Accelerating change in adversity, advices to auto industry on marketing and sales during the epidemic
The novel coronavirus disease, COVID-19, that broke out at the beginning of 2020 is a "black swan" that has hit the Chinese economy. Its effects, both dominant and invisible, have set off a chain reaction, leading to a variety of interconnected consequences. The automotive sector is a pillar industry with a deep, complex industrial chain, high degree of global participation, many employees, and substantial dependence on offline scenarios. It has experienced multiple impacts from the epidemic, which has interrupted the weak signs of recovery that emerged at the end of 2019.
How should we objectively judge the extent and depth of these impacts? What should OEMs and dealers do in response to the challenges of this public health emergency? After the epidemic, what new opportunities will emerge? To answer those questions, Deloitte has published a series of special articles on Business Resumption in the Automotive Industry, sharing feasible responses and recommendations from an overarching perspective, and is working with China's automotive industry and practitioners to overcome their difficulties.
1. Observations on the impact of COVID-19
1.1 Short-term shocks amplified; production and sales plans disrupted
The most direct and immediate impact of the epidemic was a drastic decline in public movement and social gatherings. Compared with previous outbreaks, the government issued more stringent short-term policies and guidelines on movement, business resumption and social activities. Short-term supply and demand in the passenger car market was bound to be strongly affected.
1.2 Medium- and long-term market outlook remains optimistic with accelerating industrial upgrading
In the medium and long term, Deloitte remains bullish on overall demand in China's automotive market. There is substantial untapped demand for replacing old cars or buying new ones, driven by aging vehicles, changes in family structure, and increased willingness to upgrade consumption. Demand for new cars among existing customers has become a main growth driver in the market. At the same time, such non-rigid demand is relatively less affected by the external economic environment. This is one reason luxury car sales have grown faster than the industry average over the past two years.
That said, the epidemic is likely to lead to far-reaching changes in China's auto market. Offline sales have been hit hard by strict quarantine and control policies. Consumer demand for automotive purchases, use and maintenance, and consumer behavior, will shift from offline to online, accelerating the transformation of downstream retail.
2. Recommendations on passenger car sales and marketing in the aftermath of the COVID-19 epidemic:
2.1 We suggest OEMs adjust production, sales plans and marketing models based on their specific conditions and further empower dealer channels. In the medium and long term, OEMs should gradually move from conventional offline retail thinking and accelerate their transformation to new digital retail.
2.1.1 Quickly adjust production, sales plans and marketing models
February is not the usual peak sales period for passenger cars, but can lay solid foundations for sales growth in the second quarter of a year and beyond. As a result of the epidemic, although OEMs could in the short term make up for the impact of delayed production using unsold inventory from the end of 2019, the launch and sale of new cars was hit hard. For this reason, OEMs first needed to adjust their vehicle launch and marketing plans for 2020, and considering possible delays in vehicle delivery, then coordinate to ensure an efficient upstream supply chain while resuming production as soon as possible, making advance preparation for an increase in sales starting in the second quarter.
New online strategies and integrated online-offline marketing.
The COVID-19 epidemic had a huge impact on offline retail. The traditional passenger car market is highly dependent on offline sales. Its offline outlets, mainly 4S shops, typically cover the entire purchase process, from vehicle selection to test driving and delivery. Because of quarantines, this traditional offline sales model was disrupted. OEMs needed to change their mindsets towards making full use of online media to launch new retail mechanisms, connecting these with offline resources while physical stores were implementing epidemic prevention measures.
Such online activities included live broadcasts for vehicle introductions and evaluations, online flagship store platforms and self-developed APPs to sell vehicles online, and 24-hour online customer services to communicate through on-screen comments during live streams. By building livestreaming platforms for online interactions and sharing information, OEMs could understand consumer demand in real time and realize online, "one-to-many" product introductions and sales. These online platforms could also introduce community networks using customers' unified IDs as the touch point and adding links to bind with social media accounts, enabling customer preferences to be recorded and providing more accurate, better-targeted push notifications on products and services.
As services that support online marketing initiatives, offline test drives, delivery, inspection, maintenance and replacement remain indispensable to the automotive sales process. However, traditional offline transactions were hindered by the epidemic. Against this backdrop, OEMs could consider introducing one-stop-shop mobile experiences to provide consumers with integrated services. Relying on dealerships, OEMs can provide customers with door-to-door test drives and parts replacement services. By transferring transaction scenarios from traditional 4S shops to customers' homes, they can not only ensure the safety of consumers, but also make their lives more convenient. During the outbreak, many dealers quickly launched a variety of mobile solutions, leading to a lack of standardized, unified solutions and an uneven customer experience. In contrast, the more uniform mobile solutions established by OEMs ensure a consistent, high standard of implementation at each dealer outlet, as well as a better customer experience.
Respond to challenges from new energy vehicle manufacturers, and seize opportunities to accelerate market planning.
The automotive market in China has been contracting since the start of 2018, but new energy vehicles initially bucked this trend. Many new energy vehicle brands were born and some rapidly gained market renown while traditional OEMs accelerated the deployment of new energy vehicles, relying on their capital, supply chain and technology advantages. However, as subsidy policies were phased out, new energy vehicle sales in 2019 declined from the previous year's level to 1.206 million units. According to statistics from the China Association of Automobile Manufacturers, sales of new energy vehicles in January 2020 reached 44,000 units, a sharp 54.4 percent drop year-on-year. Over the rest of 2020, the new energy vehicle sector will face heavy pressure as the epidemic makes the market increasingly competitive, heralding its entrance into an era of survival of the fittest.
Compared with traditional fuel vehicle makers, new energy vehicle producers not only pay more attention to consumer experience in their design, but also make bold advances in New Retail models. During the epidemic, new-entrant automakers with digital marketing genes have been using their in-built advantages to speedily implement new business models such as online vehicle promotion, purchase and diagnosis. During the epidemic, new energy vehicle makers have shown their advantages through increased customer satisfaction and brand loyalty as a result of their swift responses to market change, integration of online and offline channels, and optimization of the purchase experience. The capital strength of traditional OEMs means they can better withstand cash flow pressures, which will enable them to accelerate plans for the new energy vehicle market after the epidemic. Furthermore, traditional automakers and startups alike have shown social responsibility during the epidemic by donating materials, providing mobility services and customer care. This is likely to boost their brand growth and medium-to-long-term sales after the epidemic.
2.1.2 OEMs should empower dealers to work together in difficult times and plan for long-term development.
Reduce channel sales targets and launch preferential policies. In the past two years, the overall passenger car market in China has been sluggish, with dealer profitability declining. According to data released by the China Automobile Dealers Association in 2019, the net profit margin of the top 100 passenger car dealers in China in the first half of 2019 was less than 4 percent, below what it was in the same period of 2018. Fast-forward to 2020, and the sudden outbreak of COVID-19 is set to lead to large losses for dealers, worsening their already precarious situation. OEMs should take the initiative to lower or remove first quarter sales targets, and relieve the burden on dealers by reducing or exempting them from sales assessments, as well as boosting subsidies.
Lead and empower dealers in digital transformation to ensure the effective implementation of new marketing models. The transformation of dealers is key to the overall upgrading of passenger car sales, because dealers are intermediaries that make direct contact with consumers. They need unified online sales guidance and standardized brand exposure. The independent online marketing practices of different dealers have an uneven effect, which is not conducive to OEM brand building.
OEMs should therefore build unified online marketing platforms and windows for dealerships, as well as launch centralized digital marketing tools such as online VR showrooms and live broadcasts. Perhaps more importantly, OEMs should provide dealerships with standardized online marketing guidance, unified sales scripts and consistent brand exposure. Such consistent process guidance and training can ensure the effective implementation of digital marketing models.
For offline sales, OEMs can also provide standardized digital tools including visual test drives and holographic projections in dealer outlets. OEMs are suppliers not only of vehicles and spare parts, but also of processes, technology and other resources. They should collaborate with dealers to provide integrated online and offline services such as online showroom visit promotions, offline test drives and vehicle ordering, and door-to-door delivery.
2.1.3 In the long run, development will shift from product-centric to service-centric, with transformation of sales models, channel upgrading and sales processes redesign becoming the core issues for automotive businesses
After a two-year "winter" of falling sales in the passenger car market, a growing number of automotive companies are bringing the internet thinking of e-commerce into the auto retail sector. To understand consumer demand and optimize the consumer experience, the market has also started transforming to New Retail that centers on experiences and relies on big data. The point of automotive New Retail is to focus on consumers and take them on an integrated, seamless purchase journey.
The traditional offline sales model is quietly changing. An increasing number of OEMs have launched innovative offline outlets such as experience centers and direct sales stores, taking experience as the core selling point and adopting high-tech digital tools to complete their digital transformations, providing consumers with more intelligent, personalized purchases. At the same time, OEMs have integrated online and offline channels. By establishing online platforms and introducing digital tools to help consumers complete vehicle selection, price comparison and reservation independently, they are guiding consumers to find out about cars online and test drive them offline to save transaction and time costs.
Under this New Retail model, the passenger car market will not rely solely on dealers to drive sales. More OEMs will open their own and agent-based direct sales outlets. These flagship stores will not only sell cars, but also provide product experiences. Meanwhile, OEMs will separate sales and after-sales functions. Specifically, for various sales and after-sales functions, such as vehicle displays, customer experiences, lead collection, test drives, contracts and payment, and maintenance services, separate new formats including city showrooms, experience, delivery and maintenance centers will be established. Various locations and channels will be used to improve the overall customer experience and optimize OEMs' costs. For different offline sales formats, new digital tools such as VR showrooms, holographic projections, visual test drives and customer data management will be introduced to integrate offline scenarios with online services to seamlessly connect sales processes through unified IDs.
OEMs can also establish online cooperation with e-commerce platforms or build their own online platforms, including on traditional e-commerce platforms like Tmall and JD.com, as well as vertical online ones like Autohome. In cooperation with e-commerce platforms, OEMs will engage in and manage efforts to achieve a smooth connection between online and offline channels. Identical online and offline prices for the same product will be used to prevent the market from being disrupted by price wars.
Customized vehicle models for e-commerce platforms can also be developed to differentiate products from other channels. The penetration of e-commerce platforms will deepen. In some 4th- and 5th-tier cities offline dealers have yet to enter, OEMs need to coordinate online platforms, offline dealers, and second-tier dealers to ensure service delivery and address consumers' concerns. Through the analysis of big data, e-commerce platforms can help OMEs obtain information about consumers' needs and preferences. In the meantime, OEMs need to build their own customer data platforms for more accurate marketing and long-term customer service.
Businesses can utilize data from online platforms for search diversion, and offline outlets' experience services, to create a virtuous circle and complete chain of online-offline, omni-omni-channel marketing. Through diversified planning of online and offline resources, with consumer data as the point of connection, they can predict user behavior through big data to provide consumers with the products and services they desire, meet consumer demand more precisely, and accelerate the construction of a two-way ecosystem that promotes interactive communication between consumers and brands.
The COVID-19 epidemic is a huge test for OEMs and dealers. It will spark fiercer competition in the industry and bring forward a "survival of the fittest" reshuffle. That said, the epidemic also brings development opportunities. Passenger car businesses will accelerate their transformation away from traditional sales and marketing models in adversity, giving birth to new customer journeys that meet vehicle purchase, use and maintenance needs, as well as corresponding digital sales models and processes. Deloitte looks forward to seeing passenger car businesses and dealers ride out the epidemic while accelerating innovation and growth in 2020, and to working with them to overcome current difficulties.