Agency and the only thing left for retailers.
When it comes to restructuring the automotive industry, everyone thinks of battery cells, electric vehicles and software. Manufacturers, and perhaps suppliers, have the problems.
The size and importance of a manufacturer’s distribution network is often overlooked. The difficulties of Chinese importers in establishing themselves in the European market indicate how important a functioning distribution network can be.
The biggest reorganisation is taking place in the retail sector. And this affects almost 400,000 people in Germany alone.
Today I’m talking to Tobias Bald about this. Tobias once ran one of the oldest Mercedes dealerships in Germany and later founded Panoff Consulting with partners. Panoff is a German-speaking boutique consultancy specialising in the car trade, and Tobias Bald is one of the practitioners among the consultants.
Very first question. Tobias, what is your dream car?
Tobias Bald: My dream car is a Mercedes Benz 1969 280 SL called Pagoda.
And I used to have one, but unfortunately I sold it in a fit of emotion, which I now regret very much.
I can do much more with the old cars. The design alone comes much closer to my ideas of aesthetics and beauty than most of what is being developed today.
Do you have an explanation for this? Many people in the industry love old cars. It’s all there, lots of Porsches, but we’ve also had Maserati cars. Why do you think that is?
Tobias Bald: These cars speak to my need for clarity, simplicity and authenticity. It was a car where you knew it had a mechanism. If something was broken, you knew what was wrong with the mechanics. It was transparent, it was alive, you could work on it.
Now modern cars are opaque and no longer comprehensible to me. The complexity has become too great and with it the dependence on specialists.
When I look at how long it takes to carry out a diagnosis on the current models, how much software is involved, it’s no longer tangible for me and that’s why it no longer appeals to me.
What appeals to me is something that reaches me emotionally. And that’s what the Pagoda did. What’s more, the way of life when you’re travelling in a car like this is of course completely different, because you can still feel the power, the weight of the vehicle and perceive the environment much more directly.
This simplicity, clarity and transparency of cars in the past makes selling cars today more challenging.
Tobias Bald: I think so.
If I put myself in the shoes of potential customers, it’s a big challenge to find the differentiating features between different models. Cars have become more comparable in terms of design and technology. What is the actual advantage of this product?
The comprehensibility of the brand promises is no longer guaranteed.
In the direct sales and agency model, the approach to selling cars is largely standardised. Cars are becoming more complex, less transparent and at the same time we are trying to standardise the sales process.
Tobias Bald: Yes. I wonder what the standardisation you mentioned is supposed to achieve in essence.
Manufacturers are entering the agency business model to transform something, to change something. It is stated that we are facing the biggest transformation challenge in the history of automotive sales. And whenever I read this, I ask myself: where is this transformative challenge leading?
The motivational psychologist Heinz Heckhausen taught us to ask: From where to where exactly do we want to transform ourselves? What state do we want to leave? Which state do we want to reach and why? Applied to this situation, the question is: How exactly do we want to act in the future when we are in the agency business model? And what exactly do we want to achieve?
The agency business model is there to make a difference. And many goals were pursued. They wanted to reduce sales costs. Serve customers more directly. Give fewer discounts. In other words, business objectives.
But what exactly is the guiding principle that should change in the cooperation in the vertical sales structures between OEM, NSC, agents and the customer? And what advantage do we have? What advantage does the end customer have?
With the current focus on functions and processes, we have lost sight of exactly what we want to achieve with this transformation.
Let’s take standardisation. Is that a goal? Is it a solution? Because if it is a solution, what exactly do we want to achieve through standardisation? Why are we doing this? Does it give the customer more security? Does it create more transparency? Or is it about working more efficiently and saving costs? Or both?
So we transform for the sake of transforming, without knowing exactly what our target image is.
Tobias Bald: I have an assumption about the target image because I was confronted with it 15 years ago. It’s a legitimate assumption that the OEMs and NSCs have their eye on the biggest asset that dealers still have today: customer data.
In the old business model, this was held by the dealer. The dealer also locked it away in his vault, did not make it available in his DMS or in his systems. That’s where you want to go now.
And the agency business model is of course a way of accessing this data, which has never been possible to date.
But this also begs the question: What do we actually do with this data? How do we use this pool of expertise about the customer at the three sales levels and in the digital and analogue channels? With what objectives?
At least in my contexts, this is hardly ever discussed. Instead, it’s all about process and function. Not about improving customer satisfaction, not about the consistency of the customer journey in terms of customer expectations, for example. That is of secondary importance at the moment.
Why is it that we are now mainly concerned with processes and systems?
Tobias Bald: I think there are two reasons for this.
One reason is primarily that, with the introduction of the agency business model on the part of the OEMs and NSCs, we haven’t given enough thought to which processes and functions will become our responsibility in future. And we lack the expertise to carry out these processes and procedures that were previously handled by the dealer.
Let me take a concrete example: in the past, order data management was the responsibility of the retailer. The dispatcher in the retailer transferred an order to the manufacturer. The dispatchers know how to do this. Just like, for example, payment processing by the customer. These are processes that will have to be carried out by the NSC in the agency business model in the future. But there are no processes there, there are no systems and no functions. And that’s why the need to deal with processes and systems is so great in the first place, in order to be able to maintain business operations at all.
That’s the first point.
The second is a different one. What I referred to earlier as a change of mission statement. It is human nature to withdraw to the field of action that we are familiar with. The NSCs and OEMs have a high level of process expertise. They know what the processes look like, they know what requirements there are for systems and they know how to manage projects.
However, an end-to-end customer journey would require thinking from the market, thinking from the customer and adapting processes to the customer’s needs. This is the only way we can differentiate ourselves from the competition.
But we still think like we did in my grandfather’s day:
What will happen when we have overproduction? How can we then subsidise the stock vehicles in order to sell them off? It’s like the old world 50 years ago. Unit numbers are more important than customer needs!
And in my opinion, that is the wrong way of thinking.
If we were to think in terms of the market, then we would look at it: What does the customer want? In what form do they want it? How can we make storage trolleys attractive to them, in different channels, so that they receive satisfactory service?
But this requires a rethink. And that is difficult. It is currently almost impossible for those involved in the projects today when it comes to transformation.
Until now, pricing has been carried out by the retailer. In future, the manufacturer will set end customer prices. Not discounts, but really end customer prices.
Tobias Bald: There are currently various models used by manufacturers.
Firstly, the agent is remunerated for his brokerage service and receives a brokerage commission that is far lower than his previous margin. This has also led to dealers and future agents worrying about their main source of income.
When there is pressure on sales, the manufacturer naturally asks itself the question: how can we intervene to provide targeted support for specific models in specific customer groups at specific times and perhaps also in specific sales channels, namely online or at the agent?
One trend that I think is good and beneficial overall is no longer to throw discounts at everyone at all times as in the past, but to support sales processes as precisely as possible.
So it’s no longer a shotgun approach, but a shotgun blast.
You look specifically: What is Mr Szameitat’s situation? Is he ready to buy online or does he want to be looked after by the agent? Which model is he interested in? Then we give Steffen Szameitat a specific discount to persuade him to buy this stock vehicle online from us.
And we have various options here in the form of vouchers, coupons or similar. But it’s customer-specific and not a blanket offer.
Are we on the way to the real agency?
Tobias Bald: We are still struggling with the move to a real agency.
This would mean that the NSC would have to take responsibility for inventory management, demonstration vehicles and for the risks that the dealer has borne to date.
This is not yet possible for many manufacturers because the processes and functions are not yet available. And that is why many of us are still in a non-genuine agency, where the agent acts as an intermediary but is not yet relieved of responsibility for stock vehicles, demonstration vehicles and inventory management, for example. He shares the tasks with the NSC.
How can retailers make up for lost sales?
So Tobias Bald’s vision is to take the service and experience of the car trade to a new dimension. And a higher share of wallet for everything to do with mobility. But to achieve this, dealers need to acquire some new skills.
Tobias Bald: Absolutely.
And not just the agent on the one hand, but the NPCs as well. A different way of thinking has to take root.
It always starts with your own attitude: If I change my attitude, then I change my thinking. If I change my thinking, I change my actions.
And that is what I mean by a paradigm shift, a new model.
What we are doing today with the introduction of the agency business model is reorganising processes and placing functional requirements on the systems. But that’s just the surface. It doesn’t change the behaviour of the people who interact with the customer. As long as that is the case, this transformation will not take place.
It would be courageous to say: We are now taking the step into the unknown and thinking about processes from the customer’s perspective. And derive the requirements that we have for the agent, the NSC and all other participants in the process from this.
What are the main misconceptions on the part of the importers’ NSCs in this picture?
Tobias Bald: What surprises all the NPCs I deal with at the moment is how many and how complex tasks they have to take on. Which until now have been carried out by retailers. And how much cost that entails.
How many resources are required, how many people have to handle what retailers have done up to now.
Another surprising realisation by manufacturers is that customer data does not create customer proximity. We see this with providers who skip the agent sales stage, such as Tesla. That there are also dissatisfied customers, for example in the event of a complaint. When you suddenly don’t have anyone in front of you to talk to about your dissatisfaction.
In other words, you can save on this sales stage and perhaps also cut costs. But the question is whether you want to do this in terms of customer service.
Or, to put it the other way round, whether the customer might not also be prepared to pay money for certain services that are provided for them if this relieves them of a worry.
This means that there is no one-size-fits-all solution for sales. It’s about how I want to position my brand. A brand in the low-cost segment can certainly position itself better in direct sales than a premium brand.
At the same time, a premium brand has to think about how it can keep its customers in its ecosystem and proactively support them so that they never feel the need to leave this ecosystem.
And we are still a long way from achieving this with the German brands.
The bosses of the manufacturers are mostly engineers. With your very strong retail experience, if you were to write them a letter: What would be your key messages to the German CEOs?
Tobias Bald: I would choose a ‘purpose-driven’ approach.
Please think about what makes you special. What defines your brand, who your customers are and what is important to your customers. And build the house of your business success on customer needs and the ‘purpose’ of your brand.
As a consequence, this means that you also select your resources, especially human resources, in such a way that they fulfil the purpose of your brand.
Because that is what binds people.
People are bound and reached by emotions, not by technology. This also applies to those with an affinity for technology. Emotion is what actually binds people and represents an attractive target image. The Porsche brand, for example, is a highly emotionally charged brand where customers are even prepared to accept certain shortcomings or technical problems. Simply because this brand satisfies a specific customer need.
This clearly shows how important emotion is for sales.
Steffen Szameitat: Thank you, Tobias. Great conversation.