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Shopping around

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Price-sensitive customers have always existed.  Differences in price levels between markets have long given savings opportunities for those prepared to shop around.  Affinity schemes offering centrally-negotiated discounts to certain types of customer have been around for decades.  And large companies like Lufthansa already offer their employees a special online platform with exclusive deals for their next new car, and if the employee is a pilot, they might also already be eligible for special deals from some brands.

Alternatively, bargain-hungry customers have a wide range of re-imported cars, short-term registrations or ex-demonstrator models to choose from, with regular discounts from 20% upwards.  The scale of the discounts on offer means that many of these customers will compromise on the options they might otherwise have wanted, weakening the overall mix of cars sold, as registration statistics show.  Furthermore, ICDP’s 2014 consumer survey showed that those customers who spent the most time researching their next car purchase online were also those who made the most dealer visits to ensure that they got the exact car they wanted; many price-sensitive customers will spare no effort in searching out the very best deal.

The growth of online brokers has given price-sensitive customers even easier access to available discounts; they often operate highly sophisticated web sites, search engine-optimised around relevant content on the cars that they offer, and so often outranking ‘official’ channels in a page of Google search results.  The discounts available via the brokers are comparable to those that can be achieved by shopping across borders, but so far none of the import-specialists have managed to achieve anything like the site traffic of the brokers offering cars from within a market.  Customers at dealerships are increasingly pulling out their smartphones and asking the salesman to match or beat the quote they have received from a broker; alternatively they are trying the car out at a dealership, and then going home to order online via the broker.  Such operators are often a thorn in the side of brands seeking to operate an orderly network strategy where the ‘official’ channels keep control of their customers throughout the purchase process, but in a situation of over-supply for most brands, they are a natural market-clearing mechanism, and their status as a ‘mandataire’ has long been recognised and protected by the European Block Exemption regulations.

Brands try different tactics to meet the challenge of new competition online; Ford and Peugeot in Germany for example have implemented an ‘online presence dealer bonus’ which makes part of the dealer margin dependent on the brands’ standards relating to online presence being met.  This is intended to ensure that dealers are doing as good a job as they can in representing the brand and its products online, but is effectively the limit of their possible intervention, as they can do nothing to prevent a broker who has already ‘captured’ a customer’s interest from passing on a legitimate order to a dealer for them to fulfil.  And ultimately, brands should be asking whether, had the discounted sale not arrived at the dealer via a broker, then would the brand or the dealer have managed to sell that customer a car at a lower discount, or even at all?  Evidence from the DAT report in Germany over the past decade suggests that the biggest casualties of the growth of the online brokers have been the cross-border importers, as price-sensitive customers who might previously have been tempted with the savings on offer from an imported car have been able to access similar savings, but for a domestic market product, supplied by a dealer, and with all the domestic market features and services included.  If this is true, then it is safe to assume that many of these customers would not ordinarily have been likely to purchase a new car from a dealer (although they might have bought a used car as an alternative to an import), and so the brokers have effectively delivered incremental sales, albeit at a discount.  Evidence from the DAT report in Germany over the past decade suggests that the biggest casualties from the growth of online brokers have been the cross-border importers.  During this period the share of consumers who bought from a cross-border importer has decreased from 11.5% to 3% while in 2014 online brokers have increased their business by 9%. Price-sensitive customers who might previously have been tempted with the savings on offer from an imported car, are now able to access similar savings on a domestic market product supplied by a dealer and including all the domestic market features and services.

ICDP estimates that around 50,000 new vehicles per year are now sold via the online brokers in the German market.  When this is added to the huge numbers of customers who now include the brokers as part of their research process, it is clear that their role in the lead generation process for the whole market is a substantial one, and they are here to stay.

 

Written by Martin Schomann

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