Tesla: The Future of Automotive Retailing?

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Tesla is not only redefining what the automobile is; it is fundamentally disrupting how vehicles are purchased in the United States. And, according to new research by MaritzCX, customers are loving it.

Tesla’s unorthodox retailing approach of having about 83 factory direct outlets (‘galleries’) in shopping malls and other unconventional locations scattered across the US with no inventory is a bet that appears to be paying off, especially with younger tech savvy affluent customers.

First Point of Contact

According to the MaritzCX Generational Retail Study, almost half (46%) ofmillennials start with the internet sales department in their shopping journey (compared to less than one third of boomers) when buying a new vehicle.

Therefore, Tesla is on point with a very attractive website, which almost all (99%) new owners report visiting as the first stop in their purchase journey. Without the need for a dealer dedicated website, the experience is streamlined and simple to use for would-be customers.

Shopping Experience

MaritzCX’s New Vehicle Customer Study (NVCS) has consistently shown that dealing with one person through the purchase process is one of the strongest drivers in creating a great dealership experience. Tesla has taken this advice to heart, with potential customers working with only one non-commissioned representative from shopping to vehicle delivery. A Tesla representative helps set up a test drive that is convenient for the customer – this can also be arranged on their website.

Once a customer gets behind the wheel of a Tesla S, however, it’s game over. The Tesla S receives segment-leading ratings on many dimensions, but most notably on driving performance. New buyers note the head-popping linear acceleration, achieving 0-to 60 in about 5.4 seconds. The P85D version even has an “insane mode” that evokes quite a reaction, launching it from 0 to 60 in 2.8 seconds, which is in spitting distance of the Bugatti Veyron supercar.  Indeed, 71% of buyers who test drove the Tesla S said the experience was extremely influential in their decision to buy the vehicle.

Another concept that Tesla has implemented is not doing same day, or even same week, delivery upon purchase. This might worry some automotive traditionalists who believe customers want a vehicle right there, right then. However, expectations for vehicle buyers have changed dramatically over the last few years. Many customers want to buy a car much like they would a computer, or other big-ticket item. And it’s not just young people. According to our Generational Retailing Study, 85% of American consumers are willing to wait 3 or 4 weeks to get the exact vehicle they want. More than two-thirds (67%) are willing  to wait several months or more. This is roughly in alignment with the 4-6 weeks it takes to build and take delivery of a new Tesla from their Fremont, California-based plant.

Based on our investigation, Tesla will help customers not only to finance their new vehicle, but also to dispose of their existing vehicle thorough online bidding, which are predominantly mid to high end BMW and Mercedes Benz trade-ins according to our data.

Tesla is demonstrating what we are seeing as a disruptive force across almost every vertical with a retail network. It is not the dissolution of the retail location and the human sales person, but the rejiggering and seamless augmentation of digital with brick-and-mortar retail locations. In the end, people still want to deal with people, and Tesla has implemented that credo in its retailing experience.

Customer Experience

Is it working? Despite what some other dubious sources say, the proof is in the feedback, from more than 900 actual customers in our database.  So far, Tesla is hitting it out of the park on customer experience, with 3 out of 4 new buyers giving it the highest possible marks in regard to their purchase experience, compared to a segment norm of 1 in 2. Owners report high levels of product satisfaction, with 97% giving the highest possible marks in recommending the brand to others based on their product experience to date (about 90-120 days of ownership). In our 30+ years of conducting the New Vehicle Customer Study (NVCS) we have seen very few instances of this extremely high level of retail and product satisfaction. Our findings are largely corroborated by other trusted industry sources.

Tesla currently only offers the Model S which retails well above the $70,000 range. It appeals to affluent ($342,000 house income on average) metro-technical males (83%). Therefore, at this volume and at this price Tesla can afford to provide the red carpet and white-glove treatment to its customers.  With the upcoming release of the Model X crossover at about the same price, it will appeal to not just the driving enthusiast, but also to wealthy families (look out Porsche Canyenne!).

But what about the vehicle for the masses? With the Tesla Model 3 scheduled to come out in 2017 in both sedan and a crossover flavors, and with a less heady price of around $35,000, Tesla could very well make a irreversible mark on the automotive industry.

Is it Sustainable?

My grandfather once said “if it was easy, you probably did it wrong.”  In the case of Tesla, this will most certainly be the case. With issues of scaling, their high-touch retail model, looming dealer franchise obstacles, developing recharging infrastructure, manufacturing challenges, and the ever-daunting task of continuously rolling out new technology, Tesla has a monumental job in front of it.  There is a completely different set of challenges at its current rate of 50,000 units a year versus their goal of 500,000 per annum.

However, if Tesla can scale its retail model, ramp up production, and sustain product quality, it will be sure to have faithful customers in the future. Indeed, currently nearly three in four (73%) of new Tesla S owners strongly agreed that they would buy another product from Tesla in the future, compared to the segment average of less than one in two (45%).  Admittedly, there is a significant electrified halo around the brand, and some may rightly question its staying power.  However, with that kind of engaged loyalty, OEMs and retailers should take notice.

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Special thanks to gear heads Jim Mulcrone and Shawn St. Clair for their help with this article.

This article was originally published on linkedin.

5 COMMENTS

  1. Hi Dave

    But NOT the Future of Automotive Servicing

    The heart of automotive for manufacturers is retailing. In Europe, customers are willing to drive for several hours or more to find the right vehicle. But the heart of automotive for customers is post-sales servicing. Customers will only drive about 30 minutes for an annual inspection. I suspect that servicing the Teslas already out there is going to take a whole lot more than just 83 outlets. Mind you, at rip-off prices of US$ 600 for a single annual inspection, I am not sure that Tesla is going to be expanding all that fast!

    Graham Hill
    @grahamhill

  2. Dave – great article, with three huge ‘if’s’ at the end. I wish Tesla well. Very well, in fact, because they are putting the screws to a completely dysfunctional dealer-network sales model. A model that has created some of the lowest buyer-experience ratings of any industry. If an industry NEEDS disrupting, I’d put auto retailing at the top of the list. And it’s long overdue.

    Buyers hate going to showrooms – “before purchasing, 16% [of prospective buyers] took no test-drive, and 33% test drove only one car. And more than two-thirds (68%) reported that they visited only two dealerships or fewer before buying – with 40% visiting only one dealer . . .This avoidance of physical dealerships is in stark contrast with how much online vehicle research is happening: 4 in 5 people now use the Internet for car buying, visiting 10 auto websites in the process,” according to a 2014 survey by DME Automotive (see my CustomerThink article, “Try it, You’ll Like it. The Power and Pitfalls of Trying before Buying”).

    But, there’s the dealer-network lobby, and the state government interests that protect it. “If Tesla won’t have a dealer network, it doesn’t belong in the automobile business,” said Gerard Murphy, President of the Washington Area New Car Dealer’s Association, who I quoted in a 2013 CustomerThink article, “Innovation Risk: Tesla’s Groundbreaking Sales Model Hits a Roadblock.”

    And that viewpoint constrains Tesla’s business. So, if Tesla can’t roll out their dealer-less model, if they can’t sell direct, where will they be? Probably forced to go to the dealership sales route, to placate the interests of the people who insist on being placated.

    Once sales quotas and overlapping dealer sales territories kick in (de rigueur in auto retailing), it won’t be so pleasant to buy a Tesla. Gosh – I sure hope I’m wrong, but at least the company will offer a great car.

  3. Hi Andrew, I agree and there’s a reason why consumers don’t like to go to show room; many are scared, even though many dealers are quite good. Your are right about the dealer franchise laws, but Tesla is trying to change that as well. For example, they are making headway in New Jersey (http://www.theverge.com/2015/3/18/8251821/tesla-new-jersey-direct-sales-dealerships-christie) and elsewhere. If doubt they will go to a traditional dealership route unless forced but will probably find a way to vertically integrate their retail efforts other ways (perhaps buy or create a exclusive dealer group).

    In any event, it sure is going to be fun to watch! Thanks for reading.

  4. Andrew

    In Europe, part of the quid pro quo for independent dealers to continue to be the only channel for new vehicle sales was that they had to provide after-sales service alongside new vehicle sales. Due to customer behaviour, significantly more after-sales service outlets are required than new vehicle sales outlets.

    If you take away independent dealers’ incentive to provide a bigger service network than their new vehicle sales network you get what we already see at Tesla. A quick look at Tesla’s service network strongly suggest that it has significantly underinvested in service outlets compared to new vehicle sales outlets. Having a new Tesla is great. But what happens when it needs its first service, its second, and its third, and do on?

    Be careful what you ask for; you might get it. Including all its unintended consequences.

    Graham Hill
    @grahamhill

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