Almost 70 per cent of Indian automobile sales or USD 40 billion will be digitally influenced by 2020, compared with USD 18 billion today. This is according to a Bain & and Facebook report ‘Changing Gears 2020: How Digital is Transforming the Face of the Automotive Industry.’
The report, which looks at the impact of digital technologies on the automotive industry, finds that digital engineering, 3D printing, smart sensors and the Internet of Things (IoT) are poised to disrupt auto R&D, manufacturing, sales, marketing and after-sales services. Social media will influence about 40 per cent of sales valued at USD 23 billion by 2020, up from 20 per cent of sales today.
The report collated responses from 1,551 Indian customers who had purchased a vehicle in the last 12 months and surveyed their purchase influencers. This was supplemented with a survey of 87 dealers and conversations with top management teams across automakers. The report also drew insights from Bain’s Global Automotive Consumer Survey that included respondents from the US, the UK, Germany, China and India.
“As digital technologies cause disruption across the value chain from manufacturing to after sales service, the rules of the game are changing and new opportunities and threats are emerging for auto makers. Players from outside the traditional auto industry are witnessing rapid growth world over. It is important to evolve the business model to tap into shifting profit pools,” said Karan Singh, Managing Director at Bain & Company India.
“India is likely to witness digital leapfrogging given consumers’ openness to new technologies. At this time, more than ever, it is important for companies to adopt a digital mindset. To remain relevant, companies will need to keep up with the changing customer behaviour, differentiate the retail format into brand experience centres, use product digitization to create deeper ongoing relationships and invest in a strong analytics backbone,” added Yaquta Mandviwala, Partner at Bain & Company and co-author of the report.
Highlighting the importance of mobile in the overall device mix, the report said that 80 per cent of online research is on mobile phones today and this is expected to rise further with the increasing penetration of smartphones and mobile data connections. Not surprisingly, those 35-year-old and younger will lead the digital charge: 49 per cent of consumers younger than 35 years report digital influence on purchases today compared with 40 per cent of those older than age 35. As this cohort ages and a new younger cohort enters the market, digital influence is set to increase.
The study also explores auto customers’ changing mindsets and attitudes towards mobility. The report reveals that the nature of the game is changing. Apart from the fight for the consumer, it also referred to the fight for relevance as new business models compete for attention. More than 40 per cent of lead consumers report using app-based taxi services like Ola and Uber more than three or four times per week and further headroom for growth exists.
“Technology is transforming the automobile industry in un-imaginable ways and this report discusses quite a few insights,” said Umang Bedi, Managing Director, Facebook India. Umang further added, “Digital has struck the automotive world with lightning speed and this transition to digital is only going to accelerate. Today’s ideas go from drawing board to production in months rather than decades. All this advancement and focus on digital will deepen relationships between customers and auto manufacturers.”
Bain and Facebook’s findings also pointed to the changing role of the automotive dealer, with almost 72 per cent of customers selecting a vehicle brand and 49 per cent choosing the vehicle model before stepping into a dealership. As a result, the dealer contribution is often limited to influencing the variant of the vehicle purchased. Though dealers have started to shift towards better digital engagement with their customers, more than 85 per cent of the dealers surveyed say they still use bulk SMS and database calling as their customer-targeting process.
Most Indian automobile OEMs are behind the curve in digital investments, spending 10 to 11 per cent of their total marketing expenditure on digital mediums in 2016. The report suggests automotive OEMs should redefine their marketing and customer engagement efforts to reflect the current behaviour and usage patterns of automobile buyers.
Digital disruptions across the value chain are likely to cause a drop in profits from the core activities of car makers like vehicle engineering, manufacturing and sales by about 8 per cent in the decade to 2025, even though industry profits are projected to grow about 35 per cent in the same period, the report said. The sector will witness the emergence of new players such as software and mobility platform providers, with non-traditional sources of competitive advantage who will gain an increasing share of sector profits.
The report enlists five critical imperatives for auto OEMs to consider in this new competitive landscape. It calls for evolving business models to tap into shifting profit pools, radically changing the investment mix to follow the customer online, differentiating the retail format, using product digitisation to create deeper ongoing customer relationships and building the data and analytics backbone to enable a meaningful use of digital.
Looking ahead, post-purchase activities are expected to be the next digital frontier. By 2020, up to 40 per cent of consumers are expected to book repair and maintenance services online and about 30 per cent will go online to purchase vehicle accessories, up from 14 per cent and 8 per cent, respectively, today. As per Bain’s Global Automotive Survey, Indian and Chinese consumers have depicted a greater willingness to shift multiple parts of their purchases online, compared with their peers in the US, the UK and Germany.