How electric vehicles are reshaping the car buying journey

The MCI 2022 also highlights the evolution of digital auto retail that is being specifically driven by the rise of the EV, both through physical experience centers (often a type of tech-enabled virtual dealership providing an enhanced product experience) and advanced experiential technologies, These include augmented reality (AR), virtual reality (VR), and the latest and most immersive tech of all, the metaverse. Most legacy manufacturers provide experience centers for their EV models, and gradually pure play EV manufacturers are also catching up, with a select few establishing new benchmarks with exceptional experiences. In some instances, these EV startups have inspired the legacy manufacturers to pull through to provide experience centers. To this end, EV original equipment manufacturers (OEMs) are also responding to the same cues, partnering with specialist tech firms to develop metaverse applications covering the consumer experience.

… but physical interactions remain key

But appearances can be deceptive, and despite overall similarities with other retail products, cars remain distinctive in the minds of consumers in several significant ways. A car represents a major financial commitment, and the in-person experience is important: the majority of consumers still prefer physical interactions when it comes to both trying before they buy and, ultimately, parting with their hard-earned money. While online modes are picking up, physical ones continue to dominate with only 38% of buyers preferring mobile or digitally advanced showrooms over the traditional dealership for prepurchase viewing and testing, while even fewer — 23% — prefer online channels for final purchase. 

While the use of online channels as an adjunct to offline is now the norm, the in-person experience remains important throughout the customer journey. Buyers are looking for a digital-first experience, but one that offers the convenience of online with the reassurance of personal interaction with expert dealer staff. Over 60% of all car buyers, regardless of drive chain choice, prefer to visit a dealer for prepurchase and purchase stages: 63% prefer a dealer interaction for information gathering, and the same proportion prefer a dealer to experience the car physically. 64% of new car buyers prefer to purchase from a dealer rather than online.

Fifty-seven percent of all car buyers and 60% of EV buyers said they intend to buy their next car from a dealer. Dealers have already evolved from offering physical-only to physical-plus-online customer experiences. They must continue that process to provide an even more digitally enabled experience while retaining the personal elements that customers value highly. This includes integrating both virtual and face-to-face elements into a joined-up journey that takes the customer from prepurchase digital brochures and virtual product tours through developing specs, ordering and the sale itself to after-sales support — all in a completely seamless way.

But buyers expect digital too

At the same time, consumers are increasingly open to using quick and convenient digital tools for at least some parts of the process. Well over 60% of buyers said that they would be interested in booking a test drive and working out the price of a new car online, for example, while around 50% would use an online configurator to spec a car.

EV buyers are consistently more likely to use digital tools than ICE buyers. This may reflect a more “digital” mindset among EV buyers, but it is also likely to be a result of the fact that EVs are a relatively novel purchase in comparison to ICE vehicles. Consumers thus seek out more information and reassurance when buying an EV than they do a more familiar ICE vehicle.

Use of online tools to substitute some parts of the buying process has resulted in fewer or shorter dealer visits, with a corresponding decrease in costs for dealers. As technology improves and its use encompasses more of the customer journey, costs for dealers are likely to be further reduced.

Demographic divide?

While there are differences between Gen Z, millennials, Gen X and boomers, they do not entirely conform to generic “the younger you are, the more digital you are” consumer stereotypes. Buyers in all four of the demographic groups considered in MCI 2022 expressed strong preference for either visiting dealerships, an in-person experience or both. At one end of the age spectrum, over 50% of Gen Z buyers prefer to visit dealers and interact with a salesperson for information gathering, to experience the car physically and to purchase a vehicle. At the other end, that rises to over 70% of boomers for the same three stages of the customer journey. But while the in-person experience will persist for some buyers and some steps on the journey, its importance is waning especially with new generations of younger consumers.

Even though a large portion of these customers want some physical touchpoints today, will they require it tomorrow? The need of physical channels is estimated to reduce over the years. New automotive players are thinking of reducing investments in large physical networks and increasing investments online sales technology. The physical store is often seen as a model of inefficiency, with huge capital investments. Automakers are either moving away from the large physical stores or transforming them into experience centers to enhance the customer purchase experience. For example, a leading EV manufacturer is moving away from offline stores and focusing on cheaper locations, remote management of test drive fleet and delivery and service matters.¹

Digital is an increasingly valued part of the experience, especially among those younger consumers. Sixty-five percent of Gen Z, 69% of millennials, 66% of Gen X and 60% of boomers prefer to use apps and online tools to gather prepurchase information. Only 13% of boomers buying new cars prefer to actually purchase a vehicle online, rising to 20% of Gen X, 28 % of millennials and 37% of Gen Z.

So even where so-called “digital natives” are concerned, it’s not a case of either physical or digital but both. Younger buyers are more inclined to prefer a digitally enhanced experience but still seek the reassurance of physical and in-person interactions. Perhaps reflecting that they are less-experienced buyers, and that a car represents an even more significant investment of capital to those in Gen Z than it does to older buyers who are likely to have more savings and higher incomes.

If consumers expect to be able to perform more buying tasks online than they could in the past, the quality and nature of the experiences they seek is also changing. Dealers and OEMs alike are offering AR and VR enhanced brand experiences — several EV makers use AR/VR technology to enhance the purchasing experience, often via tech-enabled experience centers. These centers can showcase in car tech and new models via AR ad VR technology, offer virtual test drives and even virtual factory tours — all without the need for holding physical stock on site, reducing costs and the amount of space required.

Making waves in the metaverse

The latest and perhaps the ultimate immersive experience of 2022 is the metaverse, a high-tech alternative universe, which by 2024 is touted to create US$800b of business opportunity — across sectors as diverse as the arts and media to manufacturing and real estate — according to industry estimates.²

On one level, the metaverse is just the latest upgrade to the AR/VR brand experience that many are already providing. But its real commercial potential lies in the opportunities for creating a huge range of margin-enhancing revenue streams at practically zero marginal cost, and also in its appeal to future cohorts of Gen Z car buyers, who will likely expect OEMs to be in the metaverse in the same way that their parents expected them to have a website. 

Our analysis also suggests that EV manufacturers are taking a “build it, and they will come” approach to this novel technology, busily embracing the metaverse even if those revenue promises have largely yet to materialize. Several automakers are using the metaverse to enhance the customer experience, while some prioritize overall brand promotion, and a select few are leveraging it for product launches.

The distribution dilemma

EVs are intrinsically lower maintenance than ICE cars, a factor that has catalyzed a shift toward direct-to-consumer EV sales (even from some legacy OEMs), and an industry-wide shift in the relationship between consumers, dealers and OEMs toward an agency model.

The agency model — which sees ownership of vehicle inventory to be sold remain with the OEM or its sales company, rather than with the dealership as has historically been the case — offers OEMs several advantages. For one thing, it makes the provision of that integrated seamless customer journey easier, as there is much less back-and-forth between dealer and OEM systems to cause friction. It also provides better control of pricing and multiple opportunities to upsell and cross-sell along the way. And it gives them a more direct connection with the customer.

Agents of change

For dealers, the agency model is something of a mixed blessing. In return for fixed fee per vehicle (and likely reduced costs from simpler operations and a smaller real estate footprint) the dealer’s role becomes that of “last mile” distribution and delivery of vehicles already ordered and paid for via the OEM.

In the light of the reduced servicing requirements of EVs, how dealers can use their existing relationships with long-term customers to generate new and alternative sources of revenue may prove to be an important consideration as this shift continues.

There is as yet no “one size fits all” solution to the distribution dilemma, and OEMs are still experimenting to find the right balance between direct sales, dealer sales and the agency model. Some pure play EV makers who started out with direct-only sales models are looking to develop their own dealer networks, while others are dialing back on their level of physical presence in favor of direct sales. By contrast, some legacy OEMs have adopted direct-only sales for their EV models, while others are rightsizing and reconfiguring their dealership footprints to deliver a more integrated experience and maximize revenue opportunities. Given this trend, the future of the physical retail network is expected to be less dense, with OEMs and dealers leveraging an omnichannel model as the customer journey becomes increasingly digital.

Toward a seamless tomorrow

Dealers and OEMs have already become used to a world where getting a sale is no longer just about having the best product, the smartest salespeople and the most competitive deal. Now they will also have to evolve beyond competing for the wow factor of who has best online or virtual experience, to who can offer the best customer lifetime experience.

The goal of a customer experience is a seamless digital marriage of online, offline and virtual elements. OEMs and dealers have tested and developed many of the individual elements of that experience; the challenge now is how to best integrate them into a unified whole. The leaders of tomorrow, whether OEM or dealership, will be those that offer consumers the seamless buyer experience they expect, with the physical touchpoints they still need, via whatever medium they choose.

To conclude, here are three important considerations for OEMs and other stakeholders as they transition away from the old product-centric worldview and distribution model toward this seamless integrated future:

1. Keep delivering for dealers: The transition to alternate distribution models would require changing roles, revenue opportunities and expectations from dealers. Keeping dealers onside will be crucial for OEMs as they seek to get closer to the end customer.
2. Boost digital skills: A new era requires an enhanced skillset — working in an experience center is not the same as in a traditional showroom. OEMs will have to provide ongoing digital and technical training if they are to successfully integrate both online and offline.
3. Assess required investments: New digital infrastructure and experience centers (and skills, as above) will require greater levels of investment from OEMs.