When the history of retail in the digital era is written, the calculus in defining winners and losers will center around how retailers leverage marketplaces. Currently, Amazon’s use of its digital marketplace is the force powering Amazon’s success. According to a 2017 comScore/UPS study, 97 percent of U.S. online shoppers made purchases on marketplaces, up 12 points from 2016.[i]
Amazon’s utility and dominance as a marketplace is growing. More than half of people start their online shopping searches on Amazon versus only 26 percent on search engines such as Google, according to investment firm Raymond James.[ii]
Until recently, grocery stores and auto dealerships were the two largest retail segments “immune” from the Amazon effect. With Amazon’s $13.7 billion purchase of Whole Foods in Q3, 2017, only auto remains. Since Amazon needs to sell 6,600 heads of lettuce to match the average sales price of a used vehicle[iii], Amazon is poised to disrupt the automotive industry.[iv] To thrive, automotive dealerships need to understand marketplaces’ strengths and wield the most critical advantage that dealers have over Amazon: people.
The Rise of Marketplaces
Marketplaces have been around for as long as people have been buying and selling goods and services. The basic concept of a marketplace centers around bringing buyers and sellers together. From ancient farmers’ markets to travelling art fairs, consumers and merchants appreciate the efficiency that marketplaces provide.
In the 20th century, local automotive dealers fueled the rise of marketplaces with the creation of “auto malls,” “the auto row,” and “regional tent sales.” With their scale and size of inventory selection, these creations were a way to attract consumers who would park their cars and test drive different vehicles and dealerships.
Similarly, the automotive wholesale auction companies have been leveraging (and profiting) from their physical scale and size for years in wholesaling used vehicles in a similar marketplace style: offering a wide selection of inventory all in one location.
Amazon Is Coming to Auto
In the digital age, marketplaces range from pure marketplaces such as eBay to hybrids such as Amazon and Walmart, which act as department stores for their own curated merchandise as well as marketplaces for third parties that wish to sell their products on their platforms. In 2016, online marketplaces accounted for $1 trillion in sales.[v] Amazon alone accounts for more than 43 percent of U.S. online sales and 4 percent of all retail sales.[vi]
Before Amazon purchased Whole Foods, the grocery business was viewed as the one of the last frontiers of retail for Amazon as groceries are highly personable, intimate purchases. Once Amazon improves its Whole Foods integration, it will only be a matter of time before it starts competing with local dealers and selling used vehicles.
It’s important that dealerships understand why Amazon is succeeding and then how to best compete with Amazon. First, let’s look at the reasons why Amazon has disrupted retail:
Relevance and Context and a Great User Experience
Amazon makes it easy for shoppers to find highly relevant content through a combination of a vast product inventory, effective search, and algorithms that track your personal preferences to provide specific recommendations. Effective marketplaces such as Amazon deliver relevant audiences to sellers, too. Additionally, Amazon’s site is super fast, clean, and focused. It is a “walled garden” (i.e., once you’re in, it is hard to leave). When the consumer is on Amazon, they are in a purchasing mindset, and Amazon gives them the contextual content and relevant tools to help them get what they want.
Transparency and Efficiency
Think about the last time you shopped on Amazon or found a place to stay on Airbnb. I’ll bet you didn’t even think twice about how easy it was to compare prices and read customer reviews. And Amazon makes customer reviews even more efficient with features such as Themes, which make it possible for shoppers to identify the words that buyers use most frequently in their product reviews.
Marketplaces make it easy for buyers and sellers to do business. Ride-sharing services connect riders and drivers with the click of an app. Walmart makes it possible for shoppers to stop by brick-and-mortar locations and have customers’ orders loaded into their vehicles by Walmart employees. Amazon continues to perfect the art and science of product delivery as we’ve seen with the introduction of Amazon Key, through which Amazon drops off products at your home even when you are away. Additionally, digital marketplaces are fast and adaptive on different formats, ranging from apps to desktops.
How to Win Against Amazon
When Amazon starts selling used cars, how will a local dealer compete? First, determine which marketplaces, such as Cars.com, match Amazon’s current experience in site speed, breadth of content, transparency, and efficiency. And then, with the help of automotive marketplaces, dealers need to leverage their advantage: the power of their people.
People Create Relationships
Only dealerships can move beyond transactional efficiency and develop relationships. As an online marketplace, Cars.com makes the connections between buyers and sellers, delivering high-value shoppers to the lot. From there, dealerships need to go full throttle by playing to their competitive advantages that marketplaces cannot touch: building relationships.
Relationships constitute auto retailers’ advantage. The value proposition for digital marketplaces like Amazon is not about creating relationships between the buyer and sellers. But auto retailers can create those relationships. When auto retailers’ salespeople act as concierges and consultants for their customers, the salespeople create relationships that endure beyond a transaction on the lot. Salespeople are more important than ever – so important that Cars.com recently redefined the 4Ps of Automotive Marketing™ to be product, price, place, and person.
Our research indicates that 97 percent of automotive buyers prefer to select salespeople ahead of time[vii] – and we’re helping consumers do just that. Through our DealerRater Connections suite of products, we give dealerships a platform to publish salesperson reviews on one platform and syndicate those reviews to create preference for their salespeople. (You can read more about DealerRater Connections here.)
Look Outside Retail to Appreciate the Power of People
Brick-and-mortar retailers outside automotive are already holding their own against Amazon by embracing their people. Best Buy, for instance, has gone beyond selling products and offers in-home installation services through its vaunted Geek Squad (as well as in-car stereo installation at Best Buy). IKEA adopts a similar approach to helping customers assemble store-bought products, as evidenced by IKEA’s recent purchase of Task Rabbit. Yes, in the digital age, retailers are winning with people.
Bring Back the Tent Sales Online
Dealerships need to embrace parallel business models that allow them to compete at scale -- think of the tent sales or auto malls but in a digital setting. Auto retailers need to compete on marketplace sites like Cars.com and appreciate the need for consumers to review their product and people and dealership as well as allow Cars.com to contextualize the price of their vehicle against other local and regional similar vehicles.
Before Amazon arrives, online automotive marketplaces (such as Cars.com) need to tout how they will allow the local dealers to compete and win against the greatest marketplace disrupter in modern times: Amazon. To compete and win against Amazon, auto retailers need to embrace the power of their people – on the lot and through online marketplaces like Cars.com.
[i] UPS Study: U.S. Online Shoppers Turning to International Retailers, June 7, 2017
[ii] Business Insider, New Data Shows Amazon Is Eating into Google’s Territory – and It’s Only Going to Get Worse, January 6, 2017.
[iii] Based on the $3.02 price of a head of Romaine lettuce at Whole Foods (December 17, 2017) and the average cost of a used car in 2017, $19,973, per NADA data.
[iv] DealerRater, Amazon Moves into Car Sales: How Employees Can Give You a Competitive Edge! October 20, 2017.
[v] Internet Retailer, Sales on Online Marketplaces Cross $1 Trillion in 2016, July 11, 2017.
[vi] Recode, Amazon Could Be Responsible for Nearly Half of U.S. e-Commerce Sales in 2017, October 24, 2017.
[vii] DealerRater, Care Shoppers Are Judging You, January 2017.