Category: Strategy

Reverse Omnichannel

If digital retail is so great, then why does Apple have stores?  Shipping a six-ounce phone is nothing compared to delivering a car, and yet these iconic stores.  This, of course, is the true meaning of “omnichannel” retail – meeting your customer wherever they choose. 

Digital native retailers, in fact, are advised to add physical stores, even if they’re selling only sneakers or eyeglasses.  McKinsey advocates this as a way to gain cheaper traffic – ironic, considering the popular misconception that digital retail has lower costs. 

Brick and mortar car dealers have service departments which can keep them afloat in a recession.  They also have an easier time selling F&I products.  So, no surprise that online car dealer Driveway has lately opened a showroom, except … Driveway is the online brand of Lithia, a public dealer group with over 250 stores. 

If a Driveway customer in Oregon wants a vehicle that’s in stock in Texas, it’s shipped to the Portland store and delivered to the customer.

That’s right, the online brand of the leading dealer group now has its own store – with no cars.  This makes perfect sense to me.  I bought my last car online, in the dealership.  The salesperson ran the same configurator I would run at home, adding value with her knowledge of the product.

Omnichannel Auto Retail

Here is a brief history of how we got here, with links to contemporaneous coverage on the blog.  Schematically, the omnichannel evolution looked like this:

I started writing about digital retail way back in 2015, with a two-part post on Design Concepts for Online Car Buying.  I didn’t manage to land a gig building one, but I got the next best thing.  My job running e-commerce for Safe-Guard put me in touch with emerging leaders like Roadster and Accelerate.

These systems allow dealers to retrofit digital retail into their existing websites, while public groups Lithia, Asbury, and CarMax developed their own.  I covered the market for digital retail software from a few different angles.  See here, here, and here. 

Dealers invested in digital retail, but they didn’t always get the desired results.  Software vendors were the first to spot the disconnect between process and technology.  Roadster started writing about omnichannel in 2018.  Cox’s Mike Burgiss exhorted dealers to “sell the car, not the appointment.”  

The true revenue performance of a retailer’s online channel can be understated by up to 100 percent, or even more if not accounting for the influence online has on offline.

Around this time, I was writing about a Best Buy model for auto retail.  McKinsey linked the two concepts in this 2021 article.  For me, their most important observation is that our metrics don’t always give proper credit to the online channel. 

Digital Native Car Dealers

Digital natives Vroom and Carvana missed the memo about having a physical presence.  Hell, even Amazon has retail stores.  Lithia and CarMax are more like “digital immigrants.”  Driveway going back to its roots and opening a physical store reminds me of “reverse ETL” from Data Engineering.

Data Engineers spend a lot of effort extracting, transforming, and loading (ETL) data for use in analytics.  Then, we often find it useful to take the cleaned-up data and push it back into the transactional system whence it came. 

Another analogy might be how elephants evolved from seagoing mammals and back to land again, or how computing power was centralized in the mainframe era, and now recentralized in cloud services … but “reverse omnichannel” makes a better title. 

GPS Trackers and OBD Ports

While I was working at Safe-Guard, in 2018, we adopted and co-branded a GPS tracker from ZAZ.  Shortly thereafter, we learned that our crosstown rival, EasyCare, was backing another such product, called SAVY.

Of the two, SAVY had more consumer-friendly features in their mobile app, which I feel is decisive.  This point of strategic positioning is the focus of today’s post.

Neither hookup did well, demonstrating that providers of “paper” F&I products are ill-equipped to deploy hardware.  I took the installer training, just for grins, with Hector Delgado.  So, at least I have a useful skill to fall back on.

I also consulted briefly for LoJack, in 2012, helping them sort out issues around preloading – issues they solved, ultimately, by selling the brand to Spireon.  Old-timers will recall LoJack used to work on radio.  It’s GPS now, like all the others.  “New LoJack by Spireon” is, in fact, old Spireon plus the stronger brand name.  The field today consists of:

    • Ikon
    • LoJack
    • Recover
    • SAVY
    • ZAZ

The model for all of these is that the dealer installs the tracking devices and uses them for lot management, and then sells them through to customers as theft protection.  They’re often sold as a nonnegotiable “preload,” which makes sense from the dealer’s perspective because it would cost another $50 of technician time to remove the device if the customer doesn’t want it.  You can see how consumer mobile app-appeal figures into our story.

If the device is drawing power from an OBD port, it can report the vehicle’s battery condition along with its location.  There’s a lot more you can do with OBD data, but manufacturers can be prickly about connecting to those other pins.  The typical device consists of the GPS chip, a cell modem, and an accelerometer.  You may have noticed that your iPhone also includes these parts, but not the OBD plug.

Speaking of those other pins, subprime lenders and BHPH dealers can wire the device to do starter interrupt.  That is, the OBD-powered devices.  The Recover device I saw at NADA is battery powered.  The argument for a battery-powered device is that it’s easier to install.  The opposing argument is around battery life, especially if you are selling it through, and the advanced capabilities available to an OBD scanner.

Connected Car Features

This brings me to the consumer features:

    • Service reminders
    • Teen driving
    • Driver performance
    • OBD health scan
    • Dealer inventory
    • Service scheduling
    • Credit application
    • Trip history
    • Recall notification
    • Digital glovebox

The astute reader will note that many of these features also aid the dealer in customer retention.  On the other hand, dealer-friendly features don’t mean a thing if the customer doesn’t use the app.  So, preloading can work against you if F&I fails to upsell the device properly.

Also, as mentioned above, your iPhone can support most of these functions on its own.  I run Life 360, which adds “insurance referral” to the driver performance feature.  The advantage to the dealer-installed device is that it’s physically attached to the vehicle.  By the way, you can buy a home OBD scanner for $30 at Walmart.

The dealer-installed GPS tracker is an amalgam of all these capabilities.  The key to success is exploiting them creatively and packaging them in ways that appeal to the consumer.

Taxonomy of D2C Providers

PayLink was the finance source we chose for Safe-Guard’s D2C program, and now they have launched their own D2C program, Olive.  This looks like a strong program, and I’m flattered they’ve kept many features from my blueprint.  I especially like name, which is a play on “all of” coverage.

“We estimate the market size of the ‘sweet spot’ for post-OEM warranty VSC sales will continue to grow to 109 million vehicles by 2024”

This is a $260 billion market.  Colonnade estimates that the “sweet spot” of vehicles less than 11 years old but past their OEM warranty is 87 million units, and growing.  That’s not to mention the 40 million sold each year without a service contract, at franchise and independent dealers.  I wrote about the different segments and how to value them in The Case for D2C.

Olive is positioned to address both segments, by partnering with automakers.  They claim two of the global top five.  I have reason to believe these are Volkswagen and Nissan, but I couldn’t find a source.  Like the original, Olive uses digital marketing and online origination through a consumer facing mobile-responsive (but not mobile-first) platform.

Not one to believe in coincidence, I reckoned that maybe there is only one winning formula, and this is it.  That would be bad news for APC, US Direct, Dialog Direct, Endurance, Infinite, Forever, Car Shield, Car Chex, Delta, Omega, and Concord.

If you are a data-science inclined tech strategy consultant, you might think of this as a seven-dimensional feature space

I taxonomized a bit in my first post on the topic, Direct to Consumer VSC Sales, and today we will work out a generalized framework.  This means mixing apples and oranges.  Many of the competitors I studied are “pure play” B2C.

Business to consumer (B2C) is everyday marketing, with branding, advertising, and SEO.  Direct to consumer (D2C) means that you were marketing through a channel, and now you’re going direct.  It also means that you have a channel conflict to manage.  Think of an auto finance company that does both direct and indirect lending.

My research found seven features that characterize a consumer-facing VSC vendor.  You can think of these as design choices for a new entrant:

    1. Administrator
    2. Payment plan
    3. Touch points
    4. Lead source
    5. Marketing
    6. Branding
    7. Eligibility

Contract administrator – At Safe-Guard, obviously, we were the admin, although we branded the contract for various OEM clients.  Endurance administers their own contract, and Forever Car has an exclusive partner.  Most B2C vendors offer multiple contracts, with a variety of coverage choices.  Tec Assured works for the dealer, offering whichever contract is sold in the dealership.

Payment plan – No one pays cash for a service contract.  APC has its own finance arm, and Dialog Direct is part of Budco.  The challenge here is the credit-card security (PCI) standards.  See My Shift in the Call Center.  Admins recognize the need for a subscription-based VSC but none has yet cracked the code (maybe JM&A).  Bundling the contract with a payment plan achieves the same effect.

Touch points – In the earlier post, I described three points in the lifecycle which a vendor could target.  This dovetails with the lead source, below.  If the vendor is working with an OEM or a dealer, they can focus on new customers who didn’t buy in the dealership.  They also have access to service dates.  The pure B2C vendors generally aim for the warranty’s end, or they don’t choose a touchpoint at all.

Lead source – If the vendor is working with an OEM or a dealer (or any affinity group) then that’s a source of leads.  This may also qualify as a “relationship” for spam-law purposes.  Then, there are the usual sources, like vehicle registration lists.  This brings us to marketing.

Marketing – The pure B2C vendors use pure pull marketing, developing a brand through SEO, social, and advertising.  Who could forget the Car Shield ads featuring Ice-T?  Old-school telemarketing and direct mail are still in use – love those postcards!  As in the earlier post, my favorite approach is digital marketing, from a lead list, with call-center backup, driven by a CRM like Salesforce or Nutshell.

Branding – Branding is complicated in this space.  The pure B2C vendors must develop an online brand, even though they sell multiple admins’ contracts.  On the other hand, the affinity vendors may develop the client’s brand, or they may create a separate brand as a way of mitigating channel conflict.

Eligibility – Depending on the touch point, the easiest way to deal with pre-existing conditions is to sell while there’s still OEM warranty remaining, or enforce a thirty-day waiting period.  Servicecontract.com uses an inspection at Pep Boys, and there are also mobile inspection services.  Dealers using Tec Assured, obviously, have their own inspection capability.

Let’s demonstrate the framework with some worked examples:If you are a data-science inclined tech strategy consultant, you might think of this as a “feature space,” with each of the competitors staking out their territory on a seven-dimensional Go board.  You might also want to boil it down to three dimensions so your client can understand the diagram.

In the earlier post, I cited two broad categories: those that work with the dealer as a partner and lead source, and those that are pure B2C consumer-facing.  Here, I have shown a little more of the complexity.  Affinity marketing doesn’t stop with dealers, and some D2C vendors are hybrids.

If you’re a new entrant, this framework can help you structure your go-to market strategy.  If you’re an incumbent, you can play seven-D Go and outflank the competition.

Auto Auctions Disintermediated

Carvana acquired the Adesa auto auction last week.  Discussion on Twitter said this was not fair play, cutting into the supply line, and that dealers should take their business elsewhere.  I replied that there is already a movement to “disintermediate” the auctions, and that they will ultimately go the way of the stick shift.

Auctions are to wholesale what the test drive was to retail.

If you think about it, the whole auction paradigm is incompetent, like the dark days of assembly plant inventory before JIT was invented.  It means that one dealer took my used X5 in trade, couldn’t retail it, and sold it at auction – where it was purchased by another dealer, and finally retailed to a new owner.

Think of the friction – the time lags, the transport, the fees.  It’s just insane.  The only reason I didn’t sell the car myself is that it’s a lot of bother, but I can easily sell person to person (P2P) through platforms like Shift and Tred.  I can also sell direct to a used-car specialist like CarMax or, yes, Carvana.

This diagram shows three ways to skip the auction:

Figures from NAAA show that auction volume has declined every year since 2016.  I understand they provide other services but, look – Carvana already ingests inventory at scale using its own facilities.  They handle two million vehicles a year, and Adesa will bring them to three.

The wholesale market will be conducted dealer-to-dealer, without physical auctions, on digital marketplaces like CDK CarSource and Cox Upside.  The only wholesale inventory will be in transit or recon, because the digital listing can flip instantly to a retail offer.

The Car Offer case is instructive.  Bruce Thompson developed Car Offer as a dealer-to-dealer marketplace, skipping the auction.  Car Gurus then bought the platform and converted it to a consumer site, skipping the selling dealer.

Auctions are to wholesale what the test drive was to retail.  Just as consumers are learning to buy cars online, so will dealers.  In fact, dealers should pick it up faster because they’re experts.