Reading time: 15 minutes
When it comes to restructuring the automotive industry, everyone thinks: battery cells, electric vehicles, software. The problems are caused by manufacturers, and perhaps even suppliers.
The size and importance of a manufacturer’s distribution network are often overlooked. The difficulties faced by Chinese importers in establishing themselves in the European market indicate how important a functioning distribution network can be.
The biggest restructuring is taking place in retail. And it affects almost 400,000 people in Germany alone.
Today I am talking to Tobias Bald about this. Tobias once ran one of the oldest Mercedes car dealerships in Germany and later founded Panoff Consulting with partners. Panoff is a German-speaking boutique consultancy specialising in the car trade, and Tobias Bald is one of the practical consultants.
First question. Tobias, what is your dream car?
Tobias Bald: My dream car is a Mercedes Benz 1969 280 SL called Pagoda.
Tobias Bald: And I had one before, but unfortunately I sold it in a fit of emotion, which I regret very much today.
I can relate more to the old cars. The design alone comes much closer to my ideas of aesthetics and beauty than most of what is being developed today.
Do you have an explanation for this? Many people from the industry love old cars. Everything is there, a lot of Porsches, but we also had Maserati with us. Why do you think that is?
Tobias Bald: These cars appeal to my need for clarity, simplicity and authenticity. That was a car where you knew it had a mechanic. If something was broken, you knew what was broken on the mechanics. It was transparent, it lived, you could work on it.
Now modern cars are non-transparent and no longer comprehensible to me. The complexity has become too great and with it the dependence on specialists.
If I just look at how long it takes to carry out a diagnosis on the current models, how much software is in there, that’s no longer tangible for me and that’s why it doesn’t appeal to me anymore.
What appeals to me is something that also reaches me emotionally. And that’s what the pagoda did. In addition, the way of life when you go on a trip with such a car is of course completely different, because you still felt the power, perceived the weight of the vehicle and the environment much more directly.
This simplicity, clarity and transparency of the cars in the past makes selling cars more challenging today.
Tobias Bald: I think so.
When I put myself in the shoes of potential customers, it is a great challenge to find out the differentiating features between different models. Cars have become more comparable in design and technology. What is the advantage of this product?
The traceability of the brand promises is no longer guaranteed.
In the direct sales and agency model, the procedure for car sales is standardized as far as possible. Cars are becoming more complex, less transparent, and at the same time we are trying to standardize the sales process.
Tobias Bald: Yes. I wonder what the core of the standardization you mentioned is supposed to achieve.
The manufacturers go into the agency business model to transform something, to change something. It is stated that we are facing the greatest transformation challenge in the history of automotive sales. And whenever I read this, I ask myself: Where is this transformative challenge leading?
The motivational psychologist Heinz Heckhausen has taught us to ask: From where to where exactly do we want to transform? What state do we want to leave? What state do we want to achieve and why? Applied to this situation, the question is: How exactly do we want to act in the future when we are in the agency business model? And what exactly do we want to achieve?
The agency business model is there to make a difference. And there were a lot of goals pursued. The aim was to reduce distribution costs. Serve the customer more directly. Give less discount. In other words, business goals.
But which mission statement exactly should change in the cooperation in the vertical sales structures between OEMs, NSCs, agents and customers? And what advantage do we have? What is the advantage for the end customer?
With the current focus on functions and processes, we have lost sight of what exactly we want to achieve with this transformation.
Let’s take standardization. Is that a goal? Is that a solution? Because if it’s a solution, what exactly do we want to achieve through standardization? Why are we doing this? Does that give the customer more security? Does it provide more transparency? Or is it about working more efficiently and saving costs? Or both?
So we transform for the sake of transforming, without knowing what exactly our target image is.
Tobias Bald: I have a guess about the target image, because I was confronted with it 15 years ago. It is a legitimate assumption that OEMs and NSCs have their eye on the greatest asset that the retailer still has today: customer data.
In the old business model, these were at the retailer. The retailers also locked them in their safe, in their DMS or in their systems and did not make them available. That’s what they want to do now.
And the agency business model is of course a way to access this data, which has never been possible to date.
But here, too, the question arises: What do we do with this data in concrete terms? How do we use this pool of know-how about the customer at the three sales levels and on the digital and analogue channels? What is the objective?
At least in my context, this is hardly talked about. It is all about process and function. Not about improving customer satisfaction, not about consistency of the customer journey, for example in terms of customer expectations. This is of minor importance now.
Why is it that we are now mainly concerned with processes and systems?
Tobias Bald: I think there are two reasons.
One reason is that with the introduction of the agency business model on the part of the OEMs and NSCs, we have not given enough thought to which processes and functions will be transferred to our sovereignty in the future. And there is a lack of competence to carry out these processes and procedures that have been handled by the retailer to date.
I will take a concrete example: In the past, order data management was the responsibility of retailers. The dispatcher in the trade has transferred an order to the manufacturer. The dispatchers know how to do this. Just like the payment processing by the customer, for example. These processes must be carried out at the NSC in the agency business model in the future. But there are no processes for it, there are no systems and no functions. And that’s why the need is primarily so great to have to deal with processes and systems in order to be able to maintain business operations at all.
That’s the superficial point.
The second is different. What I called a change of mission statement earlier. It is human to retreat to the field of action that is familiar to us. The NSCs and OEMs have a high level of process expertise, they know what the processes look like, they know what the requirements are for systems, and they know how to do projects.
However, a consistent customer journey would require thinking from the market, thinking from the customer and adapting processes to the needs of the customer. Because this is the only way we can differentiate ourselves from the competition.
But we still think as we did in my grandfather’s time:
What will happen if we have overproduction? How can we then subsidize the stock vehicles in order to sell them off? It’s like in the old world 50 years ago. Quantities are more important than customer needs!
And that, in my opinion, is the wrong way of thinking.
If we were to think from the point of view of the market, we would look at: What does the customer want? In what form does he want it? How can we make storage trolleys attractive to him, in different channels, so that he is satisfactorily looked after?
But this requires a rethink. And that’s difficult. This is hardly possible now for those affected who are active in the projects today when it comes to transformation.
Pricing has so far been done by the retailer. In the future, the manufacturer will make end customer prices. Not price discounts but end customer prices.
Tobias Bald: There are currently various models that are used by the manufacturers.
First of all, the agent is paid for his brokerage service and receives a commission that is far below what his margin was to date. This has also led to traders and future agents worrying about their main source of income.
When there is sales pressure, the manufacturer naturally asks himself the question: How can we intervene to support specific models in specific customer groups at specific times and perhaps also in specific sales channels, namely online or at the agent’s premises?
One trend that I find good and beneficial overall is no longer to give out discounts to everyone and at any time, as in the past, but to support sales processes as precisely as possible.
So no longer a shotgun, but a leaf shot.
You look concretely: What situation is Mr. Szameitat? Are they willing to buy online or do they want to be taken care of by the agent? Which model is he interested in? Then we give Steffen Szameitat a specific discount to convince him to buy this stock vehicle online from us.
And we have various options via vouchers, or something similar. But customer-specific and not blanket.
Are we on our way to becoming a real agency?
Tobias Bald: We are still having a hard time taking the step into the real agency.
Which would mean that the NSCs would have to take responsibility for inventory management, demonstration vehicles and for the risks that the dealer has borne so far.
This is not yet possible with many manufacturers because the processes and functions for it are not yet available. And that’s why we are still in the fake agency for many of them, where the agent acts as an intermediary, but the responsibility for warehouse vehicles, demonstration vehicles and inventory management, for example, has not yet been relieved of him. He shares the tasks with the NPC.
How can retailers compensate for lost sales?
Tobias Bald: Yes, that’s a good question that I can answer relatively easily.
We also have some experience in the meantime.
If you look at what one or the other has already tried and discontinued, such as e-bike or scooter sales, investment in Chinese import brands, or the like. Most of this has not been able to compensate for the loss of earnings. Which is also a sign of the underlying mission statement, namely replace one product with another.
But in my view, that’s not the key to success.
The key to success is to lean into an uncertain future and into what the customer’s need is and where it will develop.
In any case, where we have had a huge need for action in the retail sector for decades is in improving the quality of service and in systematic market development. I maintain that almost all brands in all segments, in sales and aftersales, still have considerable potential when it comes to actively processing and supporting customers and providing a service to the customer.
And that’s exactly what I mean by paradigm shift, a new mission statement.
Away from “producing and selling a car” (which is still our mission statement today), towards “providing a service, providing a service to the customer”.
To do this, I first have to understand what needs this customer actually has. Quite simple. We all learned that at university. Marketing is thinking from the customer’s point of view. And then implement the services in the various channels online or at the agent’s site and systematically and actively support the customer.
Not like in the past, where the sales process started with us, with “customer coming to the showroom”. No, today we can know where the customer currently stands in his interest process. And we can make him an adequate offer. And not only in terms of price, but also in terms of content.
And that, in my opinion, is the future.
Here, the agent has significant catch-up potential in sales and aftersales: in active customer service.
If the agent understands where the customer’s concern is, then he can also expand his product portfolio. And maybe sell the customer a subscription instead of a car. A service or service. With a maintenance contract or, or. There are many options that suddenly open up when you simply broaden your perspective.
So Tobias Bald’s vision is: To bring the service, the experience around the car trade into a new dimension. In addition, a higher share of wallet for everything related to mobility. But to do this, the retailer must acquire some new skills.
Tobias Bald: Absolutely.
And not only the agent on the one hand, but the NPCs as well. A different way of thinking must take hold.
It always starts from one’s own attitude: If I change my attitude, then I change my thinking. If I change my thinking, I change my actions.
And that is what I mean by paradigm shift, a new mission statement.
What we do today when introducing the agency business model is to reorganize processes, to place functional demands on the systems. But that’s the surface. This does not change the behavior of the person who interacts with the customer. As long as this is the case, this transformation will not take place.
It would be courageous to say: We are now taking the step into the unknown and thinking about the processes from the customer’s point of view. And from this, we derive the requirements we have for the agent, the NPC and all other participants in the process.
What are the main misconceptions on the part of the NPCs of the importers in this picture?
Tobias Bald: What surprises all the NPCs I deal with at the moment is how many and how complex tasks they have to take on. Which have been carried out by retailers to date. And how much costs this entails.
What this entails in terms of resource requirements, of people who have to handle what the trade has done so far.
Another surprising finding of the manufacturers is that customer data does not yet create customer proximity. We see this in the providers that skip the agent sales stage, namely Tesla, for example. That there are already dissatisfied customers, in the example of a complaint case. When you suddenly don’t have a person in front of you with whom you can talk about your dissatisfaction.
This means that you can save this sales level and perhaps also save costs. But the question is whether you want that in the sense of service to the customer.
Or the other way around, whether the customer might not be willing to pay money for certain services that are provided for him if this relieves him of a worry.
This means that there is no one-size-fits-all solution for distribution. It’s about how I want to position myself with my brand. A brand in the low-cost segment can certainly position itself better in direct sales than a premium brand.
At the same time, a premium brand needs to think about how it can keep its customers in its ecosystem and proactively serve them so that they never feel the need to leave that ecosystem.
And we are still a long way from that with the German brands.
The bosses of the manufacturers are mostly engineers. With your very strong retail experience, if you were to write them a letter: What would be your core messages to the German CEOs?
Tobias Bald: I would choose a “purpose-driven” approach.
Please think about what makes you special. What makes your brand special, who your customers are and what is important to your customers. And build the house of your business success on the customer needs and the “purpose” of your brand.
Therefore, this means that you also choose your resources, especially human resources, in such a way that it does justice to this “purpose” that your brand has.
Because that’s what binds people.
People are bound and reached through emotions, not through technology. This also applies to tech-savvy people. Emotion is what binds people and represents an attractive target image. The Porsche brand is a highly emotionally charged brand, where customers are even willing to accept certain deficits or technical problems in some cases. Just because this brand satisfies a specific need of the customer.
This shows how important emotion is for sales.
Steffen Szameitat: Thank you, Tobias. Great conversation.
