LAS VEGAS — Tire dealerships concerned about competition with online tire sales should look at the trend as an opportunity to build in-store traffic by developing an O2O (online-to-offline) strategy.
O2O commerce is a trending business strategy that encourages potential customers on online channels to make purchases in physical stores.
The O2O strategy identifies customers in the online space, such as through emails, social media and internet advertising, and then uses a variety of tools and approaches to entice customers to visit the brick-and-mortar store.
There are some companies that have both an online and an offline presence and treat the two channels as partners rather than competitors. They create product and service awareness online, allowing potential customers to research the offerings, then encourage them to visit a local store to make a purchase.
TireRack uses a variation of this strategy, selling tires on its website and then directing customers to a network of tire shops for installation, and possibly add-on services.
O2O is part of the "digital disruption" that will be impacting the automotive aftermarket in the near future, mainly driven by customers' trust in online services, according to Roland Berger L.L.C., a global consulting firm that created a study, "Digital Transformation: The 'New Retail' Future of the Aftermarket (And How to Win)," with the Automotive Aftermarket Suppliers Association in 2019.
"Digital disruption is here. And not only is it here, but it's accelerating," Brandon Boyle of Roland Berger said, adding that the industry is not ready for changes that need to be made, outside of a subset of players.
He discussed the report during the Automotive Aftermarket Products Expo (AAPEX) in Las Vegas last November.
Threat or opportunity
O2O requires a big shift in capabilities for suppliers and market participants, and the industry as a whole isn't ready yet.
"So while this is a threat to a lot of our businesses in the way we operate today, we also view it as a big opportunity for the guys that are early movers in this space," he said.
Servicing the vehicle hasn't changed much in the last 50 years, he said, so the automotive industry hasn't had a major disruption like other industries in the way things work.
But he noted there are technology trends that are going to change the way people move — mobility companies, such as Uber and Lyft; autonomous vehicles; electrification; and digitization.
Mr. Boyle said mobility trends will have the least impact on the aftermarket in the near term. By 2040, about 20% of the vehicles that are sold will be part of the mobility movement, he predicted.
Autonomous vehicles may make slower progress than mobility, he said, but he believes Level 4 autonomous vehicle will become viable in the next five years.
Electrification of vehicles probably will not have a big impact in the near term in the U.S., but definitely in China and Europe, Mr. Boyle said.
"What we believe is going to be the most impactful of those trends is digitalization," Mr. Boyle said. "And we think that over 80% of the vehicles are going to be impacted by 2040."
It starts with a huge shift in consumer behavior. "What we actually believe is that in the next five years, we're going to see a 16% kick in the ecommerce area for automotive parts and services; 16% growth each year in automotive parts and services online. … It was almost virtually zero five-10 years ago."
More than 75% of consumers today prefer to buy something online or through ecommerce than buying it in a store, he said, because it's convenient.
More than 56% of in-store purchases are being influenced by some sort of digital media, he said, with more than 76% of millennials using their cellphones in the buying process. They may even be in the store and looking up product reviews online.
An O2O strategy can help soften or alleviate consumer "pain points," he said, such as a broken down car, making an appointment, unavailable parts, waiting time for a repair, costs and transparency.
There are already some digital solutions that attempt to address these problems, he said, such as Google Garage which identifies a car and sends information about maintenance and repairs; onboard vehicle diagnostics that warn the driver of predicted part failure; scheduling apps to let consumers schedule maintenance and service; businesses that pick up a customer's car and delivers it to a service shop; websites that offer repair cost comparisons and shop reviews; and digitalization of maintenance records.
Mr. Boyle said he foresees a convergence of these digital solutions to providing an end-to-end solution: The vehicle on-board diagnostics warns of a problem and sends a message to the customer's phone; the customer selects a service provider; and an app signals a supplier to send the needed parts to the selected shop.
"So when my scheduled appointment comes or when they come and pick up my car, everything is there. So think about the efficiency this creates, think about how this changes inventory turns, think about how this changes the cost of the experience as well. It's transformative. Our early analysis shows at least a 25% cost reduction in moving to this kind of model," Mr. Boyle said.
"This is why we believe it is undeniable that we will move to this model because the economics, and the overall convenience that it provides for customers is just game-changing."
Today about 4% of parts are sold through an O2O program; as diagnostics and analytics improve, "by 2030 we're actually going to get closer to 36%," he said.
"So we're going to see a huge migration from the traditional way of customers interacting with the aftermarket to a much more consumer-driven and much more consumer-friendly approach."
A O2O strategy should involve developing targeted digital marketing content directly to the consumer; actively managing social media and responses; tracking and responding across platforms (i.e. Yelp, Linkedin); and monitoring, managing and responding to consumers, according to Barry Neal of Roland Berger.
Businesses also need to track engagement metrics and follow the customer experience as they move across platforms.
Other strategies include SEO integration with channel partners, keywords used in product marketing and co-branding with enthusiasts.
About 77% of consumers are more likely to buy from a brand they follow on social media over another brand, Mr. Neal said. About 63% use online coupons from a retailer and, if they receive emails, 52% are likely to shop offers with discounts.
"So the benefits of going directly to the end-consumer from a marketing and promotion standpoint, and the benefits of having a strong social media program that creates value for your loyalists and for your enthusiasts, links directly back to sales in the shop," Mr. Neal said.
Stores also can develop customer relationships with loyalty programs and enthusiast programs.
He noted that a successful O2O strategy may not involve just a single solution but a number of programs to build the right business model.