Any colour you like as long as it’s…

The car industry has moved on a long way from the days of Henry Ford when he recognised the negative impact of product variety on his manufacturing process.  A simple product offer was obviously not the only factor, but it contributed to his ability to progressively drive down the price of a Ford Model T from $825 at launch in 1908 to $360 at the end of production in 1927, by which time 15 million units had been sold.  Changing customer tastes spelt the end of the Model T and the launch of more complex products with more variants and options.

That perceived demand – or the ill-judged decisions of product planners and marketeers – have then progressively resulted in more niches being filled, more combinations of powertrain and trim being offered, to the extent that product configuration now becomes a major challenge, not only for the buyer, but also for a dealer trying to guide the customer through the process.  Some brands and dealers have added ‘product genius’ type roles in dealerships to help customers navigate their way through the choices, but it is probably not a coincidence that levels of build to order in Europe have dropped over the last decade despite the investment in sophisticated configurators and sales experts.  The proportion of sales from the order pipeline (so not even necessarily a new order) fell by 6% to 8% for both volume and premium brands in Europe in the decade to 2016, even as these aids were being introduced in parallel.

The craziness of this situation is illustrated by some of the data gathered in the course of ICDP research during the last few years.  One volume saloon car offered 15 different engines, but just 3 accounted for 80% of all orders.  On a large premium saloon, 95 of the 580 engine-trim derivatives accounted for 90% of the volume, and 344 of those engine-trim derivatives sold less than 20 units annually.  But perhaps the most striking statistic is that for one popular executive car, there were so many possible build combinations taking all allowed variations into account, that if you built one of each at the rate of 1000 per day since the date of the ‘big bang’ that created the universe, you would still be well short of half way through…

The introduction of WLTP testing from 2017 started to reverse this trend, as even relatively minor changes such as a different size wheel option required a test specific to that build combination.  Test capacity quickly ran out, and the breadth of product offers was cut by many brands as a direct result of this.  There is no evidence to suggest that sales have been lost as a result of this, although it is impossible to separate out the many factors that have an influence.  Even if sales were lost, this does not mean that this has a negative effect on the OEM or dealer.  The cost of engineering, testing, manufacturing and distributing low volume variants can easily mean that the real cost is much higher than shown in standard costs, and that these products are actually loss-making to the OEM.  The same may also be true at the dealer level if an individual car sits in stock for an extended period, and is then possibly sold at a discount – typically by knocking off the price of the options that the buyer does not really want.

As we start to increase the use of omni-channel, and specifically grow the use of the online channel, excessive variety becomes a barrier to progress in this area as well.  We have already talked about price transparency and the total transaction value as being barriers to customers committing to a purchase online, but uncertainty over the actual product specification should be added to that list.  As we start to research the Tesla direct sales model, one factor that influences its relative success with online sales is the simplicity of the product offer.  A Model 3 has three variants, five colours, two wheel choices, two trim colours and two options, one of which is software-enabled.  It is interesting to note in the announcement from Volvo earlier this month that they will move to online sales in parallel to the roll-out of their pure BEV range, and it also includes a plan to reduce the number of variants and options to simplify the buying process.  With connected cars, there is a growing opportunity to then install options through over-the-air updates, as is the case with Audi e-Tron for example.

I don’t envisage a return to the days of the Model T, but there now seems to be a much better recognition of the cost of complexity, and a determination to focus on profit, rather than a blinkered path to increasing product offer – and confusion.  Simplification may well unlock a range of changes and improvements throughout the value chain, with benefits to everyone including customers.  Sometimes, less is more.