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Autonomous driving (AD) has long been seen as the savior of shared mobility, finally making ride hailing and ride pooling services profitable by eliminating the cost of paying the driver. Pilot projects are underway across the globe, however the key question remains: when will AD technology, regulation and public acceptance align and reach the point where driverless vehicles start to transform the personal mobility landscape?
To answer this question and quantify the scale of the opportunity for AD to push forward the use of shared mobility services in Europe, we built the Berylls Mobility Model to assess the impact of key drivers including technology, political will and regulatory readiness on driverless urban mobility in 544 European cities across 35 countries.
The results of our extensive modeling show a decisive shift toward self-driving ride hailing and ride pooling services over the next decade. Our key findings include:
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s there a shortcut for Chinese OEMs in Europe?The second in Berylls’ short series on established and new Chinese OEMs in Europe focuses on their performance and the best market entry strategies.
Boosted by government subsidies and emissions regulations, the EV market in Europe is now highly attractive, especially in western Europe. However, major multinational carmakers have not yet fully captured the rapidly expanding EV market, which means Chinese OEMs sense a great business opportunity. Since 2020, Chinese OEMs have successively launched EVs in Europe, re-entering a market where they first tried their luck more than a decade ago.
To a certain degree, there was a blank space in the electric vehicle market when Tesla first came to Europe in 2008. Faced with few competitive pressures, Tesla had the advantage of gradually being able to establish a firm foothold there. Today, although a gap in the market still exists, it is getting smaller. Traditional European players such as BMW, Mercedes-Benz and Volkswagen are introducing more and more EVs, while other specialist EV manufacturers such as the U.S. companies Lucid and Rivian are also targeting the European market.
Chinese OEMs therefore have only a narrow time window to exploit Europe’s remaining, rapidly closing EV market space. The challenges of re-entering Europe are not so different from those they experienced in the past and whether they succeed this time principally depends on whether they can leverage their core strength, which is customer-centricity. In plain terms, it depends on whether they can really understand Europe’s kaleidoscope of national markets and customers in all their diversity. As a starting point, Chinese OEMs need to consider why their first foray into Europe ended in failure.
History and ideology
Compared with emerging markets in Asia, Africa and southeast Asia, most European markets are highly mature, with their own automotive cultures and tastes. Traditional OEMs such as Volkswagen, Mercedes-Benz and BMW have dominated these markets for a long time and still do so today in conventional internal combustion engine (ICE) vehicles. With certain exceptions, even well-known Asian brands such as Toyota and Honda have only limited influence in some western European markets.
The current success of Chinese-European brands like MG and Polestar suggests that “being born” in Europe brings higher acceptance by European customers. This is partly because purely Chinese brands are still young and naturally lack a heritage, both at home and abroad. In addition, recent political developments have increased the resistance of some European customers to Chinese products.
Different customer groups, different preferences
The preferences and demands of European customers are very different from their Chinese counterparts, but this is not a problem that can be solved by conducting a few simple market surveys. For instance, Chinese OEMs pay great attention to product features such as connectivity and infotainment functions to attract young Chinese customers. In Europe, the same strategy needs to be sensitive to different consumer priorities. While connectivity and infotainment influence European customers’ purchasing behavior, they are more attracted by “traditional virtues” such as build quality, material selection and driving performance. In this context, new hi-tech features are generally regarded as bonus items. In fact, Chinese OEMs actually often neglect European customers understanding. As they are quite successful in their home market, they often think that the same ingredients for success in China can be directly applied in Europe, especially when it comes to EVs. A fatal error!
Even when buying EVs, European customers favor brands with a strong reputation for high reliability and a wide network coverage for sales, aftersales and electric charging. Unfortunately, no Chinese brand has so far managed to provide the same level of product and service quality as “local” brands such as BMW and Mercedes-Benz.
Poor brand reputation
In the past, multiple poor performances in crash tests have made Chinese brands seem embarrassingly bad. Between 2005 and 2009, attempts by the Chinese Landwind and Zhonghua brands to launch in Europe were both stalled by dismal crash-test results. In 2005, the Chinese SUV Jiangling Landwind failed the German ADAC automobile club’s crash test shortly after being premiered at the Frankfurt IAA Motor Show. In similar fashion, the Zhonghua BS6 failed the Euro NCAP crash test. These PR disasters left European consumers with the stereotype that the quality of Chinese cars was highly questionable.
The difference this time is that Chinese OEMs’ products have matured to the point where they are at least seen by European customers as generally competitive in the “traditional” sales virtues of build quality, use of high-grade materials and driving performance. Meanwhile, Chinese vehicles now also boast highly advanced new “bonus” features for European purchasers such as world-class connectivity and autonomous driving. Lastly, Chinese OEMs are used to building their products in a customer-centric way, with features such as seamless integration of mobile phone apps.
However, even with these core competencies, Chinese OEMs are not guaranteed an easy ride with rapid returns now that they are re-entering the European market. In their favor, most Chinese OEMs are action oriented and advocate „learning by doing“ and “agile” progression. But they must also adjust their mindset to complex European automotive markets that require rigorous and meticulous planning.
Chinese OEMs should follow the example of the best European competitors and lay out a structured, holistic plan with detailed implementation processes that are based on European customer journeys. Furthermore, they should be prepared for long-term investments to gain and retain the trust of European customers in their products. This will require Chinese OEMs to establish a strong ecosystem in Europe that is adapted for short-term, medium-term and long-term strategies in all areas of their business, including pillar brands, product portfolios, pricing, distribution networks and the digital domain.
Short-term strategy: Brand building and competitive pricing
These are the critical next steps toward success in Europe. Chinese OEMs must ensure that their models are more attractively priced than mainstream European competitors to make up for their lack of brand reputation. Competitive pricing can yield some instant wins when combined with large-scale PR and communications campaigns for models that are extremely good value for money compared with similar vehicles made by competitors. Communications should focus specifically on performance marketing in line with the brand’s positioning during the individual journeys of potential customers, rather than adopting a broader “fishnet” approach through TV spots, billboard advertisements and other media channels.
Medium-term strategy: Product portfolio and network
It is very important for Chinese OEMs to choose a suitable product portfolio and an appropriate sales and aftersales network to gain entry to European markets, following thorough homework on individual market trends and tastes. In this context, it is worth noting that Chinese customers are not necessarily the same as their counterparts in Europe. To give one obvious example, while the SUV is the most popular model of vehicle in China, this is not universally true across European markets.
With regard to sales and aftersales networks, we generally see three distribution channels for China’s EV manufacturers to enter Europe. Firstly, they can cooperate with large local dealers who are interested in selling their vehicles. We believe that a large majority of dealers will be willing to work with Chinese OEMs, given the current trend toward the agent model, which is increasing the margin pressure on most dealers.
Alternatively, Chinese OEMs can follow Tesla’s example and try to set up their own networks in Europe. This might seem the most desirable route in terms of retail steering and customer experience control. However, doubts remain about whether Chinese OEMs have the financial strength to set up a suitably extensive European network, especially if they are start-ups. Given their lack of capital, we believe it is more likely that Chinese players will adopt a combination of direct sales and franchise dealerships.
Lastly, Chinese OEMs should consider working with local mobility providers, whether they are rental, carsharing or subscription players, to get their vehicles visibly onto European streets, where they can generate word of mouth endorsements most effectively. Chinese players should focus in particular on the subscription model, where shorter contract periods and lower monthly fees can help overcome the resistance of European customers to Chinese cars.
Long-term strategy: Creating a sustainable, positive brand reputation
A functioning ecosystem with clear structures and the right priorities are key challenges, but are still merely prerequisites for a successful market entry in Europe. Creating long-lasting brand recognition and growth for Chinese EVs will take both time and a willingness to experiment.
The leading Chinese EV manufacturer NIO is a good example. To its credit, NIO has invested a lot of effort in its ecosystem set-up in Europe, especially around user communities, user experience and other fields that are “beyond the vehicle.” Using Norway as its main testing ground, NIO aims to build an ecosystem with cars at its core that also includes digital services and lifestyle offerings, such as community building events. Yet NIO still only sold around 200 cars in Europe in 2021, despite all these innovations. Further refinement and analysis of its fledgling ecosystem will be required to establish how or even whether these services can meet the demands of European customers.
Some observers, especially on the Chinese side, argue that such a detailed and rigorous approach is not necessary because there is one hi-tech product – the mobile phone – where Chinese manufacturers have already proved that they can make a rapid, successful market entry in Europe. A few years ago, Chinese mobile phones were almost unknown in Europe, but today the market is full of Chinese brands such as Huawei, Xiaomi and Oppo.
However, there are three significant differences between mobile phones and cars. Firstly, unlike cars, mobile phones can be changed frequently at a relatively low price. Secondly, the success of Chinese phones in Europe is based on the budget segment and is concentrated in a few countries. Consider the example of Xiaomi. In the second quarter of 2021, Xiaomi shipped 12.7 million units to Europe, making it the region’s single largest mobile phone supplier, ahead of Samsung (12 million) and Apple (9.6 million). Yet Xiaomi’s success is driven mainly by sales in Russia and the rest of the Commonwealth of Independent States (CIS), whose huge mobile phone market is dominated by budget buyers. This fact largely explains why the average price of a Xiaomi phone in Europe was around $164, compared with $250 for a Samsung phone and $808 for an Apple one.
Thirdly, 50 percent of mobile phones in Europe are sold through network operators such as Vodafone and Telefónica, which also like to tweak the pricing of hardware devices with special offers and promotions. In summary, one should not assume from the success of Chinese mobile phone players in Europe that it is easily replicable in the auto sector.
The bottom line is that it will be a painstaking and long journey for Chinese OEMs to make their European market entry a success at the second attempt, focusing on EVs. There are no shortcuts.
Yet we believe that they have everything at their disposal this time to avoid a repeat of their earlier failure. Today’s leading Chinese carmakers have a competitive product portfolio, a state-of-the-art technology stack, a customer-centric mindset and deep investor pockets. But as a Chinese proverb rightfully states, “you can’t clap with one hand” (一个巴掌拍不响). It will require a joint effort to make the re-entry of Chinese OEMs into Europe sustainable and profitable, because their success will depend on teaming up with the right local partners.
Stay tuned for the next article in this series, where we explain:
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he global truck players Daimler, Traton, Paccar and Volvo are regularly monitored by Berylls commercial vehicle expert Steffen Stumpp.
Here are his major findings for Q2 2022:
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any OEMs are struggling to create a business case for VaaS that captures all the benefits. Here, we set out the key considerations that are not covered by traditional assessments.
Customer needs and the resulting demand patterns are changing in the automotive industry. Owning a prestigious car used to be a symbol of status, but vehicle ownership is no longer the aspiration of many drivers. This is the result of rapidly changing customer expectations, and influences inside and outside the automotive world. Three main trends dominate:
These forces present a fundamental challenge for the traditional automotive business, built on one-off sales and after-sales revenue from parts and servicing. Vehicle-as-a-Service (VaaS) models, in which the customer does not own the vehicle anymore and returns it at the end of the contract, are on the rise – based on current customer feedback, we estimate there will be a 38% increase in the market share of use-based models by 2025.
VaaS very much caters to what customers already expect and value from services in other parts of their lives, such as music or video streaming. The good news is, it creates two central opportunities for OEMs and other providers:
Figure 1
In contrast to the traditional ownership model, in which the seller loses access to the customer and the vehicle after the initial sale or financing contract ends, VaaS providers can at least in theory benefit from an ever-increasing customer and vehicle base.
Based on past project experience, we have calculated that long-term profitability can increase by 40 to 50% as a result. In Figure 2 below we show an indicative comparison of product profitability for both sales models. The calculation is based on anonymized data from a volume OEM, taking the average across several of its battery electric SUVs.
As the chart shows, individual VaaS offerings themselves are less profitable than traditional new car sales. However, profits across multiple use cycles add up to create a far higher total vehicle lifetime value (VLV) for the VaaS provider:
Figure 2
In addition to the direct benefits outlined above, the VaaS model also offers important indirect – and frequently overlooked – benefits. Combined, these will strengthen the business case even further.
Indirect benefits include creating loyalty by offering a convenient, appealing service that meets changing customer demands. At a time when the brand or particular vehicle hardware is no longer a reason to buy or to stay with one OEM, loyalty must be built up through outstanding service and a superb customer experience.
Another indirect benefit of multiple, shorter use cycles is the ability to cross- and up-sell more often. A customer might decide after just a couple of months to switch to a contract for a more expensive model, a decision that would have taken a couple of years in the traditional sales model with longer holding periods.
By making targeted offers to customers they already have a contract with, OEMs will also be able to spend less on marketing because they will have a larger pool of “locked in” customers.
The table below looks at the top- and bottom-line benefits of further little-noticed advantages offered by VaaS, focusing on customer relationship management (there are further indirect benefits to VaaS which relate to the operating model, which we will explore in an upcoming article):
To date, many OEMs are struggling to create a positive business case for VaaS. From the outset, their analysis fails to recognize the 40 to 50% direct profit increase that VaaS can deliver across multiple use cycles (as this profit is usually booked separately across different departments). Further, they do not consider the indirect benefits of the VaaS business model. In this blog we have focused on the customer-related benefits, but there are even greater positive effects if one also considers operating model improvements. These include synergies from increased asset utilization if one common fleet was used for various VaaS offerings in parallel.
For many providers, in particular incumbent OEMs that are looking to expand their traditional, ownership-centered sales offerings to include VaaS, it’s difficult to fully assess even the direct impact factors in their business case. This is because in many companies, the product development process is still siloed, with every department seeking to optimize its own profitability rather than take a cross-functional approach to designing a new service model.
As a result, there is a risk that many potentially successful VaaS offerings will not be launched, because the underlying business case failed to show their true potential. This represents a missed opportunity for providers, as Vehicle-as-a-Service offers are here to stay. Without a VaaS product, OEMs and other potential providers are missing out on securing their customer base in this emerging market.
Today, this may mean losing only a little market share, but in the near future, it means missing out on addressing entire customer groups because they don’t have the right offers: our Vehicle-as-a-Service study showed that by 2025, 50% of Gen Z drivers would use VaaS to buy their next electric car.
If you would like to discuss your own VaaS business case calculations or your strategy and product design, please get in touch:
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Munich, October 2021
The automotive market is in the midth of maybe the largest transformation in its history. Customers are demanding flexible usage-based offerings and turn away from classical vehicle ownership. This trend is further increased by the advent of electric vehicles. Digitally-enabled direct sales models fundamentally change the way how mobility is purchased and allow new competitors to enter the market. Subscription offerings are now closing the gap between classical leasing and rental models.
We have analyzed the current dynamics in the European market and assessed the strategic rationale for different archetypes of players to enter the subscription market.
Find out more about the future of automotive sales, subscription offerings and there role in Vehicle-as-a-Service models in our newest Berylls Insight “Snapshot of the European auto subscription market”.
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ew things shape modern life as much as individual mobility. Be it as an expression of freedom and individuality, or as an economic driver.
To reflect this, we have developed the Solactive Berylls LeanVal Automobility Leaders 100 Index – the AUTO100. It tracks the performance of the 100 most
relevant publicly listed automobility players worldwide.
By design, the AUTO100 covers the industry’s entire value chain – from vehicle manufacturers and suppliers, to dealer groups, and providers of mobility services or infrastructure.
There are several major effects impacting the global capital markets. Global economy is suffering due to ongoing COVID lockdowns, especially in China, leading to disruptions in the supply chains, shortage of semiconductor and other shortcomings in resources. Nevertheless, the sector is benefiting from recent increases in domestic demand and expansion in the US and Europe.
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his is the first in a new short series that will focus on the performance of Chinese OEMs (old and new) in Europe. In this introductory article, we take a hard look at Chinese entrants’ achievements so far. Continue reading in the upcoming weeks for further insights.
Since 2009, China has topped the ranking of global export champions. For several years, the top three categories have been: (1) electronic devices and equipment; (2) machinery; and (3) apparel and textiles. Although China is a trade colossus, it is not famous for automobile exports. But these have been growing in value consistently since 2018, even through the Covid-19 pandemic.
China’s automotive exports hit a new record last year, with statistics from China Association of Automobile Manufacturers (CAAM) showing that they had doubled in a year and exceeded 2mn units for the first time. Exports accounted for 7.7% of total revenues in the auto industry – an increase of 3.7% over the previous year.
This performance has made China the third-largest auto exporter in the world, catching up with traditional auto powerhouses such as the United States, France, and Italy. However, the export volume is still not as high as those of Germany and Japan, with approximately 2.2mn units and 3.4mn units respectively.
Major Chinese OEMs are actively engaged in markets abroad. Traditional Chinese carmakers typically enter developing countries such as Russia and South Africa, and Middle Eastern and Eastern European countries with mostly budget/value-for-money products. But Chinese OEMs also hope to win a share of the premium segments in mature Western European markets with advanced NEVs as well. NIO and Polestar are widely considered premium brands, for example. MG prices can reach more than £31k (in the UK) and ZEEKR as much as €50k, while prices for the upcoming HiPhi X are expected to match those of a Porsche Taycan.
Currently, the main export markets for Chinese automotive brands are South-east Asia, Central and Eastern Europe and Latin America, with Chinese OEMs performing quite well in these countries and regions.
Let’s look at some examples:
Chery is selling its models in more than 80 countries and regions around the world, mainly focused on emerging markets such as Russia, Brazil, and Saudi Arabia. In 2021, Chery exported 269k vehicles, with a year-on-year (YoY) increase of 136%, making it the fastest-growing Chinese auto brand abroad.
SAIC has been the leading Chinese brand abroad since 2019. In 2021, it sold a total of 697k vehicles abroad, a YoY increase of 78.9%. SAIC’s sales performance in emerging markets including the Middle East, Egypt, and Mexico has been good. In Mexico, for instance, SAIC sold 3.5k cars in April this year and enjoyed continuous sales growth for the first four months of 2022. In the Middle East and Egyptian markets, SAIC sold 5.5k and 2.9k vehicles in April respectively, also setting new records.
SAIC’s strong sales were also achieved thanks to the MG brand, with its British heritage. MG enjoys strong recognition and acceptance in mature auto markets such as Western Europe, Australia, and New Zealand, ranking 26th in the European Automobile Association’s list of top car brands by sales in Europe in Q1 2022. MG sold 21k vehicles in the first quarter of this year, nearly three times more against the same period in 2021. This gave SAIC a 0.76% share of the market in Europe, and the company surpassed the growth rate of brands including Land Rover and Honda to set the best record of Chinese OEMs in the European market. SAIC now ranks as one of the top 10 brands in 17 countries around the world.
However, not every Chinese player is doing as well as SAIC in targeting the premium segment in mature automotive markets in Western Europe.
Traditional Chinese OEMs have built a large fan base in the volume segment and acquired considerable expertise in entering developing countries. But this is unlikely to satisfy Chinese OEMs, which have their eye on the highly prestigious Western European market. The “if-you-can-make-it-here-you-can-make-it-anywhere” story is simply too sweet to tell at home (in China) and not give Western Europe a serious try at least.
To do so, Chinese OEMs typically target the premium segment: they all want to become premium or at least more upscale and shed their budget/value-for-money image. Preferably, they would like to make their mark with NEVs, where Chinese players believe they have strong products and technology, a solid reputation in their home market, and a legacy-free perception in Western Europe.
However, using NEVs to open the door to Western Europe, particularly in the premium segment, is not an automatic win for all Chinese OEMs.
To date, more than 10 Chinese OEMs have launched, or are about to launch, NEVs in Europe. Among them are some of the most illustrious and well-known OEMs, new players and established ones alike, including NIO, Xpeng, BYD, and Great Wall.
However, only two have achieved initial success: Polestar (originally Swedish) and MG (originally British). Both are among the top 20 best-selling NEVs in Europe. By contrast, other Chinese OEMs have barely made an impression in Europe.
Chinese OEM sales in Europe 2021 (vehicle units)
It is no coincidence that the two most successful brands are of Western European origin. Technically, they are not pure Chinese brands, and it is true that their starting point (in terms of branding) is far ahead of traditional Chinese OEMs. Polestar and MG seem to owe a lot to their inherited European brand ‘halo’ giving them a solid, existing brand awareness and image in Europe. Xpeng, NIO, and other Chinese brands that have just entered Europe still have some distance to go to win over European customers, especially those in Western Europe. (Sneak peek: We do believe that, in theory, “dinner is served” for Chinese OEMs – traditional and new – and the starting position for traditional Chinese carmakers could be a lot worse, as we will describe in the next article in this short series.)
Operating in Europe is very different from operating in a market where brand loyalty is low and Chinese NEV players are considered to be the avantgarde. In Europe, traditional brands still hold a strong position and new players, in particular from the US, implement quick go-to-market approaches. Thus, Chinese players will have to go the extra mile to succeed.
In terms of product spec, for example, Chinese NEVs are highly competitive, particularly in new areas such as NEV range, digital functions, connectivity, ADAS and AD. We are convinced that both the product and portfolio of the NEV players pose a big threat for traditional European OEMs. Combined with aggressive pricing levels and digital/mobility functions (in particular wallbox, mobility services/charging network access, mobility guarantees etc.), the offering should be more than competitive.
However, several key issues remain. Firstly, Chinese OEMs (like any other OEM) need to find the right partners to make the ecosystem described above work, starting from the basics including sales, aftersales and call centers. Another critical task is branding. The key question for Chinese OEMs is how to promote themselves to European customers and create trustworthy brands in Europe. The timing could not be better to introduce their cars to Western Europe as public interest for electric cars is steadily increasing plus current challenges of Western OEMs to supply cars for their customers. But in the light of past failures – for example, the infamous Brilliance Euro NCAP flop in 2009 – every move this time must be flawless.
To this end, Chinese OEMs should lead on their biggest strength: customer-centricity. They must understand European customers, how they differ from Chinese customers, and most importantly, how European customers differ among themselves. Based on these customer insights, targeted promotion programs need to be developed along with a pan-European roll-out plan. In parallel, points of sale and the entire ecosystem need to be established, so hard-earned buzz and leads get picked up in the transition from digital to physical sales efforts.
That being said, we appreciate this is easier said than done. Chinese OEMs typically send whatever they have available in China to Europe, without adaptions. So, whether it’s product spec, sales model, apps or customer experience, Chinese OEMs tend to provide the same range of solutions in Europe as they do back home. This again neglects their core strength in customer-centric product and solution design.
For example, OEM-led customer communities work well in China, as seen in the case of all new players. It is assumed that they will work well in Europe, too. But OEM-community activities in China are a mixture of auto and non-auto events, while traditional grassroots communities in Europe are mostly fully auto-focused. Although there is nothing wrong with community building, the purpose and content must be adapted toward European customers’ preferences and expectations.
Interestingly, what we are seeing in Europe is now also happening in China – but to Western OEMs. Many of those have a long success story in China, but they are facing trouble with their EV portfolios. While domestic brands including Xpeng or GAC Aion are enjoying strong sales, this is not the case for Western marques. What is missing is the tailoring of design, digital services and other features to suit Chinese tastes. The one-size-fits-everywhere concept – selling the same models to the entire world – doesn’t work anymore. It doesn’t work in China for Western OEMs and doesn’t work in Europe for Chinese OEMs.
So despite the fanfare that has accompanied the entry of Chinese players into Europe, they have relatively little to show for it so far. What are reasons for this discrepancy? Is it only cultural, or are there more significant reasons, such as a lack of understanding of European business practices, and how different markets and customers behave? What are the real challenges for Chinese OEMs?
In the weeks to come, we will dig deeper into these issues and discuss possible ways for Chinese OEMs to succeed in Europe.
This is the first in a new short series on Chinese OEMs’ performance in Europe. Stay tuned in the upcoming weeks for further insights. Up next: Dinner is served – why the new market entrants from China have only themselves to beat.
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limate change requires turning away from fossil fuels, with the need to switchto zero-emission powertrains as quickly as possible. Connectivity and digitalization, which have been taken on rather slowly by the logistics sector, now enablea variety of new players and new business models to challenge the position ofthe incumbents.
Driverless operation is the most disruptive piece of this industry transformation. Autonomous trucking has long been a secondary field of action for carfocused tech players like Waymo and Aurora. In the meantime it has become
common sense that autonomous trucking provides a more than tenfold opportunity compared to passenger mobility. It is the killer application of autonomous driving technology and the ultimate game changer for the whole trucking industry.
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igital experiences have a role to play, but it is the combination with a personalized service that makes sales happen.
The luxury goods industry has shown remarkable resilience in recent years, enjoying global sales of €283 billion last year – that was 29% higher than in 2020 and 1% higher than pre-pandemic. A major part of the industry’s success is down to digital sales channels such as Farfetch and the online divisions of luxury goods giants including LVMH.
This success is often used to draw conclusions about how the high-end automotive industry should transform itself to keep up with changing customer demands. Yet the luxury car market – by which we mean brands at the very top of the price and exclusivity range including Bentley, Bugatti, Rolls-Royce, Ferrari and Lamborghini – still operates by its own rules. The decision to buy a luxury car is often made out of a strong emotional attachment to the brand and every customer will have different, and nuanced, reasons for spending their money to go beyond the mainstream. So what do we know about these customers and what they want when it comes to customer service?
They are high and ultra high net worth individuals (UHNWIs), the latter defined as those with a personal fortune of more than $30 million. The group is growing worldwide, but particularly in Asia, where 24% of UHNWIs will live by 2025 (see map below). However, there are also notable differences between customers in this group. There are contrasts between “old money” and successful newcomers, for example, and people who seek out conspicious symbols of wealth compared with those who value privacy above all else.
Despite these differences, our work with luxury carmakers has shown that, while digital channels are undoubtedly a key part of the brand’s presentation, physical touchpoints continue to be essential in the luxury segment. Opportunities to see, touch and drive the cars, and build relationships with trusted staff, remain the most important success factors when it comes to this group of customers
2020 – HNWI* & UHNWI*NHNWI*¹, Someone with a net worth over US$1 million including their primary residence.
UHNWI*², Someone with a net worth of over US$30 million including their primary residence
2025 – HNWI* & UHNWI*NHNWI*¹, Someone with a net worth over US$1 million including their primary residence.
UHNWI*², Someone with a net worth of over US$30 million including their primary residence
Consumers are used to the convenience of booking or buying almost everything online, and using digital tools to configure how a new sofa or paint color will look in their own home. The auto industry has been forced to keep up, and OEMs are driving digitization forward in all strands of their marketing for the volume and premium segments.
Yet for now, configuring the perfect car online still requires a great deal of self-study on the part of the customer – they are offered the same complex selection of specifications and packages that they were previously guided through by dealers, and they have to decipher the industry terminology on their own. Put simply, luxury car customers – used to seamless service and pain-free buying experiences in every other area of their lives – do not want to do this.
Asking them to use standard online configurators also overlooks the huge range of motivations among customers in the luxury segment. At one end of the spectrum are the car enthusiasts and collectors, who likely have a garage full of unique luxury models. Online configurators and standard information strike entirely the wrong note with this customer. Instead, individual, personal advice and working with a trusted dealer, who is also a fellow enthusiast, plays a very important role in their decision to buy.
At the opposite end, there are luxury buyers who have no involvement or interest in the ordering process and hand it all over to an assistant or driver. Doing the work online themselves is also seriously off-putting for these potential customers. Those in between need a digital experience that excites, that makes them want to buy the vehicle right away without cutting corners – with outstanding UX/UI, high-quality 3D model views and the easiest click path.
It is a long-standing cliché that inviting luxury customers to champagne receptions and exclusive events such as polo matches will persuade them to buy a new car. This may be true in some cases, and many customers undoubtedly enjoy these types of exclusive perks for owners. However, what luxury customers really respond to is personalized communication from a relationship manager they have dealt with before, who knows their specific interests.
One example is for the relationship manager to call their sports car enthusiast customer to make them aware of a new limited edition model before it is publicly announced. This is combined with the chance to pre-order it or to be placed high on the waiting list. In this situation, the dealer is the source of access to limited edition vehicles, but also a fellow aficionado with whom the customer can enjoy discussing all things car and brand-related.
For other customers, what matters is a flexible pick-up and drop-off service, an invitation to meet the chief designer at the OEM, and yes, champagne receptions.
In each case, the relationship with the dealer is uncomplicated, consistent and flexible. Using a standardized online booking tool to arrange a test drive does not excite the luxury customer, whereas a proactive phone call from a relationship manager to suggest a test drive at a location of the customer’s choice does.
In this context, the dealer network of established OEMs, built up over years, is a huge asset that many new players would love to recreate.
Electric vehicles (EVs) dominate the future plans of the car industry and the positive environmental impact is not in question. However, when it comes to buying an EV, luxury customers take a range of views.
The first group are technology and innovation enthusiasts, who always have the latest phone, smart home equipment, and now an electric car. This positive view is most common among younger UHNWIs, who are engaged with sustainability issues.
The second group do not own an EV themselves, but are neutral toward the engine technology and accept the growing trend away from carbon-emitting cars.
The third group are the rebels, who enjoy the performance, acceleration and sound of conventional engines, and also enjoy being part of an increasingly exclusive club of prestigious combustion-engine vehicle owners. A sense of freedom is important to these customers.
The final group are prominent public figures balancing two identities – in the public sphere they use premium EVs as part of their carefully curated image, but with their inner circle, they favor the most prestigious luxury marques and the excitement of powerful petrol engines. These parallel worlds are meticulously managed.
Each luxury carmaker and each customer must of course be treated individually, but from our experience with clients, focusing on the emotional, physical contact points along the entire customer journey, rather than non-emotional digital experiences, is the more promising strategy. The digital customer journey does also matter in the top luxury segment but is only a differentiator if the experience relates to its luxury customers, and a natural rapport with the relationship manager plays a more important role the higher up the scale of wealth you go.
In this context, OEMs need to ask themselves how their physical retail channels may have to change to meet the demands of current and future luxury buyers. They should also consider how the level of service described here could be scaled and communicated to their dealer network, so that every relationship manager is performing at the required level.
Copyright Berylls by AlixPartners
