Market
The automotive industry is increasingly turning towards the Internet as a new communications and sales channel. The reason being that the Internet offers a new wide range of possibilities for communicating with the customers
compared to traditional communications channels. These include multimedia, a world wide reach and 24-hour accessibility. In the first part of this thesis, we described what makes the Internet unique as an information channel. To read this summary, click here. The purpose of being on the Internet varies between companies; some companies choose to only give information, while others have interactive web sites that enable two-way communication between the customer and company. In the first part of this thesis, we also presented a theoretical summary on how the Internet can be used as a communications tool and a description of its different usage areas. In this part, however, we have adapted this summary to Volvo’s case. To read more about it, click here.
Throughout our research for this thesis we have found that all the actors in the auto industry agree that the Internet will have an impact on traditional manufacturer and dealer structures. Opinions only part when discussing how big the new channel will become, and that will depend on customer demand. The market situation changes and its actors now hope to capitalise on the benefits that the new medium brings.
Below follows an introduction to Volvo’s present market situation and their attitude towards the Internet as a communications channel.
To be a competitive actor in the automotive industry in the future it is a prerequisite to take advantage of the new mediums available. Having a competitive web site, which offers a value added service to the customers and dealers is therefore of high priority. Volvo as well as all other parties we have been in contact with, reason that it is better to be proactive and influence the development of the Internet car business than being an observer. Many people believe that the dealer structure of today will change when a big part of the buying process is done over the Internet (Engzell-Larsson, 23/02/98). By introducing its own web service, Volvo can in co-operation with its dealers continuously adapt to the changing market situation. As the world’s smallest independent manufacturer in the business and with relatively few dealers, it is relatively easy for Volvo to influence the dealer network. Volvo has thereby an advantage over other manufacturers (Otterbeck, 09/11/98), as for example their main competitors; BMW, Audi, SAAB, and Mercedes (Illes, 07/12/98).
Zoltan Illes at Volvo Cars (07/12/98) says that the primary reason for launching VolvoNet is related to the image of the Volvo brand. “Image is more important than business”. He does not believe that VolvoNet will increase Volvo’s market share, rather that it will be a prerequisite for not losing market shares in the future. But compared to not having VolvoNet, this will mean a maintained market share, thus the share may be larger with VolvoNet than without it.
In the long run, VolvoNet can also affect the distribution cost (customer price – manufacturing price), which today represents 30 percent of the car’s total cost. Volvo now hopes to reduce this cost by redirecting the customer to a cheaper brokering channel – the Internet. (Engzell-Larsson, 23/02/98)
Volvo’s dealer network in Sweden consists of 69 independent dealers at 150 different locations (Illes, 07/12/98). Bilia, owned to 37 percent by Volvo, is Volvo’s biggest dealer group (Annual Report Volvo, 1997). The remaining dealers are private enterprises. Together they sold roughly 54,000 new Volvo cars 1998 which represents approximately 21 percent of all new car sales in Sweden (www.mrf.se).
Dealers’ profits on new cars are low with a net margin of less than 6 percent (Eneqvist, 25/11/98). As the sale of a new car only represents a part of its total value during the cars lifetime, it is important for the dealer to establish a
relationship with the customer in order to later be able to profit from repairs, fuel, and repurchases. Other sources of
income for the dealer include financing through dealer owned Volvo Finans and sales of accessories. The dealers also sell a Volvia insurance (a Volvo owned insurance company) to roughly 50 percent of their customers (Lööv, 24/11/98). The main part of the dealers’ profit from insurance does not come from the small commission received from the sale, but from repairs and sales of spare parts, which take place at their garage.
As customers gain access to more and more information, they can easier than before compare the prices between makes, models, and different dealers. The customer empowerment has lead to a change in price setting. Dealers have started to cut their prices on pre-owned cars listed on the Internet in order to be able to give competitive offers on third party broker sites. Net pricing as the dealers call it, is the original price reduced by its haggling margin. As some dealers have started to adopt this type of price setting the others must follow in order to stay competitive. This results in lower dealer margins and it is one of the main reason why the Internet has at times been presented as a threat to the dealers.
Although regarded as a threat, the dealers (we have been in contact with) consider the development of the Internet as a brokering channel inevitable. They figure that they have more to gain by joining and getting experience than by being observers. As of today they have had relatively few requests as well as concluded deals as a result of their connection with the Internet car broker Bilweb. They see a risk in that the sales force can lose faith in the Internet as a brokering channel if the efficiency of the channel does not increase over time (Eneqvist, 25/11/98).
The main benefit is saved time because the Internet customer is better informed when arriving at the dealer’s location than normal customers (Lööv, 24/11/98). The cost for their Internet commitment is considered to be low. Today they see the Internet mainly as an information channel and consider advertising in papers the most important marketing channel. But if the Internet becomes a popular purchasing channel among the customers, the dealers want to be prepared for it.
As cars become more and more alike, car consumers become less brand loyal. Volvo’s customers have also become more and more price sensitive (Lööv, 24/11/98). To counterbalance this, Volvo has tried to change the customers’ image of their cars from a peoples’ car with high security standards towards being secure and environmentally friendly as well as offering an exiting car that is enjoyable to drive.
The typical Volvo customer is a man of lower middle-age, who has family values although not necessarily a family. Another large customer group is old couples with children not living at home. (Illes, 07/12/98)
Auto industry actors on the Internet market
Volvo and its network of dealers see the Internet as a new and increasingly important channel for communication, but they are not the only ones with this perspective. Many major manufacturers are testing similar products to VolvoNet in different parts of the world, but the auto industry have also seen the rise of a new type of intermediary. On the Swedish market, where VolvoNet would compete, we have identified three different types of actors on the Internet market; car manufacturers, dealers, and third party brokers.
Volvo’s brokering service, VolvoNet, is at this time only operating as a pilot service in Belgium. The service will probably be launched in Sweden within the next year. It has been running in Belgium since July 1998 and as of 20
November 1998 the service has been visited by more than 25,000 visitors. As opposed to third party broker sites this site is concentrated to one make only, Volvo.
Volvo will try to connect as many Volvo dealers as possible in order to secure an extensive dealer system. They are optimistic and believe that all of the authorised dealers will be connected, including Bilia’s dealers (Illes, 07/12/98), even though the Bilia dealers will be connected to Aytobytel.se.
Since there is yet no Swedish version of VolvoNet, we will assume that if it is launched it will have the functions of the Belgian service, which according to Volvo is reasonable to assume (Illes, 07/12/98). Thus, the description that follows is made of the Belgian service.
The service offers six main functions: read product information, order brochures, book a test–drive, build your own Volvo (the configuration), request an offer, and ask a dealer to contact you.
Perhaps the most characteristic function is to build a car, the configurator. You are first of all asked to choose the preferred model (e.g. S/V 40, S/V/C 70, or S80). When a model has been chosen, e.g. S70, a picture of the model is shown and you are asked to choose a specific version (size of engine, automatic or manual, petrol or diesel etc.). Your preferences are then consulted regarding colours (14 options), wheels (six options), and option packages e.g. luxury or comfort package. There is also a possibility to go into details and check or uncheck specific accessories (about 30 different options). The recommended price for the configured car in its present configuration is always
shown at the top of the page as well as details and pictures of the options available.
The fully configured car can then be compared to other Volvo models or to other makes (approximately 50 different makes to choose from). Detail and price comparison is enabled of equipment and technical specifications of the two
compared cars. One can even add and remove equipment to and from the compared car, even though it might be a different make. There is also information on different insurance and finance options. Although it is not possible to buy these services online you can make cost calculations on different options, e.g. the monthly payment on a loan and the annual cost for insurance. When the configuration of the car is completed, a request for an offer can be sent to one or more dealers.
A form with information on name, age, address, e-mail address, car model etc. is filled out, and a dealer is chosen. The choice of dealer is free; that is, you can choose any dealer in the country that is connected to the service. The request is then sent to the dealer of your choice including the financing and insurance information. The request is
just a request and is thus not legally binding. The dealer then returns an offer on the requested model and configuration.
Other functions on the site include product information. This service covers several categories; technical specifications, engines, chassis, options (leather or wood steering wheel, electrical adjustable seats etc.), safety, environment, and audio (stereo, speakers etc.). There is also supposed to be a function of reading unbiased information, articles from independent motor magazines but this function does not exist at the moment (25/12/98).
If the information available on the site is not enough you can ask a dealer to contact you. By filling out a form with information such as name, age, address, desired model etc. you are then contacted by a dealer. The procedure is rather similar for ordering a brochure or for booking a test–drive. For booking a test–drive however, there are slight differences; except for the basic personal information, you are also asked to choose between petrol and diesel engine, planned time for purchase, preferred day of the week and preferred time of day. The actual booking is made
over the phone, the date and exact time is then agreed upon.
It is not yet decided whether Volvo will charge their dealers a fee for the service or not, but if they choose to do so the fee will probably be a membership fee, that is, the dealer pays a fee per month or year, not a fee per mediation. (Illes, 07/12/98). As all other car brokering services available VolvoNet is also free of charge for the customers.
Almost all of Volvos’ competitors are available on a web site with a Swedish domain. The services available on the different sites are strikingly similar to each other, offering information on products, guarantees, optional equipment and dealers. Some differences do exist, e.g. on the BMW site you can order a CD-ROM with information on the M-coupe. Furthermore, Toyota and SEAT screened their latest television advertisements. A common problem being that more advanced features of the site, requires special programs and updated web browsers to function. Today (25/12/98) however, there is only one other site, (www.volkswagen.se), which offers a similar service in Sweden as VolvoNet does on the Belgian market. As we mentioned before, many manufacturers are testing their equivalents to VolvoNet in different parts of the world. As the Scandinavian market is considered to have a high degree of computer maturity (Ollevik, 09/10/98) and millions of accustomed Internet users, it is reasonable to believe that we
will see the introduction of several manufacturers’ Internet brokering services during 1999.
Many dealers have individual web sites, where they present basic company information as well as giving information on their inventory of pre-owned cars. Many dealers are also connected to a third-party service.
The third-party services act as a market place where buyers can meet sellers. The dealers connected to the service can present their inventory to a larger audience compared to the manufacturer web sites. Also, the buyer has not only more cars to choose from but also cars from different manufacturers. The services are often quite advanced allowing the buyer to give detailed information of the desired car. This information is then sent to the dealer or dealers, who have matching cars. They are then asked to contact the buyer to give an offer. The service is free for the car buyer but dealers pay a fee for being connected to the service, normally a fixed monthly rate plus a fixed cost
per purchase request received. This type of service has had tremendous success in the U.S.. Autobytel.com, which is the biggest service provider in the U.S. started its business in 1995 and have since then conveyed 1.5 million purchase requests to their connected dealers (www.autobytel.com).
In the last two years we have seen the rise of a handful third-party service providers on the Swedish market, including Bilia (www.bilia.se), Bilweb (www.bilweb.passagen.se), Bytbil (www.bytbil.com) and Motorbörsen (www.motorborsen.se). They have used different strategies to reach the customers. Bilweb and Bytbil are available on Sweden’s two leading Internet market places, www.passagen.se and www.torget.se respectively. Motorbörsen is a leading automotive trade magazine who acts on an independent web site. Bilia, Volvo’s biggest dealer group, has decided to be proactive on the expanding Internet market and has therefore entered into a franchise agreement with Autobytel.com to form Autobytel.se (www.autobytel.se), with a planned launch date of January 1999 (Nordh, 1998). The site will offer similar services as the North American site. Among the sites mentioned above, only Bilweb and Autobytel.se offer selling new cars with a service similar to VolvoNet’s. (We have more information for you to read about Bilweb and Autobytel.se if you merely click on the links above.)
