The Battle In the Automobile Aftermarket
There are several products such as automobiles which represent a long term commitment on the part of the buyer. Since such products are used over a long period of time, they need to be repaired and services several times.
This market, where products are repaired and services are is called the aftermarket.
The concept of aftermarket basically arises from the automobile industry. This is because these after sales activities represent close to 20% of the revenue which is generated by automotive companies.
The revenue is split equally between sales of spare parts and periodic service of vehicles. It is a known fact that this part of the automotive market has higher margins than other sub-markets.
However, the aftermarket is about to undergo a lot of change in the upcoming years. In this article, we will have a closer look at some of the changes that are likely to take place in the aftermarket.
OEMs Want a Bigger Share of The Pie
Up until now, the aftermarket has largely been held by small and medium businesses. Original Equipment Manufacturers (OEMs), i.e. automotive companies, in this case, have until now been happy to play second fiddle to the small businesses. The reason behind this is that the aftermarket requires a wide network.
The availability of information as well the ability to respond in a timely manner are the key. Until now, OEMs believed that the market was too fragmented for them to enter.
However, automotive sales across the world are drying up. As a result, these companies are now moving to the aftermarket for expansion.
Many companies are providing better deals to the customers which incentivize them to use the aftermarket services of the OEMs even though they might be more expensive.
Companies have also started offering non-brand specific services. Hence, Volkswagens after service centre could be servicing the cars of General Motors as well.
Lastly, OEM companies have also started creating brands which offer cheaper service to older cars. This decision has been taken as numbers show that older cars are often serviced by rothe non-branded service providers.
Over the next few years, OEMs will be major players in the aftermarket, and smaller companies will be completely eliminated from the market.
Device Generated Data
Most cars being manufactured today are smart cars. This means along with hardware, they also have a lot of software in the car. This software generated data regarding the health of the car, the parts which need to be changed and/or repaired.
As a result, the nature of the after-market is going to change completely.
The after-market will no longer only be about repair. Instead, armed with the data that cars themselves will generate, companies will be able to make preventive sales to the customer.
Customers will also have better knowledge about the wear and tear that has already taken place in their car. Hence, the performance of the car will be more predictable.
Since companies will be directly connected to the customers via software, they will also be able to make direct sales to the customers. The distributor based digital model is quite expensive. This acts as a deterrent for the customers.
OEMs want customers to buy more products. Hence, they will try to make direct sales which helps them cut out the distributor and hence lower the price significantly. OEMs have already started increasing their digital presence. It is a known fact that customers today check digital channels before they give their cars for servicing.
Hence, these websites have now become touch points for customer acquisitions.
Consolidation in Distribution
At the present moment, the distribution of parts is highly fragmented. Thousands of smaller companies work in each and every sub-market. This is the reason why distribution has become extremely competitive.
Distributors are also facing the challenge from the onslaught of the OEMs. This is the reason why distributors have no option but to consolidate. If the number of distributors does not become smaller, they will not be left with any bargaining power.
A spree of mergers and acquisitions has already started happening amongst the distributors of North America and Europe. It is only time before this spreads to the developing countries as well.
It is likely that in the near future, all the distribution in any given market will be controlled by five to six companies along with the online sales channel of the OEMs.
Better Customer Experience
Lastly, all these changes are being done to provide a more transparent experience to the customers. At the present moment, customers have to undergo a lot of inconveniences.
Firstly, there is an absolute lack of transparency with regards to prices of spare parts and services. The prices can vary widely depending upon the channel that the product was purchased from.
Also, many times unscrupulous dealers replace parts which are working absolutely fine in order to increase their own margins, thereby fleecing the buyers.
To sum it up, the aftermarket is about to undergo a lot of change. Bigger companies are about to replace smaller mom and pop operations. These companies are trying to bring in more technology and better service to the market. Also, this is not restricted to the automobile aftermarket only.
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