We are on the cusp of a seismic shift. The whole world of automotive transport is about to be turned upside down.
Automotive brands will need to re-invent themselves or face a serious danger of extinction. They will have to fundamentally change their proposition, from product to service orientated brands. And they will have to ditch their obsession with premium, performance-based, image led communications.
Why? Because autonomous technologies are going to change the way we think about cars. Not just in terms of the drive, but more importantly the very nature of car ownership.
Driving Value Down
Let’s remind ourselves of the way most of us own cars today. We pay significant chunks of our money to own cars for our private use. For most of the time, these cars sit parked up not being used. And as each second ticks by they are worth less and less.
Economists would advise us to maximise the use of the car as an asset, to find ways for our cars to be driven more of the time, so improving the return on investment. However, today there are just too many barriers to make this work:
- we want the convenience of being able to use our cars when we need them
- it is too hard to find other people to hire our cars when we are not using them
- it is not easy to vet these people to ensure they will drive carefully and not damage our cars
- if damage does occur, it is a lot of hassle to prove culpability and ensure payment
However, these practical barriers are the least of our problems; the psychological barriers are even higher. Our cars are our pride and joy, car brands have done a great job of making our cars feel like an extension of our personality. We cherish them; therefore we want to protect them. Any damage is like a traumatic personal assault. So very few of us are happy to let strangers drive our cars.
But all of this will be challenged over the next few years. First, the hassle factor of car ownership is increasing. The cost of car ownership continues to grow, and the cost of letting our cars remain idle is becoming more apparent. At the same time, the pleasure and benefits of driving are reducing as our roads become more and more congested.
Second, the sharing economy is starting to show practical alternatives to outright car ownership. Car club membership in North America grew over 500% from 318,898 in 2008 to 1,619,438 in 2014 [Source; UC Berkeley’s Transportation Sustainability Research Centre Jan 2015]. It took Uber six years to reach 1Bn rides in Dec 2015 but only another six months to reach 2Bn in June 2016 [Source; Uber CEO post on https://www.facebook.com/traviskal/].
Autonomous technologies are only going to fuel these trends. Fully autonomous cars will have the ability to drive with hardly any interaction with drivers or passengers (apart from confirming the pick-up and destination points), they will drive safer, and automatically pick the fastest route based on real-time traffic conditions. Autonomous cars are also likely to be prioritised in congested conditions, with autonomous lanes where cars travel at tiny intervals to speed people to their destination faster and more fuel efficiently.
Full autonomy is still several years off, so human drivers will remain the norm as the technology proves itself. But as time goes by we will spend more time in cars not driving but doing other things we want to do, such as talking to other passengers, looking at emails, watching entertainment. Then as the technology really kicks in, seeing a human at the wheel will become a rarity, and according to Elon Musk, should be illegal. Already Tesla data shows, based on the 47 million miles driven by current owners in Autopilot mode, the average distance driven by a car before an accident was almost double when autopilot is engaged.
As fully autonomous driving becomes the norm and humans at the wheel become rarer and rarer, the need to own your car outright will diminish, and so the seismic change in ownership will gather momentum. You may feel this is still several years off, but as we see from the rapid growth in car sharing over the last few years, the pace is accelerating very quickly.
Look To The Skies
To predict the change that car brands are likely to undergo, it is worth looking at the airline industry. The airline industry primarily sells a service to get you from A to B, and with significant deregulation of the sector over the last few years competition between brands has grown stronger and stronger. There are insights that we can glean from looking how brands and consumers interact in this market.
The 2015 IATA (International Air Transport Association) global passenger survey found the 3 biggest drivers of brand perception were On-time performance (75%), Aircraft quality and interior (66%) and Customer interaction (54%). Notice that at least 2 out of those three drivers are pure experience factors and have little to do with the product. The third driver mentions aircraft quality but also the interior, and as most air passengers do not even know what aircraft make they are flying on, we can assume that the feel of the interior is the driving factor.
The same survey in 2016 identified that the best ways to improve the journey included inflight wi-fi, timely e-notifications and attentive cabin crew – again highlighting the importance of experience.
So, if experience appears to be the key driver how have the main brands competed? We’ll focus mainly on the European market, as its journey to de-regulation is most recent.
Since the late 1990s, airline brands in Europe have tended to polarise between a more traditional premium, full-service proposition dominated by the national carriers and the new commercially driven low-cost providers.
The traditional full-service position has its roots in the days when the cost of air travel was so prohibitive that only the rich could afford it, and they had high expectations on how they should be treated. Every now and then we are reminded of glamorous air travel from days long gone, with grainy black and white pictures of passengers experiencing luxurious standards of service. Airline brands had to be luxurious to attract the people who could pay. Over time even though the cost of air travel reduced, full-service brands stuck to the premium positioning based on their roots.
Their communications tend to focus on the top-end experience, showing us the amazing experience to be had in First or Business class. The attentive service, the sumptuous food, the generous legroom, the decadent comfort of the chair and even the fun party atmosphere in the lounge or bar. Innovation starts in the premium end of the plane; the chair-bed, on-demand entertainment, on-demand food or drink.
With the on-board experience mastered, more innovative brands then pushed the premium proposition to either end of the formal journey itself. Chauffer services to the airport, drive through check-in, priority access through security, exclusive lounges pre and post journey.
All the while Economy class barely got a mention – life in economy was and is not a brand selling point. The masses in the back were left to pondering how they could experience the brand promise if only they could afford to ‘turn left’ when getting on the plane.
However, with the deregulation of air travel, new brands emerged. At the other end of the spectrum the low-cost, no-frills airlines have thrived.
The low-cost model in Europe only really ‘took off’ in 1995 with Ryanair and Easyjet. They based their model on the US Southwest airlines and to start with the proposition was firmly no-frills. A strong focus on cost even at the expense of service.
By challenging the traditional business model, low-cost airlines first excelled at highly efficient operations. Eking out cost advantages where ever they could, demand-led pricing, flying to secondary airports, more efficient fleets, faster turn-around. Much was made of the humiliating early days when check-in was plagued by massive queues, and no seat allocations meant passengers fought to get on-board first and get the seats they wanted. Experience was very much a secondary factor to price.
Unsurprisingly against the backdrop of media and customer criticism the low-cost brands started to focus on experience. Easyjet in particular and latterly Ryanair changed to a model of low cost ‘plus’. Though they still focus on the low seat price they started to offer a range of options to trade up, giving the consumer a much stronger ability to tailor the experience to their needs, preferences and budget. Priority boarding, seat selection, extra leg room and choice of food and beverage options.
Interestingly, the continuing drive for operational efficiency meant that the low-cost airlines brought new innovation to the customer experience. But this time to the mainstream market. Internet check-in and self-service bag check-in started as efficiency measures getting the customer to do more self-serving. However, they are becoming the preferred customer interaction as they genuinely make life easier for customers.
In-flight food and drink options propositions have also grown in standard. Recognising the revenue potential of in-flight refreshments the food and drink products on offer are increasingly premium household brands, and include a wide variety from indulgent comfort food to healthy snacks.
Low-cost airlines thus brought a much stronger emphasis on cost that has rippled across the whole sector (particularly on short-haul) but also offer experiences passengers truly value.
So, which is the best positioning Full service or Low-cost Plus? As you can see from the Skytrax customer ratings below, the leading European full-service and low-cost airlines are pretty similar – so the low-cost brands look to be delivering the same level of customer satisfaction.
|Full-service||Skytrax Customer rating (2017)||Low-cost||Skytrax Customer rating (2017)|
What about in terms of profitability? One would expect the premium brands to have the highest margins. However, as you can see below the low-cost airlines, with the exception of Norwegian, have significantly higher margins.
|Full-service||Profit margin (2015)||Low-cost||Profit margin (2015)|
So it would appear that the business and brand model that works most efficiently in today’s airline sector (at least in Europe) is the low-cost plus model.
The Future Will Come Fast
But what does this mean for the future of car brands? There is little doubt in my mind that the nature of automotive branding will change. It will shift from product, to service and experience. Within this shift, there is likely to still be a premium vs low-cost spectrum. But judging by the recent performance in the airline sector it would be a brave man to bet against a brand who can deliver the best Low-Cost Plus proposition, as the one that will emerge as the leading automotive brand of the future. Brands that learn from the low-cost airlines, who position themselves as opening up great travel experiences for everyone, shifting more choice and power to people, will win.
So, my advice to the automotive brands. Start working on your service and experience credentials. Start re-building your business models from the ground up to drive new efficiencies. Work on establishing yourself as a brand that can consistently deliver great value through an innovative business model targeted at the mainstream consumer.
Start now, because, while there is a race on to get the technology for autonomous driving to work, there is another equally important, but potentially more difficult race – to be first to establish a completely new proposition in the minds of the mainstream consumer.