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Guest opinion: is automotive retail ready for Amazon?

Alan Duncan Trustpilot 2017

What’s big, clever and able to knock the share price of an entire sector overnight? That’s right, Amazon.

When Amazon acquired Whole Foods recently it sent the share price of rival US grocers down by between five and 9% in a day, with Korger’s shares suffering the biggest drop at 9.2%.

That’s how seriously investors take a move by the world’s third biggest retailer into a new sector.

The automotive industry has had numerous warning signs of late as Amazon has run trials to sell Fiat’s 500, 500 L and Panda models in Italy and made senior hires from a range of auto brands.

Now we know that the UK is the first European market where Amazon plans to begin retailing cars at scale.

Amazon’s successes

Before proceeding it’s worth just recapping why Amazon is such as successful business.

In short, the company has pioneered a customer-experience led approach to e-Commerce that makes it the prefered place to shop for everything from books to server capacity.

A few of Amazon’s innovations:

  • One click shopping: when you buy from Amazon it takes just a single click and payment is automatic. The company first pioneered this move in 1997 and most of the world still hasn’t caught up.
  • Amazon Prime: the express delivery subscription-based service that means your product arrives the next day. Prime covers over a million products in Amazon’s range.
  • Prime Air: a drone based delivery service that aims to deliver a product in under 30 minutes. Prime Air is currently being tested in the US, UK and several other markets.

I could list many more...

While it’s unlikely drones will ever deliver a car bought through Amazon the principle stands.

Amazon relentlessly innovates to deliver convenience to the consumer and you can be sure its approach to automotive retail will be well considered, tested and effective. And it seems consumers are ready to buy cars online too. Our recent research undertaken by the Centre for Economics and Business Research found that one in five UK consumers would buy online today, with a predicted shift of $1.5 billion in sales moving online by 2020.

The implications for traditional bricks and mortar dealers aren’t hard to imagine, CEBR forecast 27,000 traditional car sales roles will disappear in the next 10 years.

How can the automotive retail industry prepare for Amazon’s arrival?

Digital retail maturity in the industry today is mixed. Some dealerships have made great strides over recent years offering an immersive online experience designed around the customer and his or her needs. However, the vast majority still have a long way to go.

Transaction Vs on-going relationship: Each and every stage of the customer’s interaction must be understood, measured and constantly refined.

Consider that actually selling a small new car typically yields a mark-up of just 5% for the dealer according to Autotrader - costs must then come from this mark-up, of course.

The true value for the intermediary rests with the subsequent stages of the customer’s experience. For example, can we provide on-going offers for ancillary services such as maintenance, insurance and finance?

Doing so will often require a strong ongoing relationship with the customer which runs right through their car buying cycle, often that’s several years.

The holistic nature of such an approach will be much harder for Amazon to mimic, even if it can make the original transaction seamless and convenient for the customer. In fact, Amazon’s early trials have seen it handing off after-sales service to dealers.

Focus rigorously on the customer experience: It’s critical for dealers to establish a trusted Customer Experience Management strategy throughout the customer’s interaction with the brand.

The customer wants to know they can trust your firm to deliver, not just in terms of the transaction itself, but also in terms of invoicing, aftercare, ancillary services and the numerous other aspects of the service experience.

When customers are reassured on such issues then you’re likely to have a loyal relationship with a high ‘lifetime value’.

If any one aspect falls down though, it’s game over and you’ve missed your chance to deliver on your duty of care and consistency to the customer.

Amazon’s brand already embodies such qualities and it’s important yours does too.

Embrace transparency: Amazon is trusted by consumers to deliver on its promises and its marketing budgets can help to push this message far and wide. But your business can also demonstrate its trustworthiness, helping consumers to navigate myriad online options to settle on your business as one they can trust.

When assessing a firm’s trustworthiness and the likely strength of the experience they will offer, there’s no stronger mechanism than reviewing the experiences of others.

That’s why a well-considered approach to managing customer reviews can help car dealerships to build trust by offering open, honest feedback from existing customers.

Indeed Amazon itself lists customer reviews as one of its key developments on its innovation page.

As the threat of Amazon looms on the horizon for the automotive industry, one positive is the relative complexity of selling a car online.

Test drives, delivery of the car, finance are all relatively complex aspects of the purchase. This means there is still likely to be some time to re-focus on digital, those dealers that do will be much better positioned to weather the impact of Amazon’s market entry.

Author: Alan Duncan, marketing director, Europe, at Trustpilot

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  • itsmemario - 06/07/2017 13:38

    Amazon are not selling cars in Italy, they sell you a welcome pack which in effect is a code that you take to the dealer to guarantee the offer that they have advertised - finance, test drives etc are all still dealt with by the dealer. I believe that Amazon will buy a forward thinking dealer group, such as Rockar, and have dual presence. They follow a pattern, if they dont fully understand it they buy a player in the market to look from the inside out. So are Amazon a threat to the UK automotive industry or an opportunity? If they go the same way as they did with Whole Foods in the US they'll certainly change the auto retail experience....

  • HarryBott - 06/07/2017 14:14

    Whilst Amazon is no doubt a threat to automotive retail, the reason why other entrants such as Tesco never got off the starting blocks was that their retail model cannot take the stocking costs of automotive retail. Amazon like Tesco will probably turn its stock three times before it pays for the first unit. If Amazon take on ownership of the cars will they wear the stocking costs at a 1 to 2% margin?

  • Alex - 06/07/2017 14:55

    I think this article gets to the good points but doesn't really relay the point strongly enough .... Most dealers really need to wake up to the digital world. You cant rely on passing / repeat trade any more, yes it is important but more so than ever consumers have choice at their fingertips and will look for the best deals

  • Turkey Twizzler - 07/07/2017 10:18

    So the answer is yes then Tom? I think that automotive consumers are certainly ready for Amazon, it's just the competition that are not! The industry has spent years lagging behind, in terms of digital offering, when compared to other sectors. Have we left it too late...?