Extreme disruption in the automotive industry: a look at the road ahead
Despite our familiarity with the disruption concept, there’s little to compare with the extreme disruption hitting the automotive industry. RMIT professor of marketing Francis Farrelly outlines the four key levels of impact soon to be felt.
This article is the first in a four-part series examining the marketing implications of extreme disruption in the automotive industry.
If you’re asked to name big players in the car industry, Facebook and Google probably aren’t the first companies that spring to mind. Nor perhaps is vacuum manufacturer Dyson. And yet each of these globally-recognised brands are playing a part in the rapidly evolving automobile industry. That’s because the car market of the future will be nearly unrecognisable from that of the past.
‘Disruption’ is a word that has been used a lot. We’ve had the hotel industry disrupted by Airbnb, TV viewing disrupted by Netflix, the music industry challenged by the arrival of Spotify and the mainstream book market going head to head with Amazon. In each of these cases, disruption has come about through changes in the way the product or service reaches the consumer. The impact on incumbent operators has been significant. Typically, disruption occurs when an organisation fills an unmet need at a lower price point, then moves mainstream.
In the car industry, however, disruption is hitting a whole new level. What I am terming ‘extreme disruption’ is occurring on multiple and converging fronts, involves massive investments and a variety of existing and new players.
The Australian auto industry is trying to establish how to best position itself in the midst of this flux. It is important to recognise the industry has already been reeling from the closure of manufacturing. As the New York Times noted, there had been a car manufacturing industry in this country almost as long as there had been cars. The decline had been coming for years – the peak in Australian manufacturing actually occurred in the mid-1970s – although the sharpest decline took place in the final decade.
Some argue the turmoil that came with the end of manufacturing may have better prepared the Australian industry for the current wave of disruption. That seems not to be the case. The industry did not reorganise, neither through government policy nor at an individual firm level through strategic planning for the future. Most manufacturers and dealers underwent little strategic change at all. (A notable exception is Bosch, which has sought to strategically reposition itself as a market leader in the autonomous space).
There are signs, however, that the Australian industry is beginning to understand the enormity of the disruption it now faces and to recognise there will be opportunities for those ready to take them.
Major international players in auto, including BMW, Toyota, Ford and Mercedes-Benz, are collectively investing tens of billions of dollars to position for the future. A plethora of other players, both global and domestic, are carefully analysing the industry’s shifting foundations and the implications.
At this stage, my research – conducted in partnership with Destination and RMIT (details below) – is suggesting the disruption is occurring across four key levels:
- in the product itself
- prevailing macro trends
- developing industry trends, and
- the required changes to business model fundamentals.
The research also highlights that understanding the layers of convergence – and the nature and focus of major investments occurring internationally – will be key to comprehending the opportunities and challenges here in Australia.
Changes in the product have been emerging for several years, most notably the gradual shifts toward electric, autonomous, digitally-connected and shared vehicles. Making them as connected as your phone, office and home, new technology that will soon exist in all cars is creating huge opportunities for established tech players such as Google, Samsung and Facebook. These companies are well-positioned to enable the transmission of data between cars and manufacturers and between smart systems (car, home, office).
While these changes are still underway, there remain many unanswered questions:
- Will electric vehicles take off as quickly as people – including politicians – are saying?
- How far off is mass adoption of autonomous vehicles?
- What connectivity aspects will customers value in their cars?
- Will a more integrated shared service outweigh the convenience or status of owning a car?
- How will brands position themselves for the longer term – especially those with significant brand heritage and equity – for example in the case of connected and autonomous cars?
- Are digitally-savvy and connected consumers likely to still want the personal touch of a dealership? (Especially given the increased risk of the unknown associated with purchase due to the major and ongoing innovations to the car, and because there may be the opportunity to access a range of other mobility services through the dealership?)
- Will the dealer model be less car-centric and more service or lifestyle based?
The huge advances in technology are occurring against the backdrop of a number of macro trends, such as urbanisation, digitisation and environmentalism. These multiply the impact and affect the way consumers view cars and car ownership. Interest in car sharing is growing. Just as we have seen the share economy thrive in other areas (Uber, Airbnb, WeWork), the days of most cars sitting idle for the bulk of the day may be numbered. Already, an entrepreneurial company (Carhood) allows travellers departing from Melbourne Airport to lease their cars out while they are away, avoiding parking fees while sharing a cut of the lease payments. Sharing cars brings many benefits – financial, environmental, easing congestion – and this trend, if it continues, has the potential to dramatically change consumer needs and preferences. If sharing is adopted by the market broadly then we may see a very real decline in the number of households owning more than one car – a growing number may own none at all – while those who do own may be seeking different physical and performance features and status benefits.
At the industry level, the traditional big players – major manufacturers like BMW, Toyota and Ford – no longer have the market to themselves. They are now being joined by new (and well-resourced) players like the connectivity companies (like Facebook and Google) and technology groups (like Apple, Sony, LG, Panasonic). Partnerships are being struck to leverage the knowledge from both established and new operators. Each of the new modes of car will generate its own ecosystem and the major automotive brands will position themselves to be central players in those ecosystems.
Businesses are strategically reinventing themselves as ‘mobility providers’ rather than sellers of cars. At both manufacturer and dealer level, companies are beginning to see change, with radical impact on their business models. For the manufacturer, the change will play out in their product mix, marketing capabilities, product knowledge, staff training and retention, leadership capability and client/partner relationships. At the dealer level the coming disruption requires a response to key strategic questions. The dealers will need to consider how they structure themselves as retailers of cars in a digital world, in a world where servicing requirements (including technological know-how) change significantly and more broadly in terms of how they offer value in a changing mobility ecosystem.
From a marketing perspective, we need to ask what the investments and convergence in terms of this change could mean in terms of adding value from a user-centric position, and how this translates from a brand, product differentiation, service, and delivery channel perspective. My research is showing the industry will need to think and work strategically more than ever before and be especially proactive in clarifying its strategic direction, including how it produces value, in developing and infusing new capability sets, and building new partnerships, to compete effectively in the future. It will need to improve its capacity in the leadership, marketing, design and external partnership space. Corporate cultures will also need to fundamentally change to empower employees to embrace the transformation.
It is also important that Australian companies move now to ascertain how they can best contribute in this new environment and cement their position before the industry reaches a tipping point towards mass marketisation (there are various tipping-point-signals for each of the CASE elements) when making big competitive inroads will be decidedly harder.
Francis Farrelly is professor of marketing at RMIT University.
About the research
Destination, a leading incentive provider with a strong automotive client base, is partnering with RMIT to fund research into the fundamental changes occurring in the car industry and how this will impact on existing players and new entrants. The goal is to not only gain a deeper understanding of the changing mobility landscape, but to identify how existing participants in Australia can better ready themselves from a marketing perspective to capitalise on changes.
Destination will leverage the research to tailor the marketing-related content of its Incentive and Business Insights Programs (IBIPs), experiential learning programs conducted overseas for high-performing automotive personnel. These insight programs combine reward with professional development, upskilling key staff to address the coming disruption and therefore building the business capabilities of the companies involved.
Finally the research, which I am conducting through RMIT’s College of Business, will also consider the role government investment can play to strengthen the emerging industry, and how various ‘marketing scenarios’ may play out in the coming years.
This article is the first in a four-part series examining the marketing implications of extreme disruption in the automotive industry. Read part two: what role will connected cars play? »