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Cybermediation in Auto Distribution: Channel Dynamics and Conflicts
Department of Information Systems, University of Muenster, Germany
mcm institute for Media and, Communications Management, University of St.Gallen, Switzerland
Table of Contents
- Emerging electronic intermediaries
- Channel competition in the auto industry
- The endangered position of exclusive dealers
- Why are the auto companies and their exclusive networks vulnerable?
- Emerging auto cybermediaries: Innovative selling propositions and the impact of the Web
- Strategic options to fight back
- Appendix: Limitations of the study and future research
- About the Authors
The emerging electronic market space will change the structure of value chains and will - in particular - increase the presence of intermediaries so called cybermediaries. The paper examines the roles and functions of these new players and their impact on established distribution and sales channels in the case of the automotive industry. Two different automotive cybermediaries categories are identified: automotive service brokers and automotive information brokers. Their initial success indicates that they might become serious competitors to the auto manufacturer's exclusive distribution systems. Our analysis focuses on the impact of the Web in an industry, which is characterized by physical products and infrastructures. Based on this analysis and reconstruction of current trends in the auto industry, we will discuss strategic options for auto manufacturers using a blend of market brand strength mixed with the concept of an on-line community.
The discussed cybermediaries are feasible because of advanced IT system and more generally the revolution in business relationships caused by the Internet. Based on an analysis of the implications of the emerging global information infrastructure on traditional value systems, we will outline the options for car manufacturer to retort to the new entrants.
Information Technology -IT - has a significant impact on industrial organization as well as individual organizations. The significantly lower costs of obtaining, processing, and transmitting information and the arising (electronic) information links within and between firms spur radical changes in the way companies operate and cause the restructuring of industrial markets (e.g. Malone, Yates, & Benjamin, 1987; Porter & Millar, 1985). The results are smaller firms, virtual organizations and complex inter-organizational structures (e.g., Rockart & Scott, 1993; Klein, 1996; Sieber, 1998). The redesign of inter-organizational relationships is spurred by the emergence of specialized (cyber-)intermediaries. These product and service integrators create new values and business propositions by offering additional information or transaction services, by repackaging current information assets and by integrating third-party products (Sarkar, Butler, & Steinfield, 1996).
This trend is placing increasing strains on traditionally structured organizations such as automotive firms. They have built their distribution channels around the paradigm of hierarchical control and forward integration - through rigid relationships with intermediaries and car dealers, or direct ownership thereof - to better control the market they believe to serve (Dudenhöffer, 1997; Ludvigsen, 1995). Today these industrial giants and their distribution channels are experiencing great difficulty in operating, competing and surviving (The Economist, 1996a).
The proliferation of business-to-consumer electronic commerce has the potential to yield a radical restructuring of retailing in general and its underlying infrastructures of production, distribution, logistics and services (Steinfield, Mahler, & Bauer, 1999). The Internet is evolving into an interconnected market space (Rayport & Sviokla, 1994), facilitating the exchange of a wide variety of products and services.
In this paper we focus specifically on two issues: Firstly, why are new electronic intermediaries emerging and how will they affect the established automotive distribution channel? In particular, what is the impact of digitally based services in an industry, which is centered around physical products that require physical traffic and service infrastructures. Secondly, given the success of independent dealers and cybermediaries, what are the options for auto manufacturers to fight back and to retain or regain their position? We conclude that the current automotive distribution channels will come under increasing strain by emerging electronic intermediaries and that they will have to offer a new value proposition and additional benefits to their current and newly gained customers.
The emergence of an integrated global economic structure will play havoc with conventional national markets. Instead of national markets feeding into international markets, the global market will influence national structures. This will cause considerable disruption, e.g. in traditional distribution chains. Existing value chains will become less static and value networks will take their place. Such networks will be dynamic, having many complex features, such as cross or floating links, reflecting the evolving market structure. Hence, to be successful in the next century, companies will have to thoroughly alter their structure and mode of operation.
The study is based on a series of interviews with executives of Mercedes-Benz, the automobile division of the DaimlerChrysler Corporation. The background material is based on extended monitoring of Web-based activities.
One of the major impacts of IT on the governance structure of business transactions is the brokerage effect (Malone, Yates, & Benjamin, 1987): IT reduces the cost for buyers to request quotes from several vendors and thus enables the bypassing of trade intermediaries. In times of intensified price competition, manufacturers or primary service providers get the opportunity to circumvent intermediaries and thus save some of the intermediaries' commissions and get direct access to the end customers (Benjamin & Wigand, 1995).
However, numerous industry examples show that established intermediaries have been quite successful in defending their position - at least for the time being - as they could leverage the current amount of business transactions against an uncertain amount of online transactions. Anecdotal evidence suggests that sales and distribution intermediaries have successfully protested or even threatened to penalize producers who have aggressively built and advertised direct sales activities. Another way of defending their position is to set-up online activities themselves. Online activities can be positioned next to traditional services in order to serve existing customers in a hybrid environment or can be positioned to primarily attract new customers.
Furthermore, not only are established intermediaries diversifying and building Web subsidiaries but new intermediaries are building their business purely in cyberspace and are thus called cybermediaries (Sarkar, Butler, & Steinfield, 1996, and Sarkar, Butler, & Steinfield, 1998) or infomediaries (Hagel & Singer, 1999), are emerging and thriving in the market. Many of them are dwelling on shortcomings of online direct marketing, such as relatively high information cost for customers who are comparison shopping in decentralized electronic markets and a lack of transparency, which yield the uncertainty whether one has found the best offer available (Heijden, 1996). New players often show a better understanding of the characteristics of hypermedia computer-mediated environments and the entry barriers for electronic commerce are comparatively low. Global visibility allows even highly specialized businesses to generate sufficient revenues while established players face the challenge to prevent their past to become a burden, which limits their flexibility, agility and understanding of the new medium.
With revenue of well over USD 1 trillion, and 10 million employees, the car industry is the world’s largest manufacturing business. While many carmakers are doing well at present, the outlook is rather grim. With increasingly saturated markets in the rich countries of Western Europe, Japan and North America, where the industry has until now earned most of its money, many suppliers are turning to the emerging markets of the developing world. Although demand for cars in these new markets is growing, for a while the supply of new cars has been growing even faster, pushing down prices and profits. In 1996 the total output capacity was 68 million vehicles, but the combined output of all car firms was just 50 million - 73% of capacity (The Economist, 1997; Womack, 1990).
Adding to this discouraging outlook for car companies is the increasingly blurred picture of a product, which used to have a strong brand identity. The cars of different manufactures look increasingly similar. Product differences are reduced to design aspects (often the car platform is the same for different models like VW Golf 4 and Audi A3), and thus require new branding concepts. At the same time, we move away from the simple durable good ‘car’ to a complex bundle, incorporating diverse services such as financing (e.g. in Germany 70% of all cars are financed, Dudenhöffer, 1997, 175ff.). A variety of contractual arrangements such as pool leasing - a compact car for everyday and a station wagon for the holidays -, car sharing and rental cars are spreading. They underscore that mobility-related needs can be fulfilled in many ways other than owning a car.
Over capacities in most areas of the world have made established automotive distribution channels vulnerable in front of agile newcomers who use IT to repackage the product much leaner than the car companies themselves.
Figure 1 shows a stylized description of the auto distribution channels:
Figure 1: Emerging distribution system in the auto industry
· Channel I represents the manufacturers' exclusive sales organization, whereas
· Channel III refers to independent dealers. Recently the third channel has been substantially growing in the US. Auto superstores and networks of distributors have mushroomed (Kerwin & DeGeorge, 1997).
· With the emergence of the Web, a new channel has been established. Auto manufacturers are setting up virtual showrooms and exclusive dealers are using the Web to offer information and new services. Independent dealers use the Web aggressively to improve their market position and cybermediaries are reinventing auto promotion by providing abundance of information and access to the closest car dealer. And entirely new (Web-based) intermediaries have emerged: automotive information or service brokers. The black lines indicate the information flow. The dotted lines indicate some of the possible new alliances among the new virtual and physical independent dealers.
From the perspective of exclusive dealers (channel 1), the competitive pressure is increasing despite their privileged (contractual) relationship with the auto manufacturers and their established role is threatened. Porter's five forces model (Porter, 1985) is used as a heuristic to identify and position potential competitors (cf. Figure 2):
· All major manufacturers plan to increase production capacity over the next years and expand their markets abroad (The Economist, 1996b; Schwarz, 1994). Consequently the competition between dealers for different brands will be increasing.
· Lindquist (The Economist, 1996a) estimates that in car manufacturing the return-on-investments in real terms dropped sharply in the last years. Increasingly, the car manufacturers earn better profits from financing car sales or leases than from the sales of cars. Dense networks of exclusive dealerships and service stations - even though considered a strategic necessity because of positive network externalities for the customers - become more difficult to sustain for the car companies. The suppliers, though contractually bound to their sales organization, are scrutinizing the opportunities of Web-enabled sales activities.
Figure 2: Competitive forces in car distribution from the dealers' perspective
· Large customers, namely car rental companies, are forging new alliances with independent dealers for used cars.
· Although auto manufacturers have long tried to protect their exclusive sales organization through contractual arrangements, pricing strategies, and technical features, independent dealers are currently making inroads by offering new services and by providing more price transparency. Regulation in the European Union is poised to restrict companies’ possibility of exclusive contracts.
· The role of independent dealers is leveraged by new cybermediaries, like Microsoft's Carpoint service, who are providing extensive information about the auto market such as technical features, quality assessments, prices and the closest dealer that offers the best price. Even innovative online business models like demand collection, based on a private market (e.g. http://www.priceline.com), or demand aggregation, based on transparent pooling of demand (e.g. http://www.powershopping.de) are applied to new cars.
Traditionally, auto manufacturers have tried to exert close control over the sales and distribution channels in order to be able to execute their marketing strategies, including price policy, and to guarantee a high service level for their customers. The networks of dealers with various contractual relationships (from subsidiaries to independent multi-manufacturer dealers) are instrumental in this process and they usually cover a huge array of functions from sales of new and used cars, financing, repairs etc. (cf. Table 1). However, new types of dealership have emerged that are independent from the car companies and try to leverage on loopholes or weaknesses of the existing dealer networks. Major weaknesses of the exclusive distribution networks are:
· Overcrowded markets with too many dealers with high capital costs for their site and their inventory, selling too few cars a year and thus operating with very low operating margins (Dudenhöffer, 1997, 174-176).
· Old fashioned sales techniques and inferior quality of service. The quote about AutoNation underscores that some independent dealers have reinvented auto sales by applying sales techniques from consumer goods to autos. Huizenga has designed AutoNation to respond to long-standing complaints about traditional dealers. Store amenities include children's play areas and computer kiosks displaying pictures and descriptions of the cars in stock. Cars can be returned in seven days, no questions asked, and carry a comprehensive 90-day warranty.- (Kerwin & DeGeorge, 1997, 46-49)
· National or regional price discrimination is substantial and the lack of market transparency has annoyed customers who realized that they have paid more then necessary. This situation has opened a niche for arbitrageurs.
· The established governance structures has made it difficult for the exclusive distribution networks to innovate their service offerings and to diversify into new distribution channels and to manage them properly (Schögel, 1997).
· Regulators, e.g. in the EU, have become increasingly critical about exclusive contracts for car distributors.
The car companies have been left with a mode of distribution that served them well for the last decades, but that turns out to be less flexible and responsive to change. These combined shortcomings have created the opportunity for new types of car vendors and cyber- or infomediaries (Hagel & Singer, 1999).
The global telematics infrastructure facilitates additional functions that have not been covered by established dealers, in particular interregional price and service comparisons. The new agents use arbitrage mechanisms and provide this information at a premium to the final customer (Business Week, 1996b). The players allow price and service comparisons within the product range of a single manufacturer but increasingly offer side-by-side comparisons of different manufacturers of cars in the same category. As a result, online suppliers of information about cars, car related material and car sales have emerged at an astonishing pace in the last year and a half.
In contrast to digital products, vehicles require a physical infrastructure for storage and distribution. Therefore, typically only the first phases of the transaction, i.e. the information and the negotiation phase, are covered electronically, the settlement takes place in the physical world. In most cases, the intermediaries provide leads for established dealers. However, the Web is used to make the sales process more efficient, to provide convenience and total care concepts (from comparative vehicle information to financing and insurance) and to enable different types of interaction between dealer and buyer.
Auto cybermediaries have built extensive Web-based information platforms - often linking the offerings of multiple dealers, to facilitate product comparison, to establish communication links between buyers and sellers and to enable transactions (or at least their preparation) without the necessity to physically move either people or vehicles (Lee, 1997). Overall, the cybermediaries empower the customers and thereby shift power from the manufacturers to the consumers.
Specific impact of the Web
Although arbitrage mechanisms have been available for a long time, the Web has been used to leverage these mechanisms:
· More and better information is provided, such as vehicle reports by independent consumer associations and interest groups, direct product and service comparisons, etc.
· A more comprehensive coverage of the market reduces the risk of customers to overpay. A Web based dealership will immediately be able to tap a vast reservoir of potential customers, say the whole of North America, and may thus realize substantial economies of scale in the information provision and interaction with the customers.
· It is easy to link with providers of value-added (mobility) services such as car insurance, finance, car-pooling, maintenance centers, etc.
· The buying process is customer initiated and driven. There are no overly eager sales representatives and there is no price haggling. According to the Wall Street Journal (Bank 1997, 5) the automotive buying patterns in the US is changing dramatically: Today 15% of all buyers of a new car first inform themselves on the Web. Web sales of cars amount to 3% of total sales.
In sum, the Web has enabled new players to use regional and national price differences as a lever to make inroads into a contested market. Unlike digital products, cars cannot be sold purely using the Web. Nevertheless, the high level of information cost to get transparency in the established market and potential price saving of several hundred or even thousand USD motivates potential customers to take the trouble and consult the Web. The division of labor between dealers and information brokers as well as extensive and fairly comprehensive information collections, helps to build the trust of customers in an intangible medium.
The Case of Dealer Net
DealerNet is probably the most comprehensive cybermediary in the automotive sector (Schad & Selz 1996). It is packed with vehicle information, photos, specifications, side-by-side comparisons and on-line price quotes. It contains links to over 700 dealers in the USA. The example of DealerNet exhibits comparative advantages and disadvantages of the emerging cybermediary.
National sales organization
New cars: product information and prices
Configuration of vehicles
Used cars: product information and prices
Additional services (e.g. finance, insurance)
Delivery and finishing of car
Take over by customer
Spare parts and accessory parts
Follow-up / Customer satisfaction measures (e.g. customer newsletter, bonus systems, events)
Mobility services (e.g. car sharing, virtual product presentations, bundle offers in combination with public transport)
Table 1: Functions and roles of DealerNet
* DealerNet can arrange this with the help of an associated dealer,
1) Information Phase, 2) Agreement Phase, 3) Settlement / After Sales Phase
A comparison of the DealerNet's value proposition with the current situation and tasks of the established dealer network suggests that cybermediaries are effectively taking over a considerable part of the functions and roles of the established channels. An intermediary like DealerNet may extend its role to embrace additional functions of the traditional value chain. In fact, with the exception of physical processes like test driving, car delivery and servicing, DealerNet is able to provide all functions that the traditional chain distributes over three different layers (Table 1). We identified the following success factors of DealerNet (Table 2).
Market penetration (critical mass).
Indicators: Total number of customers, penetration of target group, number of customer contacts generated, number of transactions.
A stable customer base
Breadth and quality of the information supply.
Degree of differentiation, precise customer targeting. continually updated information of binding character.
Ease of use and integration of heterogeneous and external sources.
Attractive for customers.
One-stop-shopping, total customer care concept, market transparency, i.e. product comparisons, personalization options.
Differentiation from competitors (established channels) through higher functionality and better service.
Efficient service production.
Cooperation and distributed service production,
cost savings through process optimization.
Differentiation from competitors (established channels) through more efficient services.
Cooperative service provision.
Secure favorable access to critical (information) resources, platform for dealers with established physical infrastructure, name recognition, customer base etc.
Differentiation from competitors (established channels) through better management of cooperations, reliability and critical resources.
Table 2: Critical success factors of DealerNet
Business models of online car intermediaries and their offerings
Selz and Klein (1997) identified two broad categories of online intermediaries: Automotive service brokers and automotive information brokers. On-line auctioneers are a third category. Their business, however, has so far been limited to used cars.
· Automotive Service Brokers are companies like DealerNet and Auto-By-Tel that offer on-line information, pricing and on-line quoting, additional services like financing, insurance, etc., and a direct link to car dealers.
· Automotive Information Brokers are companies such as Kelley Blue Book, AutoVantage, Look4Cars. They offer on-line information, pricing and a broker service to bring together potential buyer and seller. But they do not offer the possibility of on-line quotes or additional services. They are pure automotive information brokers or infomediaries.
All services are free of charge for the potential customers except for AutoVantage and for some vehicle pricing reports. The services are paid for by subscribing dealers and advertising. Most of the services enlist as main advantage the direct and undisturbed access to automotive price and value information. The argument that a customer does not need to encounter a sales representatives is telling. The established distribution channels, sales representatives and sales procedures seem to alienate many customers. There is an obvious threat to current dealerships if the practice of on-line quoting will spread widely. Robert Eaton said in 1997 as CEO of Chrysler: "The customer is going to grab control of the process, and we're all going to salute smartly and do exactly what the customer tells us if we want to stay in business."
Given the increasing influence of the Web and exacerbating channel competition, what are the strategic options for car manufacturers to retain the control of the distribution and service channel and at the same time reduce its cost?
The discussed cybermediaries are feasible because of advanced IT system and more generally the revolution in business relationships caused by the Internet. Based on an analysis of the implications of the emerging global information infrastructure on traditional value systems, we will outline the options for car manufacturer to retort to the new entrants.
Markets and hierarchies, the twin pillars on which much of contemporary business organization rests, are typically presented as alternative mechanisms for the allocation and control of resources. In markets, resources are allocated through bargaining over prices while firms are means of allocating resources through authority - hierarchies in the terms of economists. However, we find increasingly that companies are combining hierarchy and markets in order to get the best of both worlds, e.g. internal markets within firms. Enabled by IT, companies are choosing particular combinations of market and hierarchy elements contingent upon their own strategy and their competitive environment (Holland & Lockett, 1997). Even more, companies are trying to find new ways of combining competition and cooperation:"The growing importance of ecosystems brings along with it another major change: competition as we've known it is dead. Not that competition is vanishing. In fact it is intensifying. But we need to think about it differently. The traditional way to view competition is in terms of products and markets. Your product or service goes up against that of your competitor, and one wins. That's still important, but this point of view ignores the context - the environment - within which the business lies. Companies need to co-evolve with others in the environment, a process that involves cooperation as well as conflict. It takes generating shared visions, forming alliances, negotiating deals, and managing complex relationships." (Moore, 1996)
The quote by Moore emphasizes the changing structure of competition, which also applies to auto industry and in particular auto distribution. As value propositions on the Web are more visible, they induce much faster responses - often imitation or even improved offers - by competitors. While the car companies are trying to use the lever of a physical product and the necessity of a physical infrastructure in order to provide integrated services and retain some of their control, they nevertheless have virtually no control over cybermediaries. Gray markets are emerging and destructive intra-channel price competition has become a real threat.
In the physical world, the steps in a value creation process have traditionally been regarded as tying together a value system. This view of the value chain relates to information as being of supplementary character (for a discussion of the value system concept, a combination of individual value chains, cf. Porter, 1985, 34ff.). The management collects, processes and takes decisions based on the information on stock, production, orders received, logistics but uses information in itself rarely to create new value for their customers (Stabell & Fjeldstad, 1998). Rayport and Sviokla (1994) have introduced the term market space and differentiate between the physical and the virtual value chain. Their analysis is, however, limited to the production of a good and they focus less on the possibility to assemble new products or combinations of products and services in electronic environments. Deconstructing a vertically integrated value chain does more than transforming the structure of a business or an industry - it alters the sources of competitive advantage. Whilst the traditional value chain is often believed to be linear (Porter, 1985), a virtual value chain may be likened more to a matrix or web - the Value Web - that is accessible in each point and freely configurable. Evans and Wuster (1997) describe this as the "End of Channels and Hierarchies."
Mercedes-Benz like other car companies needs to transform themselves into assemblers of complex mobility services by coordinating networks of service providers and integrating Web services. They have to carefully manage the emerging multi-channel distribution network and face the challenges and risks of intra-channel conflicts, failure to reach critical mass with the new channel, and the sheer complexity of such systems (Schögel, 1997). While the car companies have learnt to coordinate complex supplier networks they have to learn in the future to apply this competence to the configuration and management of complex distribution and service networks with (more) independent service providers, assembling and coordinating complex and computer-enabled networks of intermediaries (service organizations with different contractual obligations) in order to provide mobility services." ...Mercedes-Benz observes therefore a strategy to see traffic in its entirety and to offer as complete transportation solutions...It is our goal to satisfy all of our customers’ mobility requirements with an optimal offer of products and services." (DB-High Tech Report, 1996, 23)
Mercedes-Benz is responding to the changing competitive landscape and changing customer behavior by redefining their business scope. Rather than just being a car manufacturer, Mercedes-Benz defines itself now as an integrated mobility company. It is redesigning its business in terms of "offering complex mobility services" instead of just "selling vehicles". This requires the introduction of new services and permanent service innovations. In addition, Mercedes-Benz has to determine new revenue streams to guarantee and maintain a healthy dealer network (Business Week, 1996a).
The vertically integrated distribution chain - characteristic for most of the current industry - has become vulnerable to new competitors and needs to be readjusted or refocused. As we have shown, the distribution infrastructure has become part of a complex and interdependent bundle of product and service offerings. Figure 3 gives a stylized summary of IT enabled strategy elements:
Figure 3: IT enabled strategy elements
Selz and Klein (1998) identified four key factors when trying to realize the concept of the integrated distribution chain. Their analysis centers around the argument that the same competitive advantages the emerging cybermediaries are exploiting, are also available to Mercedes-Benz.
· Satisfied customers must be the overriding goal of any car firm. Our findings clearly indicate that currently a large customer base, trend growing, is unhappy with the service quality and treatment received.
· Profitable dealerships are important to guarantee and maintain a high level of service to all customers in the long-term. Only an economically healthy dealer network will allow a car manufacturer to create a brand loyalty and generate satisfied customers.
· An intensified, yet cost-efficient customer relationship. The goal is a regular interaction between dealer and customer despite reduced service intervals of the vehicles. This interaction allows the offer of additional services (Ludvigsen, 1995).
· Large market penetration and reach allow the exploitation of economies of scale and a better profitability of the whole distribution channel.
To transform a car firm into a "mobility intermediary "is the essence of the proposed strategy. The overriding goal must be to establish long lasting relationships with customers by providing extended mobility services. Like the petrol stations changed from re-sellers of gas to complete shopping centers, a local dealer would be able to offer next to the sale and service of cars a wide range of mobility services. The center of this idea is a one-stop-shopping solution, a unique point of sales, which offers all services concerning mobility (cf. Figure 4).
· The product "car " bundled with a wide array of services
In the future, more of the value of a car will be additional services such as the 100.000 km unlimited service guarantee offered in some European countries. Customers will design a greater part of the product. They evaluate their mobility needs and will be offered by the automotive manufacturer, who is transforming from an assembler of vehicles to an assembler and coordinator of complex mobility services, i.e. tailored service packages. Lapin (1999) describes how wireless data services are integrated into cars and may turn cars into "four wheeled vertical portals ", integrating the analysis of sensors which monitor car functions, positioning systems and car navigation, as well as external information like availability of fuel stations, parking lots, or any kind of offerings the drivers might be interested in.
· Pricing strategy: The limits of differential pricing in the time of cybermediaries
Establishing a coherent pricing strategy is one of Mercedes-Benz’ most urgent problems. In fact, prices for exactly the same model, say an E-class model vary from approximately USD 49.000 in the USA up to about four times this price in some Asian countries. These huge price differences reflect the social status of a Mercedes-Benz, the market structure, and Mercedes-Benz’ competitive position in different national markets. However, in an increasingly global economy, prices will move rather to a common lower end - price discrimination becomes more difficult to sustain. The price will reflect the value of the combined value package.
· An adjusted distribution infrastructure
The distribution infrastructure has to mirror the changing product and service strategy (Jirikowsky, 1996): Virtual showrooms have been set-up in order to give comprehensive product information to customers and support the process of configuring options. Additional information services and service offerings are promoted via the Web in direct competition with car cybermediaries. The establishment of closed user groups, building on the notion of online communities (Armstrong & Hagel, 1996; Valauskas, 1996), might help to isolate at least part of the service offerings from the immediate access of competitors. Those communities might could be built around established car brands or even around sports activities like Formula 1 car racing in order to attract new customers. Existing customers can be involved in virtual consumer laboratories, which tab customer knowledge for product innovation and development. The Web is used to set-up extranets for exclusive dealers in order to support their activities.
Figure 4: The car dealer evolves into a Mobility Adviser.
· An integrated scenario: The Mobility Adviser
Together with the customer, the new mobility intermediary evaluates the mobility needs and in his role as mobility adviser proposes a complete mobility package. A mobility adviser will not be able to possess all of the required knowledge nor offer all of the required services. A network of cooperation partners will close that gap, e.g. by offering financing, insurance and additional services. Global service coverage will be provided by national sales organization, and third parties such as public transport, and fellow dealers that provide mobility services countrywide and abroad.
Those services might be marketed at a premium price to reflect the added value the customer perceives and to compensate the dealer network for its increased efforts and costs in providing it (Nault & Dexter, 1995; Yadev & Berry, 1996).
The car manufacturers and their associated dealer networks are well positioned to manage such systems. The complexity of this task, privileged access to the customer base through the product and service offerings might put the manufacturers into a competitive advantage in relation to independent dealer networks and cybermediaries. However, this advantage remains volatile as services offered on the Web are visible to the competitors and might invite counter moves by them.
The paper illustrates the impact of the Web in changing the landscape of car distribution:
· While most car companies seized the opportunity to establish virtual showrooms on the Web and extend their (information) service offerings to their customers, cybermediaries have emerged that are successfully exploiting weaknesses of the car companies and their establish distribution infrastructures.
· As auto cybermediaries are providing interregional and international price transparency and are teaming up with independent car distributors, some of whom have been redefining car sales in terms of consumer goods, the pressure on the exclusive dealers is rising and the car companies are losing control over the distribution network.
· Nevertheless, the Web is characterized by a high level of market dynamics and quick responses of players to strategic maneuvers of their competitors including new players. Therefore, control over the product and part of the distribution and service infrastructure are levers for the car companies to retain or regain some of their control. We have sketched a scenario of extended mobility services that is incorporating IT in order to design superior service propositions. However, the car companies may have to forge new alliances with independent partners in order to compete successfully against new and agile cybermediaries.
Starting from the apparent paradox that a product which appears totally inadequate to being marketed via the Web has become one of the notable growth areas of electronic commerce, we have scrutinized the structure of distribution systems for new cars. Our findings show a stylized picture of the distribution system and current changes, most notably the growing importance of independent dealers and the emergence different types cyber- and infomediaries.
We have conducted interviews with representatives of Mercedes-Benz and Daimler-Benz and other industrial groups within the context of the context of the Competence Center Electronic Markets at the University of St. Gallen. The joint projects aimed at developing and testing ideas for the development of the dealer network. Interviewees were:
· Mercedes-Benz representatives as members of the research team on electronic markets,
· members of the car sales and distribution division responsible for online media,
· representatives of other industrial groups.
However, when discussing the future role of Mercedes-Benz in the automotive distribution chains, the interviewees reflected the position of Mercedes-Benz and its strategy of maintaining tight control over the distribution organization.
The established exclusive dealer networks reflect rigid business models focused on maintaining control of the market and a lack of customer orientation. The traditional system has been sustainable because of the tight coupling between the product and the distribution and service network. Moreover, regulation in Europe has not prevented what nowadays seems to be a one-sided level of control of the manufacturers over their dealers and protectionist measures to avoid international competition. Regulatory changes over the next couple of years will restrict the power of the car manufacturers and arbitrage will lead to a leveling of national and regional price differences for new cars. The lack of customer orientation has created an attractive playing field for cybermediaries and infomediaries as well as independent dealers which have developed extended value propositions for customers and have generally led to the empowering of consumers.
Today there are rather many national markets with a considerable differentiation, such as
· differences within the product segments (small cars vs. luxury cars),
· varying buying behavior in different nations, e.g. predominantly made-to-order in Germany vs. buying-from-the-shelf in the US,
· diverse strategies of different players depending on the structure of their dealer network, more direct sales strategies among Japanese car manufacturers in Europe or small car manufacturers,
While there is not a single global car market we have tried to identify overall trends. However, the existing differences as well as the various business models of the new players need to be researched in detail. We are using US trends towards independent dealerships and cybermediaries in order to forecast changes in Europe and we have focused on Mercedes-Benz as an example.
While the substance of our study has been shaped by the characteristics of the auto industry, structural similarities can be observed in other industries, e.g. insurance distribution in Germany is characterized by a mixture of exclusive distribution networks and rising competition from independent insurance agents and brokers. On a methodological level, we suggest that the analysis of distribution systems dynamics yields valuable insights into the impact of the Web. Similar analyses of the tourism industry, logistics, IT and telecommunications industry has helped us to understand trends such as the move from hardware to services or the emergence of multi-channel distribution systems. The comparison of different industries might help to sharpen our understanding of the respective industry contingencies such as product structure, distribution systems or buying behavior.
Our study has opened more questions than it has solved. Some of the pressing issues are:
· A network analysis of the existing dealer network in terms of revenue sources and streams, required density of the network, power and regulatory structure, and potentially additional functions.
· Functional properties of the players in existing and emerging distribution channels and their development over time (longitudinal study).
· An analysis of the proportion of spillover effects between different distribution channels, assuming hybrid distribution systems with multiple channel options at the same time, and between different national markets.
· A comparison of customer lifetime value in the current model and for the suggested model of mobility services. An analysis how the various partners split parts of this lifetime value.
· A comparison of the Web-induced developments in automotive distribution with studies in other distribution structures (e.g. retail, tourism, media).
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Dr. Stefan Klein is professor for Information Systems at the University of Muenster, Germany. His main areas of research are the development and impact of Inter-organizational Systems and Electronic Commerce. He is co-organizer of the Research Symposium on Electronic Markets, research track chair of the Bled International Conference on Electronic Commerce 2000 and program committee member of several international IS conferences (ICIS, ECIS, ENTER). He is member of the editorial board of European Journal of Information Systems (Associate Editor), Electronic Journal of Organizational Virtualness, EM - Electronic Markets, e-Services Quarterly, Informatik/Informatique, International Journal of Electronic Commerce, and Information Technology & Tourism.
Address: Department of Information Systems, University of Muenster, Steinfurter Strasse 109, D-48149 Muenster, Germany. http://www.wi.uni-muenster.de/wi/
Dr. Dorian Selz is a senior consultant on e-business and strategy at delta Consulting, Switzerland’s leading interactive agency. Previously he was a doctoral student at the MCM Institute for Media and Communications Management at the University of St.Gallen. His main areas of research are Electronic Commerce and value chain reconfiguration in the online world. He was the executive editor of the journal EM - Electronic Markets.
[Armstrong & Hagel, 1996][Bank 1997][Benjamin & Wigand, 1995][Business Week, 1996a][Business Week, 1996b][DB-High Tech Report, 1996][Dudenhöffer, 1997][The Economist, 1996a][The Economist, 1996b][The Economist, 1997][Evans & Wurster 1997][Hagel & Singer, 1999][Heijden, 1996][Holland & Lockett, 1997][Jirikowsky, 1996][Kerwin & DeGeorge, 1997][Klein, 1996][Lappin, 1999][Lee, 1997][Ludvigsen, 1995][Malone, Yates, & Benjamin, 1987][Moore, 1996][Nault & Dexter, 1995][Porter, 1985][Porter & Millar, 1985][Rayport & Sviokla, 1994][Rockart & Scott, 1993][Sarkar, Butler, & Steinfield, 1996][Sarkar, Butler, & Steinfield, 1998][Schad & Selz 1996][Schögel, 1997][Schwarz, 1994][Selz & Klein, 1997][Selz & Klein, 1998][Sieber, 1998][Stabell & Fjeldstad, 1998][Steinfield, Mahler, & Bauer, 1999][Valauskas, 1996][Womack, 1990][Yadev & Berry, 1996]