Are we seeing a U-turn on agency?

After a hectic couple weeks with our Members’ Spring Meeting in Berlin and some consulting deadlines, it’s back to the blogs.  I’m sure you will have managed without my random thoughts on the issues of the day…

I feel like I talk about agency a lot, but I did check back on my previous blogs, and it’s actually been a while, so this might be overdue rather than overkill.  It’s certainly a topic about which we get asked a lot of questions and is covered extensively in the trade press.  What brings it to mind now is the most recent news that Ford – having launched their agency pilot in the Netherlands a year ago, and telling their European dealers that they would roll out agency across Europe – announced that they were not moving to agency after all.  This follows on from the announcement earlier in the month by JLR that they were cancelling their plans to switch to agency for both brands in the UK at the end of this year, a decision which they will review in 2027.  In both cases, they have instead said that they will revise their franchise model.

So does this represent a U-turn on agency or not?  The comments made by Ford’s Sales and Brand Management Director, Anna Lena Strigel, in the press article are interesting, and some are supported by feedback that we have had from Dutch dealers.  She refers to the value derived from data-sharing between the OEM and the network and improved data analytics which together have improved marketing effectiveness and customer interactions.  However, she also implies that part of the rationale of the agency move was to enable a switch of the customer buying journey to end-to-end online, which has not happened.  As they have discovered that 90% of their customers start their journey online, but “nearly all” complete physically, this has apparently been a factor in dropping agency.

My view, supported by years of our own consumer research into current and preferred buying journeys, is that the notion that private customers would buy or lease cars purely online in any significant numbers will remain a pipedream for some years to come.  If they were truly so confident with their prospective purchase that they committed online with no physical interaction, then what is the need for agents at all?  Just bite the bullet and go direct, like Tesla.  The reality is that customers want flexibility, meaning that you need to offer both a transaction-capable online channel and a physical channel, leaving it to the customer to decide which channel to use at each stage.  This is omni-channel, and that is where agency bringsome benefits in making this truly seamless from the customer point of view.

However, agency is not the destination – it is a contractual format that enables consistent pricing across all channels and completely eliminates intrabrand competition.  It forces retailers (as agents) to compete on the basis of the customer experience rather than price as there is no other differentiator beyond convenience to the customer.  That is why it has proven particularly attractive to the premium brands, as confirmed by Joerg Heinermann who leads the roll-out of the Mercedes-Benz agency model in Europe at our Spring Meeting.

The destination is omni-channel, and getting there requires a number of building blocks to be put in place.  One, as pointed out by Anna Lena Strigel, is data transparency, particularly around the customer buying journey, but also around stock and availability.  A journey can no longer be seamless if the car a customer wants is only available in one channel – their choices are forced by stock, and under franchise that may also influence price.  We have also seen the various issues faced by those brands that have adopted agency coping with over-supply in an environment where they can no longer transfer the problem (at a cost) to dealers by wholesaling and deals.  Improving the new vehicle supply system is therefore also a key enabler of seamless omni-channel – a lesson learned in the late 1990s and early 2000s by a number of OEMs, then forgotten, briefly re-learned during the post-pandemic supply shortages – and now abandoned again.

The data is highly valuable to drive improved supply chain planning, but also has huge benefits in improving lead generation and leads management (as noted by Ford) and for better focusing marketing campaigns and the deployment of variable marketing budgets to support pricing with a focused rather than broadbrush approach.  With customers typically getting down to a maximum of two brands, often one, by the time they first visit dealers, most customers are lost to a brand before they have crossed the dealer threshold.  If even a small proportion of this can be converted with a smarter, better-focused marketing message, or a targeted promotion, then the benefits to all are huge.

Within ICDP, we remain of the view that omni-channel must remain the target destination for any brand that wants to sell product in significant volume.  In order to make this work, key capabilities must be put in place – but those are just as relevant under a franchise system as they are under agency.  There is no ‘Star Trek’ type Transporter option where networks can be shifted in time and space from a traditional franchise to a fully-functional agency omni-channel model.  The building blocks need to be put in place, and then – at a date that need not be set now – the decision can be made about whether agency, as the ‘icing on the cake’ makes sense in the specific circumstances of each brand and their network.