, or XML.  The NHTSA site will also show you the headers, the raw data, and formatted data.  Your tax dollars at work.  You should also check out the Edmunds API, VinSolutions, and Fortellis.

  • //api.edmunds.com/api/vehicle/v2/vins/{VIN}
  • //api.vinsolutions.com/leads/id/{LeadId}
  • //api.fortellis.io/vehicles/reference/v4/vehicle-specifications/vins/{VIN}

These are all examples you can emulate if you’re just getting started.  In particular, I recommend studying how they handle authentication and versioning.  Note how they’re organized around resources and, if you have an OO mindset, think of your objects first.  You will also want to look at platform tools like Swagger and MuleSoft.

Tier One Digital Storefront

Today, we continue our discussion of digital retail, this time from an OEM perspective.  Suppose you work for Morris Motor Finance and you want to get in on the fun.  The most straightforward way is to subsidize your dealers’ use of a storefront.  Simply negotiate a discount with one of the leading vendors and supply it to dealers who meet their penetration goals.  You may already have programs like this, encouraging dealers’ use of a credit system or a menu.

In addition, you may want to add digital retail capabilities to your tier one website.  This is a bit of a balancing act.  The customer is here to see the full range of vehicles and accessories, along with your financing options and Morris branded protection products.  Once you make the turnover to a specific dealer, the selection will be limited.

So, either you drop downfunnel straightaway, like ShopClickDrive, and the customer is only looking at one dealer’s inventory, or you run the risk of promoting something that a specific dealer doesn’t have.

Another conundrum involves the display of pricing online.  Dealers have gotten used to the idea of disclosing MSRP for vehicles, and maybe finance rates, but there is still resistance to online MSRP for products.

I don’t need to tell you how to handle the Morris Motors dealer council, but you might want to assert a division of labor.  Your site is higher in the purchase funnel, where 22% of new car buyers will start their journey, and serving a different purpose.  Now let’s consider the six canonical tasks:

  • Choose a vehicle – The customer is not choosing a specific vehicle from inventory, but a generic new vehicle by model and trim, or a build vehicle. This is also the time to upsell accessories.
  • Price the vehicle – Using MSRP simplifies the design, but it also impairs accuracy. If the price changes, the dealer may recalculate the deal with his own desking system.
  • Price protection products – Show products before structuring the deal, because they will be financed, and you don’t want the customer fixed on a payment that doesn’t include products.
  • Value the trade – In this scenario, I would recommend a simple KBB lookup with the customer choosing “good” condition from a list, assuming that it will be revised in the dealership anyway.
  • Structure the deal – The goal here is basically to choose lease or retail and promote your offerings, plus any incentives. Unlike the dealer’s desking system, you don’t need to be penny perfect.
  • Organize financing – Obviously, you want first crack at the credit apps, and then you need an interface so you can feed the result into your dealer’s credit system. Send your declines, too.

Lastly, the customer will save the deal and transmit it to their chosen dealer.  It is really more of a “lead” than a deal, at this point, and you have a “lite” version of the digital storefronts we have been discussing.  I toss out the interface thing lightly, because this is my specialty, but you will have to choose whether to work with Route One, VinSolutions, Dealer Socket, etc.  Back to the dealer council…