"Subversive" Business Model: New Demand for Automotive Aftermarket

China's auto industry must transform from traditional sales to profitable sales. For traditional after-sales services must not be as big as before. Starting from the customer, subverting the traditional after-sales business model from branded parts and components is a real need.

Innovation Case <br> <br> For many manufacturers, new car sales decreased profits, after-sales service has become a new profit growth point. With the continuous entry of new competitors, the competition in this industry is becoming more and more intense. In order to better develop after-sales service business, auto manufacturers should not passively respond to competition, but should take the initiative in the fierce competition to become the industry's innovators and leaders. Automobile manufacturers can enhance the user experience and increase their brand image through the downstream competition in the industry. The intensification of competition, changes in policies and regulations, the shift from traditional manufacturing to after-sales services, and the diversification of customer demands have placed automotive manufacturers' after-sales services under tremendous pressure. According to a recent research report by Richter, many of the world’s leading auto makers face an increased competitive risk in their after-sales services.

Auto manufacturers can transform risks into new growth points through innovative strategies. Ritter advises automakers to re-examine the after-sales service market and find business models that can change the after-sales service market. For automakers, the new business model may be able to threaten the traditional aftermarket strategy, but it can also become a new growth driver. In order to find "subversive" and creative business models, auto manufacturers should focus on the pros and cons of the nature of the business model and not only the organizational structure and business processes of various business models.

When auto manufacturers decide to drive growth through after-sales services, they must strengthen their competitiveness in after-sales service business. In the second part of this article, we will discuss how automakers choose innovative strategies in the industry chain. By analyzing the competitive advantage and growth potential of each step in the value chain, automotive manufacturers choose the best direction for development.

Chaos in the automotive aftermarket business model – threats or opportunities?

In recent years, the automotive after-sales service market has been confusing. As a new business service area, many low-cost component suppliers and service providers have entered this field. The gap between the major automotive manufacturers' response to the market is obvious. However, one thing remains unchanged. Auto manufacturers and other after-sales service providers have adopted corresponding countermeasures. For example, the price competition and acquisition activities of auto manufacturers have increased significantly. The auto makers' response measures in essence reflect that they face a great competitive threat: Auto manufacturers generally only know the change strategy when they lose market share. Usually, the market has been permanently lost.

To become a leader in the automotive after-sales service industry, automotive manufacturers need to establish their own "subversive" business model in order to shake the market and surpass all competitors. In order to better study the business model of the after-sales service market, Reed Management Consultants designed an evaluation model to analyze the aftermarket. At the same time, this model can also be used to evaluate whether the new aftermarket strategy of automakers is effective.

Richter defines the "disruptive" business model from both external and internal perspectives (Figure 1). The external perspective focuses on existing or potentially demanding after-sales service businesses and takes them as the core of strategic considerations. The interior is concerned with the after-sales business, assets and organizational structure of the automakers. However, the methods used to analyze parts business (such as auto parts and accessories) and service business (such as vehicle renovation and modification) are different.

External perspective: What do customers need?

There are many business models for various after-sales services in the market, but only two business models really revolve around the "customer demand" - "pluckless" service center and the second component brand.

Example 1: "No Folding" Service Centers Most car manufacturers currently provide first-tier services only on the current market, that is, they provide services that are consistent with their own brand value and new car price positioning. Then, as can be seen from the example of a low-cost airline, providing "no pleats" is also a good choice. "Pleatless service" provides only the minimum service that meets the customer's needs without providing additional services. This minimum service is not only reflected in the price, but also reflected in the type of service and quality of service projects. (Figure 2) The brand strategy of “No Fold” service and the strategy of full-service mode are completely different. For automakers, customers with “fold-free” services may be turning to fast-growing fast standard process services.

Example 2: The second component brand The second component brand allows automakers to meet customer needs that do not use vendor-owned aftermarket channels. This part of the customer's needs is very large, and is accustomed to fast and convenient service.

The key to the success of the second component brand is to distinguish between the main component brand and the second component brand. Not all components can be classified as the second component brand. For example, the difference in quality with airbag connectors and other safety-related parts is not significant, and it is not suitable for the second part brand. However, for parts that are subject to wear, the quality varies greatly. For example, in car batteries, the car battery of the second component brand is generally cheaper than the main brand battery, but the lifespan is also shorter.

When car manufacturers consider entering this field, they must carefully consider market potential and opportunities, and return on investment. Ford, Renault and Peugeot have adopted the second part brand strategy.

Internal Perspective: Our advantage <br> <br> from the internal perspective to look at "disruptive" business model focuses on two questions: "? What are our strengths", "we should be how to do it?" After years The development of automotive manufacturers has accumulated many years of after-sales service experience, and formed a relatively competitive ability, for each vendor, the answers to the questions are also different. Two innovative business models are listed below: Multi-brand after-sales service and logistics network operators.

Example 3: Multi-brand after-sales service chain Automobile manufacturers have extensive experience in the field of after-sales service, so these same experiences can also serve other brands. Stop&Go and Renault Minute are outstanding representatives of automotive manufacturers in adopting this strategy. In general, automotive manufacturers are well aware of the needs of a certain type of customer and can develop services for such customers and even similar customers in their competitors. For example, Mercedes-Benz can provide high-end services (such as comprehensive services including vehicle updates, technical services, etc.) to competitive brand drivers, such as BMW car drivers, which can even influence the driver’s next car purchase option.

Multi-brand after-sales service can only provide services to certain brands of vehicles, such as Germany's TopAutoService company only serves German BMW, Mercedes-Benz and Audi. Obviously, there will be some after-sales service providers in the future to provide after-sales services for only one type of customer or a certain brand.

Example 4: Logistics network operators have a high cost to establish and maintain a global logistics network for parts and components. However, the after-sales service of parts and components in emerging markets poses new challenges to logistics. The backward infrastructure, long-distance transportation and complicated customs have increased the threshold for market entry.

In this context, automakers can increase revenues by serving their own companies through their own strong logistics networks. What is outstanding in this regard is Caterpillar, which has established a profitable logistics operations center through its rich international logistics experience (including 48 hours of must-reach service worldwide), providing services including even competitors.

This business model often exists in a joint venture, such as Coreteam, a joint venture established in 2004 by BMW, Volkswagen and Daimler. At present, Coreteam only serves automakers that are associated with three companies, but in the future it is likely to become a strong competitor in China's parts logistics market.

Choosing the most suitable business model The above four "disruptive" business models are just starting points for automotive companies to start after-sales services. Each vendor needs to carefully consider the needs of customers, their ability to pay, and market trends to choose the business that suits them best. mode. Once a clear and market-driven after-sales service business model has been chosen, what automakers need to do is release value from existing after-sales processes and organizations.

Unlocking the Value <br> <br> car manufacturers usually value creation strategies, especially in Europe is clear: only the use of those measures have a direct impact on their brand positioning and core competitiveness. In recent years, this value creation strategy of automakers has not been very effective. German automakers are a good example.

Second, the status of after-sales service business of auto manufacturers is very confusing. Current value creation strategies often involve a wide range of topics, including major suppliers, technologies, and complex networks of other players (eg, retailers, automakers, technology experts, service providers, etc.).

In order to have a clear understanding of the after-sales service value chain, automotive manufacturers need to carefully study the after-sales process portfolio in the entire after-sales business. Research on customer perception can help automotive manufacturers provide differentiated services. Similarly, research on cost orientation can help improve the competitiveness of automotive manufacturers in the global after-sales service market.

Customer cognition needs to focus on the “touch point” of the customer in the entire after-sales service value chain. These are the key interactions between the car manufacturer’s after-sales service department and the customer. At these contact points, in order to strengthen the brand image and improve customer loyalty, after-sales service organizations should provide the best service processes.

For each service process, automotive manufacturers should consider two questions: “What is the current internal/outsourcing ratio of after-sales service? How much is the post-sales service capability and cost?” “What should the after-sales service look like?” By thinking about these things, Car manufacturers will find that their value chain strategy does not match customer perception in many aspects.

Figure 3 shows a hypothetical, differentiated outsourcing process and a standardized internal process for automotive manufacturers. In this example, the car manufacturer is responsible for a comprehensive diagnostic and information technology process, so that the supplier is mainly responsible for market work. However, in a saturated market, customer loyalty is crucial to the stability and profitability of sales, and therefore, the supplier's work is more strategic.

In order to build a robust value-creation strategy for after-sales service, Reed offers a clear two-step analysis methodology for each process.

The first step is to classify each process according to the customer's perception. The "entry" process is a process that does not directly interact with the customer, such as parts logistics. The "brand building" process plays an important role in ensuring the brand's competitive advantage by achieving brand promise, such as the customer reception process (Figure 3).

The second step also evaluates the relative competitive position of each step based on customer perception. The assessment ranged from "weak" (automotive manufacturers operating worse than direct competitors) to "stronger" (automotive manufacturers have relative competitive advantages). (Figure 4)

Ultimately, it is necessary to conduct process classification and analysis in areas that do not match the competitive position. These areas are likely to provide opportunities for auto manufacturers to release value in the future. For example, if a process is very important to the brand building in the eyes of customers, but the competitiveness of the manufacturers is relatively weak, then the value of the process needs to be strengthened and can be strengthened through mergers and acquisitions activities or endogenous resources and technologies. On the contrary, if car manufacturers are stronger in competitiveness, but the impact of the process on the customer's brand awareness is small, it means that we need to highlight our advantages in this area.

For all automotive manufacturers, there is no single value creation solution. High-end brand automakers are completely different from the mainstream and low-end vendors in value creation.

When the overall value creation program is determined, the next step is to increase the competitiveness in each process – meaning to achieve after-sales service excellence.

Conclusion <br> <br> Arthur D. Little developed a strategic tool to help car manufacturers to regain the initiative in the current turmoil in the global automotive aftermarket.

Business innovation through “disruptive” business models can help auto manufacturers develop after-sales service businesses, as well as provide alternative strategies to maintain traditional businesses. The company's strategic tools can help automakers better evaluate their business models. They can also serve as a starting point for evaluating customer needs and their own competitiveness.

Establishing an active value chain strategy can help automotive manufacturers release the potential value in the value chain. This strategy focuses more on the “touch points” of customers, thereby strengthening brand differentiation and improving customer service satisfaction while reducing costs.

For each car manufacturer, the starting point for formulating an effective after-sales service growth strategy is different, but the challenges they face are the same: increasingly fierce competition, changes in regulations, customer needs, and changes in market areas. Automobile manufacturers need to establish their future development direction of after-sales service as soon as possible and actively, and their time is running out.