Moto Commerce Digital Retail

Moto Insight has uploaded a complete demo of their digital storefront, Moto Commerce.  This shows confidence that they’re not worried about being copied, or being anatomized by some smart-aleck software consultant.  Here’s how Moto handles the six key functions:

  • Choose a vehicle – Including accessories.  I write a lot about the importance of protection products, but accessories are important too, especially for certain brands like Honda and Subaru.  Everything is shown at MSRP but, because the site is customized for each dealer, I imagine there is some flexibility.
  • Price the vehicle – Including incentives.  No idea whose data service they’re using for this.  I usually recommend Market Scan, but it is possible to roll your own.  Rodo recently developed their own incentives engine.  I tried to coach one of my clients on this, but they wouldn’t do it.
  • Price protection products – Including digital content.  Not clear how finance term is linked to protection term.  Customer could choose, say, 36 months of GAP on a 72-month deal.
  • Value the trade – They use Trade Pending, which I mentioned here, but they also offer a condition quiz with the ability to upload photos.  This is very strong because it allows the Used Car manager to bid on the vehicle during the online experience.
  • Structure the deal – The calculator is always running and continuously updates the monthly payment.  This is one approach to the nonlinear workflow problem, but it also means the customer is looking at an inaccurate payment throughout most of the shopping tasks.
  • Organize financing – Here, again, it’s hard to have confidence in the payment until we’ve processed a credit app.  The demo shows the customer choosing term and rate, as if his credit tier is already known.  Moto pushes to Route One and Dealertrack, but it should also pull.

Overall, Moto is a solid online shopping experience.  It does not literally sell the car, in the sense of doing the paperwork, but it does produce a complete, deliverable deal.  Next, the customer can reserve the vehicle, save the deal, and make an appointment.

The in-store version of Moto uses the same pages, making a seamless “omnichannel” experience for the customer.  This means it’s a potential replacement for your desking and menu systems.  Customers can also begin the process in-store, and take the deal home.

I’ll close with Andrew’s hook from the video.  Imagine your dealership offers this experience, and the other guy has only a lead form.  Which do you think the customer would rather work with?

What is a Digital Storefront?

A digital storefront is a complete car buying experience that can be bolted onto the dealer’s existing web site, and integrated with the dealer’s instore process.  It must support all six of the canonical car-buying tasks:

  1. Choose a vehicle
  2. Price the vehicle
  3. Price protection products
  4. Value the trade
  5. Structure the deal
  6. Organize financing

This is not always a linear process, as I explained in Workflow for Online Car Buying, and not all customers will use the full process, as Andrew Tai explains in this video, but the storefront must support whichever tasks the customer chooses.  Details about the six tasks are given here and here.

… delivering an omnichannel experience that is unmatched and, we believe, will be the future of car buying – Bill Nash

When you think of a good online process, like the CarMax omnichannel sales experience, these tasks are a native part of the web site.  Dealers that don’t happen to be CarMax can offer an online process by bolting a storefront onto their existing web site.

As far as I can tell, this innovation is due to Roadster, but they are no longer alone.  Roadster’s Express Storefront went up at Longo Toyota two years ago.  TagRail, Modal, and Moto also compete in this space.  TagRail and Modal both brand their offerings as “digital checkout.”

By “bolted on,” I mean to include the various techniques used to move the customer from the dealer’s web site into the online buying process.  Modal is actually named for a programming technique, the modal window, and Roadster uses a link.

The transition, however, must not look like it’s bolted on.  Roadster shows a good example, here, of preserving the dealer’s original site design.  I can tell it’s Roadster by looking at it, and programmers will notice the “express” subdomain, but this is a seamless transition for the customer.

Also seamless should be the transition across platforms and into the dealership, an experience known as “omnichannel.”  Think of a credit plugin like Auto-Fi.  It allows the customer to apply for credit on the dealer’s web site, and also updates Route One in the dealership.  You never want to redo a task the customer has already done online.

For a storefront there are multiple potential integration points – inventory, CRM, desking, menu, and credit.  The customer may start a deal on the web and then walk in to finish it, or vice-versa.  They may engage the storefront on a tablet or kiosk in the dealership, and finish it at home.  The goal is to support all six tasks wherever the customer chooses to do them.

Clampdown Looms for F&I Markup

NADA recently published a policy guide for protection products and we should commend the association for being proactive.  Highlights are below but, if you’re a practitioner, you must read and heed the full document.

  • Consistent presentation, i.e. use a menu
  • Prominent disclosures like the AutoNation pledge
  • Consistent, non-discriminatory pricing
  • Detailed waiver explaining any variance from standard pricing

Why?  Because otherwise dealers and lenders may be prosecuted.  NADA cites the $11 million Santander GAP settlement and the U.S. Bank deceptive marketing settlement.  I can see this going the way of dealer reserve.  Regulators will force lenders to restrict dealers’ discretion in setting markups.

NADA and others have warned on F&I markup since 2013, when the CFPB issued its first subpoenas on the topic, and last year the National Consumer Law Center published their report, subtitled: How dealer discretion drives excessive, arbitrary, and discriminatory pricing.

The chart above is one of several alleging discriminatory pricing in F&I.  As for lender pressure, the NCLC paints a big target on Ally Financial, reminding their readers that “state and federal authorities should investigate … and bring enforcement actions.”

Good operators will not have much to change for the model policy.  The recommended new waiver is a bit cumbersome, but the rest of it is already best practice, like menu selling.  The AutoNation pledge has been around for fifteen years.  Frictionless cancellation is discussed here.

In addition to regulatory pressure, there is also competitive pressure on F&I markup.  I’ll cover that in a later post.  On the bright side, AutoNation is near $2,000 a copy and their compliance has always been excellent.  So, no excuses.

Spinoff Startups in F&I

The popular notion of a startup is two guys in a garage, like Hewlett and Packard, but this is not always the case.  Sometimes a mature company will give birth to a new business unit.  I did some foundational work for Dealertrack and, at that time, it was the eCommerce department of Chase Auto Finance.  In fact, a number of the startups I’ve worked with have been F&I spinoffs like Dealertrack.  Today we’ll explore these for common themes and lessons learned.

One common theme is the role of outsourcing.  You can begin with a core team, plus service providers, and then insource the functions systematically over time.  I was an early employee of BMW Financial Services, which began as a department of the sales company and all functions outsourced to GE Capital.  The head of this department, Kevin Westfall, had a plan to bring the operation under his control as a new entity with a new service provider.

I was recruited from Coopers & Lybrand, which was tasked with selection and contract administration for the service provider – outsourcing the outsourcing, so to speak.  After a few years at BMW, I followed Kevin to AutoNation and the same strategy.  We outsourced Funding, Customer Service, and Collections to World Omni, but kept staff functions and the Credit department in house.

You have a lot more autonomy managing a service provider than you do with permanent staff on the parent company’s org chart. 

Outsourcing isn’t magic, though.  If you can’t manage the function in house, then you probably can’t manage contracts and SLAs either.  On the other hand, this is a great way to get around the parent company’s hiring restrictions.  They may not be willing to hire the requisite staff for, say, a Collections department, but will sign a flexible contract with a service provider.  Also, to be frank, you have a lot more autonomy managing a service provider than you do with permanent staff on the parent company’s org chart.

McKinsey’s Meffert and Swaminathan write about “breaking the gravitational pull of the legacy organization,” and this is such an apt metaphor.  Many at BMW viewed the breakaway department with suspicion.  There was political pressure to keep Kevin under control of the Finance department, an obvious misalignment, and passive resistance from some of the others.  It was important in this case to set up our own HR department, and move it out of town.

It was the same story at AutoNation Financial Services.  We had our own IT, Finance, Ops, and Marketing plus dotted lines to the respective “real” departments of the parent company.  This gravitational pull is normal organizational behavior.  Managers are always starved for headcount and, since the new initiative is hiring, they want their piece of it.

When your army has crossed the border, you should burn your boats and bridges, in order to make it clear that you have no hankering after home.

When ANFS was shuttered in 2002, most of our crew was absorbed back into the parent company.  Obviously, having an escape route like this is not conducive to the kind of commitment required by a startup.  Insert Sun Tzu quote here.

There was no such option for two of my consulting accounts, Route One and Provider Exchange Network.  Route One, for example, was manned by senior managers from various captives.  There was not much chance of these guys going back to their old jobs if Route One were to fail.  I am thinking in particular of the founding CEO and CIO, Mike Jurecki and Joel Gruber.

Joel retained me as a subject matter expert in online credit systems, to work on the outsourced (there’s that word again) development of Route One’s core system.  I called on Joel a few years after the project and we talked about the career risk he had taken.  By that time, I was involved in a startup of my own, with no small amount of risk.

Paradoxical though it may sound, we believe companies need to take more risk, not less.

McKinsey cites the top ten ways to fail at digital transformation, and “excessive caution” tops the list.  It’s my personal belief that you can never achieve anything unless you’re willing to take a risk for it.  In any case, a big, risk-averse corporate parent is certainly going to impede the new unit.

Provider Exchange Network, likewise, was staffed by people hired for the purpose.  We had, from the outset, our own IT, Finance, and Marketing.  We did, however, run our hiring through the excellent HR department of Reynolds and Reynolds, and this is maybe the counterpoint to my arguments about autonomy.

The parent company is unlikely to have functional expertise useful to the new venture but, where it does, you should use it.  BMW had zero expertise in consumer finance, but they had a terrific Legal department.  At AutoNation Finance, we made good use of our parent’s FP&A capability.  Also, the spinoff may be designed specifically to exploit some asset of the parent company, like its dealer network or OEM relationships.

So, my takeaways on this topic are:

Group Cohesion – The new unit should be united around a common purpose, with people hired for the purpose or as a breakaway department.

Cutting the Cord – The spinoff will have to win some turf battles with parent company managers who refuse to let go.

Leverage Legacy Assets – On the other hand, take advantage of the parent’s core competencies, especially those that are hard to duplicate.

Outsourcing – Find partners.  Rent to own.  McKinsey and others have stressed the importance of thriving in an entrepreneurial ecosystem.

Take Risks – Fortune favors the bold.  No shortage of clichés here but, seriously, all of the literature talks about new initiatives that move too slowly and become roadkill.

I recognize that these points are open to some interpretation.  They’re based, as you see, on my firsthand experience.  That’s some good experience, though, so if you’re doing an F&I spinoff maybe you can profit from it.  Best of luck.

Caching the Rate Response

Every so often, I am asked to write on a specialist topic for F&I technology, like surcharge processing, term bumps, or credit life math.  Today’s topic is well known in dealer system software, but bears repeating for the new generation of digital retailers.  This is the problem of how long it takes to receive rates for protection products from the provider’s web service, also known as “latency.”

The good news is that all providers today expose their rates via web service, so they’re always up to date and tailored to the current deal.  It wasn’t always thus.  We once had to scan reams of paper rate guides, and walk ten miles in the snow.  The bad news is that the web rating call can take several seconds to run.

A savvy rate response already has Squish VIN in it, so you just smack the whole thing into Mongo and you’re good to go. 

In the typical scenario, a menu system calls the provider’s web service directly, passing the VIN and the dealer number.  The dealer number is required because product pricing and selection may vary with the dealer.  This may not be the case for digital retail.  You may have a standardized slate of products (or just one product) with a mandatory fixed retail price, and not care about dealer-specific costs and packs.

You still have to pass the VIN, in any case, because most products are risk-rated by model.  Then you wait.  At MenuVantage, we set the timeout for twenty seconds.  If a provider couldn’t respond within twenty seconds, they couldn’t be on the menu.  Digital retail, of course, requires a much faster response.

The rate response for an old-school SOAP call, returning all products for a single model, is about 500 KB, or 10,000 lines of XML.  I have seen them exceed one megabyte (you know who you are).  A well-done web service can transmit the rate response in about one second, and then another second or so for the integration hub.

Most menu systems do not interface directly with the provider.  They go through a central hub like PEN or F&I Express.  These are the main ones (full disclosure: both are clients) but there are others, and a slow rate hub can add seconds of latency.  Digital retail is more likely to be using REST and requesting a specific product.  The biggest product is a service contract, weighing in around 2,000 lines of JSON or 100 KB.

Ideally, all networks and services would be fast, and you would always send the request.  “The network is the computer.”  On the other hand, maybe you ought to cache the rate response.  To do this, simply save each response in a database, keyed by dealer number and Squish VIN.

If you’re in the “don’t care about dealer” scenario described above, then omit the dealer number.  If you expect to rate specific products, as opposed to the menu scenario, then take apart the response according to its (provider-specific) product segmentation.  A savvy rate response already has Squish VIN in it, so you just smack the whole thing into Mongo and you’re good to go.

The point to Squish VIN is that, of the 17 characters, only ten really matter.  The first eight identify the model and trim, and the tenth position encodes the model year.  This is what the provider uses to risk-rate by VIN.

Common practice for digital retail is to pull an inventory list and rate every vehicle on the lot.  That’s some redundant rate requests.  A dealer might have 500 cars on the lot, but only seventy unique VIN patterns.  Even if you’re compulsive about stale cache, and you want to rate every night, this is still a sevenfold improvement.

So, the procedure is: every time you want to rate, either in batch or on demand, go first to the cache.  If there is no matching Squish VIN in the cache, only then must you take the hit for a live rate request.

Menu systems generally do not do the lot-scan thing.  This seems to be new with digital retail.  Generally, we would just expire the cache at midnight and start rebuilding with the next day’s deals.  The first Cherokee takes a hit, and then the first Wrangler, and after that you’re rating Cherokees and Wranglers all day long from cache.

Also new with digital retail are various use cases that don’t require a dealer number.  This vastly improves the efficiency of the cache.  Instead of seventy VIN patterns per dealer, you might have seventy for the whole country.

Digital Transformation Playbook

I read a good book over Christmas break, The Digital Transformation Playbook, by David Rogers.  This is a good book because it has both theory and practice, plenty of research and real-life examples, and practical “how to” guides.

Just when you’re thinking, “oh yeah, when has that ever happened?” Rogers comes up with an example.  Many of the these include commentary from the people who worked on them.  It’s clear that the professor gets out of his classroom for a fair amount of consulting.

Digital transformation is not about technology – it is about strategy and new ways of thinking.

Most books like this focus on digital native startups.  That’s the sexy stuff and, in fact, where I have most of my experience.  I chose this book for its focus on digital transformation, in existing companies and hidebound industries (like auto retail).

The book is organized around five strategic themes: customer networks, platform marketing, upgrading your value proposition, data as an asset, and innovation through experimentation.

I did grow a little impatient with Rogers’ incessant enumerating: five core behaviors, four value templates, three variables, two trajectories (and a partridge in a pear tree) but I appreciated the effort to boil everything down to a foolproof recipe.  There are a number of these:

  • Customer Network Strategy Generator
  • Platform Business Model Map
  • Value Train Analysis
  • Data Value Generator
  • Experimental Design Templates
  • Value Proposition Roadmap
  • Disruptive Business Model Map
  • Disruptive Response Planner
  • Digital Transformation Self-Assessment

I was even inspired to start making value train diagrams of our business, and platform model maps:

On the theory side, Rogers reexamines familiar models from people like Drucker and Levitt.  He shows, for instance, that Christensen’s theory of “digital disruption” is a special case, and broadens it.

By the way, this discussion of digital disruption is one of the most lucid (hype-free) that I have read.  As usual, there is a checklist: analyze three features and choose one of six strategies.  If that doesn’t work then, yes, you’re disrupted.  Time to update your resume.

I read all the time, though I don’t often write book reviews (here is the last one) so Rogers’ fifteen-page bibliography was an extra treat.  That should keep my Kindle stoked for a while.

Wanted: eCommerce Product Manager

Things are going well here at Safe-Guard, and I am looking to hire another eCommerce Product Manager.  Posting is here.  We need someone who can not only manage a shopping site but, as we are in the midst of a digital transformation, also establish the required support and fulfillment processes.

The eCommerce department manages the development and support of these properties, whether they are standalone web sites, dealer-site storefronts, or web services … 

The successful candidate will have solid product management experience, and maybe some digital marketing.  Agile development experience a plus.  Self-starter.  Relocation.   Salary commensurate with experience.