“What is your Amazon strategy?” This statement has become a cliché within parts organizations across Automotive and Industrial Equipment original equipment manufacturers (OEMs). Complacency can be dangerous. Examples from many industries indicate that leaders in the currently small, but rapidly growing, online channel will reap the rewards over those who lag.
eCommerce (B2B2C/ B2C) is the fastest growing channel for aftermarket parts across all industrial segments globally. In 2017, online sales of automotive parts in North America grew by over 21 percent when compared to the prior year.1 Similar trends can be observed in the agricultural, truck, construction and heavy equipment parts business. Most OEMs, aftermarket suppliers and parts retail outlets have jumped onto the online bandwagon with varying degrees of focus, maturity and success. New Internet-based entrants are also investing to grow their online parts presence creating headwinds for the OEMs. The conundrum for OEMs is two-fold:
Should I increase the strategic priority of my parts eCommerce business?
How should I go to market given my long-standing brick-and-mortar ecosystem?
Idling in Neutral
A recent Accenture study2 found that a key driver fueling this growing demand for parts through the online channel is end customers mirroring their expectations from their personal buying experiences during the purchase of replacement parts for their equipment.
In another study, 90 percent of company executives ranked the management of customer experience (CX) at the top of their strategic priorities.3 CX no longer ends at the sale of a product but encompasses the end-to-end product lifecycle journey that a customer undertakes with a company, with a positive experience giving rise to a new lifecycle. For an increasing number of customers this experience means being able to find, order, pick up and return parts anytime, anywhere at their convenience.
The same study found that an overwhelming number of executives (91 percent) agreed that the responsibility for driving CX will increasingly fall on the higher partner in an ecosystem. Fewer than 21 percent admitted that currently this control exists.4
Our analysis suggests parts sales account for 30-50 percent of an OEM’s overall profitability. Although the size of the parts online channel today is small, OEMs must have an answer to the question: what is the inflection point at which not having a robust eCommerce strategy and presence will start having a material impact on profitability? The key resides in understanding the combinatorial effect of the changing end-customer needs, same and adjacent industry aftersales strategies, individual portfolio profitability and strategy on the aftermarket group’s fixed cost absorption rate.
The online channel has most often been looked at as an avenue to expand reach and better understand the needs of the end customer. OEMs may need to also start considering self-cannibalization as a proactive strategy when evaluating the importance of engaging in this channel.
The ecosystem to deliver a superior aftersales CX includes the OEM, dealerships, suppliers and distributors. As we look across the landscape, we can identify five predominant strategies emerging as automotive and industrial equipment OEMs engage in the online channel for parts.
Each strategy has inherent advantages and flaws. At one end, the “Status Quo” option has the least capital outflow and change management impact but results in the lowest control of customer experience. At the other end, the “Take Control” option can standardize CX, but drives significant lead-time challenges for parts delivery and can alienate ecosystem partners.
Findings from another study within the agricultural and construction equipment segments5 underscore the significance of the customer-dealer relationship, with end-customers highlighting the continued importance of the physical outlets and face-to-face interactions. This indicates that the rapid growth of the parts online channel will not, at least in the near term, mean the demise of the traditional brick and mortar channel.
The verdict on the optimal online channel model across automotive/ industrial equipment OEMs is still out. For now, we can recommend OEMs partner with dealers to engage in the primary online channel—but take control of the CX. Leading OEMs should also experiment with different models for specific parts portfolios to gain operational efficiencies, and design an operating model that meets end-customer expectations without alienating critical ecosystem partners.
In addition to a robust go-to-market strategy, enabling an effective digital ecosystem is critical for a solid eCommerce foundation. There are multiple proven solutions for platforms, digital content managers, product information managers, etc. Any architecture needs to be informed by the targeted customer experience, an OEM’s existing technology landscape, as well as by the online channel performance expectations. A solid foundation does not however guarantee eCommerce success. Nurturing this channel post-standup, by leveraging digital analytics and contextual marketing, is essential to long-term success.
We estimate the online channel could contribute between $500 million to $750 million for aftersales groups with annual revenues of approximately $5 billion. With the proliferation of competitors, OEMs need to move aggressively to meet the end-customer expectations and capture their loyalty. Given the stakes, how effective will the “fast-follower” approach be in this rapidly changing environment?
1 Accenture, Agriculture & Construction Equipment Customer Survey, 2017
3 Accenture Strategy, B2B Customer Experience study, 2017
5 Accenture, Agriculture & Construction Equipment Customer Survey, 2017