This quarter, e3’s thought leadership series has focused on ‘Keeping Pace with Innovation’. With the rapid culture change and digital transformation so many sectors are experiencing, we are asking what brands can learn from outside of their own space. At the second live event in the series, Neil Collard, Managing Director, e3, and Matt Boffey, Founder, LSU, investigated whether automotive brands are breaking out of their traditional business models to deliver innovation and if so, where the best practice examples lie.
“The automotive industry oozes glamour at every turn, so your natural assumption is that it must be easy to innovate in that space, right?” Neil began, as he revealed that before he joined agency land he was a used-car salesman, eloquently telling the audience, “selling cars, simply, is a lot of fun.”
However, he went on, the automotive industry is struggling when it comes to the purest form of innovation: how you sell direct to consumers. Describing it as ‘an unstoppable force meeting an immoveable object,’ the internet has been an incredibly empowering force for consumers, aggressively changing the way we purchase – except, that is, when it comes to cars. When the digital revolution began an automotive executive once said to me: “Do you know how you sell cars? With big pictures of cars.”
Automotive has many barriers of entry to consumers. In the early ‘90s you couldn’t find out the price of a car unless you entered a dealership. The utility and ease of digital is the difference between helping people buy cars, versus just selling them. “A tidal wave of risk is coming for the automotive industry,” Neil warned. The average car buying age is 45 but millennials are growing up – and they bring with them a culture of sharing not owning - they won’t buy something that sits in their driveway 95% of the time.
What’s the answer then? Dealers and manufacturers needs to work symbiotically to find a better approach. Manufacturers of cars cannot currently sell direct to consumers, stalling any innovation within this relationship and locking these two product sellers in what Neil ominously referred to as a “death embrace.”
Before concluding, Neil gave the attendees some clear recommendations:
Holding on to a unique proposition can kill a company. Take Kodak as an example. They invented the digital camera but instead of repositioning their business around it, they ignored it because they believed their USP existed in film. Similarly, Blackberry based its business around buttons on a phone and died when the consumer decided it was not what they desired.
Ford is a great example of what good innovation looks like. They have questioned their core business principle – that they make cars – and asked themselves, what if we didn’t? They’ve created Ford Smart Mobility, working more like a start-up tech company rather than a lumbering automotive brand, and invested in lift sharing through Chariot, shared bikes in the San Francisco. They don’t ‘just’ make cars anymore, they move people around, potentially opening a future where the idea of ‘owning a car’ is entirely removed from the equation.
Automotive may have some things to fear from innovation start-ups, but they in turn have their own challenges. Generally new disruptors in the sector are consumer-focused and looking to solve a single, narrow problem. They also have shallower pockets than the long-established manufacturers. The innovations that start-ups achieve can easily be replicated in larger, future-focused organisations, and with a much weightier cashflow behind them. But acquisition rather than growing internal innovation seems to be their current focus. Volvo has taken a stake in Uber, for example. To back this up with figures, there has been a £74bn spend by automotive manufacturers in major tech partnerships, investments and acquisitions over the last two years compared with £17bn over the previous ten.
One demographic that typically gets ignored by brands is the elderly. When people reach 70-80 years-old they typically give up their driving licences. But they still want to hold onto their independence. Unlike millennials, they often have extra income to spend. Neil suggested it might be worth brands looking again at their audience and working hard to:
He concluded with a famous quote from Bill Gates: "If General Motors (GM) had kept up with technology like the computer industry has, we would all be driving $25.00 cars that got 1,000 miles to the gallon.” GM aptly responded to Gates with a list of 10 things cars would also do if they kept in line with the computer industry, such as, “you’d have to press the ‘Start’ button to turn the engine off.”
Lessons From Automotive from e3 Matt Boffey, Founder, LSU began his follow-on talk by suggesting that instead of focusing solely on producing a product, automotive manufacturers should make their primary goal serving consumers.
“Culture drives innovation, but culture is a big scary word to some people. You have to think of culture as habits and aggregate, little changes daily rather than one large shift in behaviour,” he explained.
He shared five key habits to foster a culture of innovation:
Think of a reason to exist over and above making money. It must give you the big picture that helps you understand an organisation and it has to be clear across an organisation. If you don’t have that big vision, then companies get stuck i.e. for the automotive industry this has meant building products with four wheels and an engine – not bringing people the benefit of mobility.
If you have a strong vision it transcends what you do. You should be thinking beyond your core proposition and your operations day-to-day.
Seek to understand the consumer totally. Try to live the world of your consumer. Without this, companies can become disconnected from the customers and therefore unwillingly make very bad products. When you’re in the car park of a HQ for an automotive company, he observed, you won’t find the volume product. Employees don’t have the best-selling car, they have the most niche and rare products. It may seem obvious, but it bears repeating, you must understand your consumer fundamentally.
You need to make sure your business remains relevant and that it understands the unmet needs of the user. Take Jeff Bezo, Amazon Founder, for example, he doesn’t talk about technology at all, he talks about consumer needs. He is not limited by channel or technology stack. The business responds to the needs of consumer, rather than thinking about the next big technology fad.
Too big to fail: the biggest car manufacturers have no exposure to market forces in the ways that other traditional businesses have. They have become more privileged organisations and therefore, don’t feel they face real competition from others.
Without a competitive culture, they therefore have no incentive to innovate. These companies can become saturated, bureaucratic and managerial and not value entrepreneurial spirit.
Competition creates an urgency to disrupt your own business before your rivals do.
Different people, different backgrounds, different perspectives. This is vitally important to companies that want to grow consistently. Decisions don’t get scrutinised effectively when there isn’t diversity, and a diversity policy to play in an organisation. Bringing in different people broadens their perspective in the world, it strengthens companies, allows collaboration and stops every organisation from thinking the exact same way.
This is especially important to the automotive industry, where the CEO of nine out of ten automotive groups is a man.
Think about value that outlasts the individual or a business cycle. This is crucial when it comes to innovation; people want quick hits or overnight success. To pioneer a new revenue stream takes commitment and time to work out.
“I’m in awe of the people who commit to innovation, because it is unlikely that they will reap the benefits in their own professional tenure because it takes such a long time to reap rewards,” Matt commented as he drew his presentation to a close.
Providing intense food for thought, over lunch the gathered brands embarked on a lively discussion.
Lisa Gong, International Marketing Director as Genting, a global gambling group, chimed in with the speakers’ thinking. “Genting Casino have a unique proposition but we want to viewed as an entertainment rather than a gambling brand, which rethinks our sole reason for being.” She added, “We deliver food, drinks and an experience to consumers. Historically, we’ve had to associate everything back to gambling. However, in recent years we’ve wanted our bricks-and-mortar buildings to be places to hang out and relax instead of just to gamble. We are modernising but it’s an industry with a dinosaur legacy. Historically, you either provided a service or a product, it was an easy way to differentiate between different users. Now we also need to look at how we can offer a personalised, contextual experience to consumers.”
Giuseppe Ganguzza, Marketing Manager, RMI Bodyshops, discussed some of the challenges he currently faces: “We struggle to explain to consumers exactly what we do. We have lots of offers and benefits to our members, but they see us with a very singular view.”
Matt Boffey interjected, “Legacy can be a positive thing for an organisation as well. If there is a good organisational understanding of what you do but it’s a singular view then you need to decide whether that singular view is something you should focus on, or whether it’s imperative to broaden that perspective.”
Other topics covered included the spectrum of innovation within automotive marketing. How they create digital tissue through connectivity, specifically looking at the connected car and how they have made some experiences seamless for consumers.
The topic of innovation as a business model and the relationship of the consumer to a potential automotive producer, such as a car club, was also raised, expanding the narrow view of a single car for a single owner. Relationships with car brands have changed. Previous generations grew up in a culture where the car that you drove said something about you. It was fundamental to the impression of yourself and the impression you give others. The badges on bonnets don’t have the same pull, especially to younger consumers, said one delegate and, as Neil mentioned, which is another potential threat to the current automotive industry.
Chiming in with this consideration, Tim Pitts, an LSU consultant, commented, “When a very nice car comes to pick me up I actually get quite embarrassed. It seems excessive to what I need and what I want. My core need is to get to A to B quickly, something that’s a digital touch point, it’s not fashionable culture for me to impress upon my friends that I’ve arrived with a big fancy car. The status has really changed for car users.”
Back to the key topic with which the event started the attendees discussed the retail ‘store’ that Ford have opened recently at Ground Zero in New York. It is a purely experiential space, with no sales assistance unless you call for it and no physical cars for sale. Neil Collard, concluded the event with a pertinent observation, “I’ve been to Tesla’s ‘retail lab’ and it felt very much like a dealership. But you can’t actually buy a car there, you still have to order it online.”
Due to the popularity of Automotive Switches Up a Gear we’ll be hosting this Working Lunch again on April 27th at WeWork, Moorgate. Open to senior brand marketers only. Register now to avoid disappointment.