Digital Retailing is Not About Technology

Blog | February 15, 2019

Author: Scot Eisenfelder

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At NADA many exhibitors hyped their digital retailing solutions to support online vehicle transactions. While no one has cracked the code for a complete, seamless online transaction, there are several great solutions that provide enough functionality to meet consumer demands. After all, consumers are not asking for a 100% “digital process.”

What consumers rely on most from a digital experience is to cut through the traditional ‘shishcamunga’ at auto dealerships, and to experience the same transparent, consumer-driven process they are accustomed to elsewhere.

I saw this at AutoNation years ago, where its call-center-enabled AutoNationDirect delivered amazing customer satisfaction, even when the process required pdf contracts and scheduled phone appointments. Most dealers have better technology today, but the question is, do they have the will to be truly transparent?

The major remaining hurdles to Digital Retailing are not technical, they are cultural. Many dealers still believe transparency and profitability are in conflict. So, they resist the business model changes—e.g. transparent pricing across the four-square and pay plan changes—required to enable scale digital retailing.

Without the ability to see real, market-based prices on the vehicle purchased and trade-in, consumers will not transact, regardless of how slick the UI is.

In addition, consumers will need better information about F&I products and pricing to purchase online. They will need unbiased guidance to navigate their many choices in a very complex transaction. What they don’t want or need is advice steered by pay plan considerations.

Dealers first need to commit to transparency, then figure out a business model and technology that results in the highest profit from a transparent process. I believe that those dealers who embrace change the fastest, will be rewarded long-term in a new market.

Don’t take my word for it. “The Market” has already issued its initial verdict. What does “The Market” think about how digital retailing will unfold? I think the relative market value of Carvana and the leading public auto retailers tells an interesting story.

At the end of January Carvana’s market cap equaled nearly $6 billion, nearly the same as AutoNation and Penske combined. That suggests two things. First, “The Market” sees tremendous value creation potential from digital retailing—hence Carvana’s valuation. Second, “The Market” does not believe today’s auto sales leaders will lead the way—hence the gap with traditional retailers.

The key to closing that gap is not to focus on technology, but consumer experience.  When the bath-robed Millennial from Carvana’s inaugural ads, said “that didn’t suck” he was referring to the overall experience, not solely the digital UI/UX.

Every dealer has the capacity to close the gap, but it starts with a commitment to transparency, because technology-driven opacity will still “suck.”

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