of connected-car owners in our study say that connected-car features influenced their choice of vehicle
OEMs must drive customer adoption to fully embrace the connected car opportunity
For OEMs, connected cars represent a new era in automotive. Developing innovative and easy-to-use software and services will give them the edge in sales, open up new revenue streams and a direct relationship with customers
Yet adopting a whole new way of doing business – in a sector that has remained largely the same for decades – is never going to be easy
To stop the opportunity from slipping away, OEMs need to engage customers
If market acceptance is the acid test of any new technology, what are the prospects for connected-cars? The signs are encouraging – at least at first glance.
In a joint TNS and BearingPoint Institute study, connected-car owners frequently expressed their astonishment at the applications at their command – such as connected navigation, emergency call, and streamed infotainment content. When asked about the connected features he was using in his vehicle, one respondent told us, ‘I was amazed that my car could do all that.’
Positive customer feedback is excellent news for original equipment manufacturers (OEMs), many of which have invested substantially in developing connectivity within vehicles. They certainly stand to benefit. According to our study of more than 3,700 (note 1) connected-car owners living in Europe, cutting-edge applications can differentiate OEM vehicles and boost sales in a competitive market. With eight out of 10 new cars due to be connected by 2020 (note 2), OEMs can open up new revenue streams by developing and selling connected services – whether in-house or as part of a multi-player ecosystem (note 3). OEMs can also harness the data generated by connected technologies to develop features that satisfy drivers’ unmet emotional and functional needs (note 4).
Focusing innovation on developing powerful and easy-to-use software and services will give OEMs the edge in sales, open up new revenue streams and a direct relationship with customers.
Yet we also found that many OEMs have more work to do before they can fully seize the connected-car opportunity. They may have developed connectivity in their vehicles, but many of their customers are slow to adopt the features on offer. Indeed, in our study, four out of 10 connected-car owners (39%) were unaware that their connected car was, indeed, a connected car.
If OEMs cannot inform and convince their customers of the value of connected car features - and get them using them - they risk losing ground to new entrants and aftermarket providers that market their products more effectively. At worst, they could find themselves typecast as legacy hardware manufacturers with inferior software who, like mobile phone and computer hardware manufacturers before them, get ‘locked out’ of the software industry.
In this report, we outline a way ahead for OEMs. We recommend that brands focus on a range of key initiatives – technology and service design, targeted marketing activity, and the enhancement of customer support – to educate a new wave of connected-car owners in the benefits of the features on offer.
Above all, seizing the opportunity is as much about building strong relationships with consumers as it is about creating technology. As one respondent put it: ‘A fantastic, revolutionary new feature would be good service… You know – having someone knowledgeable actually explaining the features for once.’
Our analysis of the evolving automotive market, supported by the findings in our study, leads us to believe that the advent of connected cars will allow OEMs to generate new revenue streams, diversify their core activity and improve profitability by selling software and services. How did we reach these conclusions?
Connected features are already a selling point in new cars, and we can expect their presence to exert an even stronger pull as their benefits become more widely known. Almost three out of five (59%) connected-car owners in our study said that connected features influenced their choice of vehicle to some extent. Nearly one-third (32%) acknowledged that it was either the primary reason or one of the primary reasons behind their decision to purchase.
of connected-car owners in our study say that connected-car features influenced their choice of vehicle
So, by investing in the next wave of state-of-the-art connected technology – including advanced services that learn drivers’ personal habits and anticipate their responses – OEMs have an opportunity to claim a greater share of the market. As it is relatively cheap to match premium brands’ offerings around connectivity (e.g. hightech navigation is cheaper to emulate than a Ferrari engine), volume brands can also use their connected features to compete with the upper end of the market.
Once owners start using the connected features in their vehicles, they are largely predisposed to continue using them. Two out of three (66%) active users of a connected service said they will renew it when the subscription expires.
The responses to our study suggest that many consumers are delighted with the added value they get from connectivity. ‘It made me feel like I understand my car better and like I have good features that could help me when driving,’ proclaimed one. Another described the features as, ‘truly unique and greatly impactful’, whilst one said, ‘I just love having all these new things near to hand’. One respondent even said, ‘I didn’t shop for a car with these features, so it was a great and fun bonus!’
If car owners believe they are getting ‘life-changing’ value from connected features, they will arguably want to transfer them from car to car – to keep the same apps, user preferences and data history. To do this they will need to stick with the same operating system, as Apple demonstrated with the iPhone. OEMs can learn from this approach as a way to lock in their customers.
High retention – only one out of 10 (9%) active users plan to stop using connected services completely
Our study highlights several opportunities for OEMs to use connected features to build direct relationships with customers and encourage them to stay loyal to the OEM brand and its software when purchasing new vehicles.
In our study, one out of five connected-car customers required support for digital services after they purchased their vehicle – and almost half of these (47%) went to the OEM for that support. Similarly, the majority (61%) of the 66% of car owners who think they will renew their connected features want to do so via the OEM. By providing a well-designed and intuitive online and offline user experience (UX), OEMs can build trust, add value and get a better understanding of customers’ needs (note 5).
Analytics of customer data – gathered through their usage of connected features – is another way for OEMs to strengthen relationships and build oyalty. They can, for example, use analytics to develop customised products and targeted brand marketing and advertising campaigns.
Ensuring that customers are comfortable with sharing their data is a fundamental prerequisite, but this is not easy when headline-grabbing stories of data breaches are commonplace. We believe, however, that a growing number of consumers will be open to sharing their in-car data with OEMs if they are compensated with a free service, or reduced leasing or insurance rates. OEMs can also overcome many of the potential legal and regulatory complications by adopting ‘privacy by design’ methods, which embed privacy considerations throughout the engineering process – as explored by Jaguar Land Rover (note 6).
As with Apple’s App Store and the growing number of smart-home platforms, we can expect to see an influx of specialist developers and digital agencies to the OEM sector, offering new applications and services through dedicated online platforms. We can also expect this ecosystem to become dominated by a limited number of providers – from product and service specialists to interconnectivity providers.
Fast-moving OEMs can claim an influential position in this ecosystem, by selling upgrades and renewals directly to customers and by creating a platform that other providers can sell services through. This drives revenue, accelerates innovation and also enables new services to be bought during the ownership lifecycle.
It made me feel like I understand my car better and like I have features that could help me when driving
A survey respondent
Control of the connected-car platform is paramount for controlling data flows, privacy and monetisation, and add-on services provision (either own brand or third-party supplier). For instance, if a leisure park pays for footfall via an in-car connected mapping feature, to which company would these business and advertising revenues go? There may well be several control points and parties: vehicle manufacturers, of course, but also handsets and mobile OS companies such as Apple or Google. The battle for market share is only just starting.
What could derail OEMs’ connected car dream? We outline four key threats.
Consumers are price sensitive and expect competitive, if not free-of-charge, services and upgrades. They will only commit to paying for software-based subscriptions from OEMs if they know or trust that these services are worthwhile from an added-value perspective. If built-in connected features are no longer seen as differentiating, OEMs face a ‘race to the bottom’ where they compete by providing those features at the lowest price. Whilst OEMs would still benefit arguably from data collection, they would have less opportunity to profit from new revenue streams.
Consumers already have smartphones, and they use them inside their vehicles for infotainment streaming and additional support – such as the traffic congestion feature on Google Maps. Many OEMs will struggle to compete with the likes of Apple or Google, which have already started to build their presence in this space and have more experience of developing and launching software, and operating in an online marketplace. For those OEMs that can create partnerships with these brands (as suggested above), the entrance of these big names in this sector could turn out to be a blessing in disguise if they succeed in securing some form of exclusivity to differentiate their connected features.
Having invested billions in R&D to get to the first stage of connected features, many OEMs are now looking for ROI before investing in further software development. However, if they do not embrace innovation – which requires additional investment, leaps of faith and a mindset open to ‘failing fast’ – they could end up on the wrong side of a technology gap. By playing it safe and ‘doubling down’ on their existing manufacturing businesses, they risk going the way of Kodak and Sega, which both failed in large part because they did not embrace the respective technology revolutions in the digital film and 3D gaming industries.
Many car buyers are still impressed by connected features. However, OEMs should remember that consumer expectations change quickly. Today’s ‘nice-to-haves’ are tomorrow’s ‘hygiene factors’ – such as air conditioning or ABS. We believe that OEMs should act quickly to seize the initial opportunity and invest continuously in R&D to create the desirable features of tomorrow.
The automotive industry could not be accused of taking connected technology lightly. In recent years, OEMs have invested billions in innovation, which has included developing infrastructure and embedded technology to make connectivity a reality in their vehicles. In 2015, Ford opened an innovation centre in the Silicon Valley to make the ‘biggest consumer electronics device’ possible (note 7). Later in the year, Toyota announced plans to invest USD 1 billion in developing artificial intelligence in its vehicles (note 8). Jaguar Land Rover, meanwhile, has opened an R&D centre dedicated to software innovation in Oregon (note 9), and is investing GBP 3.8 billion in product creation in 2016 (note 10).
of active users of connected features are male
Despite this investment – and although customers show interest in connected features – OEMs are yet to see connected cars delivering on their full promise. Customer uptake of connected features after the purchase of the car could be stronger, which suggests that the revenue generated by connected features may not be achieving sufficient return on investment. As described earlier, a notable minority of car owners (39%) did not even know that their vehicles are connected. Almost a quarter (24%) of connected-car owners stated explicitly that they did not own a connected-car, even though – as a pre-requisite for inclusion in our survey sample– their model of vehicle provides some level of connectivity.
In our research we saw ‘premium’ brands – including Audi, BMW and Mercedes – having the most success with their connected-car applications and services. Our study suggests that owners of these vehicles were more likely to be aware of their cars’ connected features than owners of volume brands (which include Ford, Renault and Volkswagen). Seven out of 10 premium brand customers knew that their vehicle was connected, compared with less than six out of 10 volume brand customers.
Premium-brand owners also said they were more likely to be interested in hearing about new connected features when the OEM makes them available – for owners of Audi, BMW and Mercedes vehicles, for example, 62%, 62% and 55% respectively said they would be interested. This may be because the features provided by premium brands perform better than volume brands on reliability and ease of use – the main drivers of performance across both groups. Premium brand owners also expressed greater satisfaction across safety, privacy and price: 63% rated connected features of their cars excellent or good, while only 52% of volume brand owners did.
of premium brand owners know their car is connected versus only 56% for volume brand customers
Our findings suggest that connected features are primarily of interest to younger drivers and male drivers. Our analysis tells us that 88% of male owners between the ages of 18 and 40 were aware of their car’s connected features, whereas 81% of female owners in this age bracket were aware. Similarly, we saw that more male owners over 40 were aware of their car’s connected features than female owners past this age (78% and 66% respectively).
We saw brands performing differently in certain key categories: Jaguar’s highest score was for ‘Keeping control over the car’; Landover’s and BMW’s were for ‘safety’; Volvo’s was for ‘ease of use
of connected-car features’; Mercedes’ was for ‘reliability’; Volkswagen’s highest score was for ‘adding value to the driving experience’; and Ford’s were for ‘adding value to the driving experience’ and ‘price-quality’.
I have no idea what these features are. They were never mentioned when I bought the car.
A survey respondent
This consistency across ages and genders suggests that, even if there are proportionately more male car buyers in the population in total, young men are more interested overall in connected features than women.
OEMs may not be surprised to learn that younger people are more interested in connected technologies, but they might still be disappointed by these results. A recent study by the US National Automobile Dealers Association (NADA) found that the average American new car buyer is 51.7 years old and earns about USD80,000 per year, while the average age of the American population is 36.8 years old and the median income is roughly USD50,000 (note11). Young people may want to buy connected-cars, but relatively few have the money to spend on new cars – especially on the premium brands that have the most successful connected features. More worrying for OEMs is a trend among younger people to avoid learning how to drive altogether – some experts even suggest that Generation Y, born after 1980, is ‘falling out of love’ with cars (note 12).
I still don't understand all that I can do, and the dealer didn't know much more than me
A survey respondent
The next section of this report shares our thoughts on how OEMs can address this shift in behaviour.
So how should OEMs approach the connected-car opportunity? How can they ensure their offering wins over tech-savvy consumers as well as those who have yet to embrace the technology?
Of car owners that said they are actively using connected features, almost nine out of 10 (89%) said that their first experience of the features was positive, with 58% even saying that their first experience was ‘excellent’ or ‘very good’. How can OEMs improve on these findings and ensure their connected features make a good first impression, and thereby increase adoption rates among current non-users?
When asked what was positive about their experience of connected features, respondents said they found them simple, easy and impactful. It should be immediately clear what the application is designed to do and why it is worth using.
Respondents reported that their features ‘took only a few minutes to get started’, that they were ‘easy to activate and register’, and were ‘quick to pick up and so useful’. Correspondingly, when connected-car owners declared they had experienced difficulties with the technology, the issue regularly came down to poor design. One complained that the technology was unintuitive and said ‘I had to get my son to set it up as I wasn’t sure what to do.’ Another described the features as ‘not intuitive’. Another respondent said, ‘It took me a while to understand how everything worked’.
At the same time, when it comes to how impacting is the technology, just a quarter of those who have adopted connected features said that their first usage of the features made hardly any difference to their lives (12% said the features made no difference at all). Almost three-quarters (74%) said that the features had at least some impact.
Our recommendation is that developing intuitive, user-friendly, and impactful design and UX should be an ongoing priority for OEMs – which will require additional and ongoing investment in R&D and analytics. Moreover, OEMs should consider other approaches to open innovation, such as partnering with specialist third-party suppliers to explore and exploit best practice in UX and software development. Working together, OEMs and external providers can deliver and bundle new services and package, sell and install them in vehicles seamlessly and quickly (note 13).
Raising awareness of the benefits of connected features will inevitably lead to greater consumer adoption. To drive most interest, OEMs should invest in enhanced, targeted marketing activity to bring attention to the existence of connected features and to highlight how they provide the specific benefits shown by our study to be most important for consumers. First of all, the marketing activity needs to raise consumer awareness that the car is connected. Descriptions of the benefits should follow.
Respondents who said they plan to use connected features in the future are more likely to be interested in navigation than they are in other features (see Figure 8) – perhaps because navigation is the feature they are already most familiar with. It is also the easiest for the dealer to explain. Infotainment comes second, which reflects consumers’ growing familiarity with online streaming services. OEMs should focus on highlighting these ‘crowd pleasers’ to the public.
As described above, customers also value simplicity, so campaigns should highlight the intuitive nature of the feature. Marketing activity should clearly explain what the features do and how they create value – helping to dispel any suspicions of ‘gimmickry’ that customers may have.
As described earlier, the OEMs in our study that have had the most success with their connected features, in terms of active customer usage, have been premium brands. Put differently, a substantial proportion of the volume market remains untapped. As we have seen, older drivers and female drivers are also more reluctant to embrace connected features, so stand to be fully ‘won’ as customers.
Therefore, OEMs should carry out market segmentation to anticipate and highlight the aspects of connected technology that will appeal to these demographics the most. By analysing existing users’ data to understand what is proving to be most popular, they can develop the most effective and best-tailored messaging. Furthermore, to reach young people in Generation Y who may be less interested in driving than earlier generations, OEMs could exploit their regular use of mobile devices and connectivity, and highlight how connected features would enhance and enliven the driving experience.
Our findings suggest that effective ‘on-boarding’ during the sales process leads to greater customer adoption of connected features. Almost half (48%) of connected-car owners who were using the features said that the technology was demonstrated to them in the showroom, whilst 40% said that they were given a demonstration during their test drive. When this data is compared with that for non-users, a pattern emerges. Just 18% of non-users were given a demonstration during a test drive, and just 19% were given a demonstration in the showroom.
So dealers should engage and train all connected-car buyers at the point of sale, and persuade them of the benefits of subscription. For this to be successful, OEMs should ensure dealers receive training so that they fully understand the technology and feel comfortable talking it through with customers in depth and answering their queries. To guarantee even more effective on-boarding of customers, OEMs could insist on a presence at dealerships – such as through an Apple-style ‘Genius Bar’ (note 14). Furthermore, those providing customer support after sales – whether in call centres or digitally (e.g. via email or webchat) – should be upskilled to provide more thorough guidance regarding connectivity and related actions such as subscription or activation.
Participant feedback from our study highlights the frustration felt by many connected-car owners during their interactions with dealerships. Respondents complained that ‘the dealer didn’t know much more than me’, that ‘nobody explained anything’, and that ‘the dealer was lacking knowledge of the product and the customer-service department was shockingly bad’.
Similarly, a respondent told us that they would ‘just like a service that really works and dealerships that have a high level of customer service and know how to fix problems when they occur. Stop adding gadgets and start providing support and expertise!’
The connected features discussed in this study are a necessary step towards the next generation of cars: vehicles that are as far removed from the standard, self-powered motor vehicle as today’s smartphones are from rotary landline telephones.
As well as increasingly advanced features and services – which will become simpler and quicker to acquire following advances in software-over-the-air (SOTA) distribution – we will also see the growing adoption of self-driving and autonomous cars. The commercial opportunities outlined in this study are just a precursor to what the most innovative OEMs can achieve if they can get ahead of the market and develop their capabilities in software and services. As we have outlined, there are still stumbling blocks on the road ahead – notably around ensuring greater customer adoption and finding the right niche in the emerging ecosystem – but the message overall is a positive one. When drivers start using connected features, they soon grow to love them – and they will become devoted customers of a brand that can give them the experiences they want.
This report was produced by BearingPoint Institute and TNS, and is based on research carried out by TNS between 24 July and 9 September 2015.
To conduct the research, we surveyed 3,724 individuals who had purchased a new or used car in the preceding 18 months. Respondents were smartphone users who had bought a car with connected-car features, but who were not necessarily using those features. Owners of 11 car brands were surveyed in the study.
Respondents were given the following definition of ‘connected features’: ‘The various options available for a car to make a connection with the internet and/or a smartphone. The data the car collects can pass on technical information (e.g. driving behaviour, maintenance, failures); indicate where the car is located (e.g. navigation, emergency calls, parking); and give access to information, entertainment and contacts (including apps).’
Respondents were based in the UK, Spain, France, Germany, the Netherlands, Italy and the Nordics (Sweden, Denmark, Finland and Norway). The results were weighted by country and car brand. BearingPoint’s HyperCube smart analytics tool was used to interpret some of the results. In addition, TNS’s TRI*M tool was used to understand the strength of customer relationships.
Richard Werkhoven, Vincent Groen and Rachel James at TNS, Christophe Grosbost and Ludovic Leforestier at BearingPoint.
Piers Tomlinson at Longitude, Joe Barkai at Joe Barkai Consulting, Matthias Loebich, Tanja Schwarz, Sharon Springell, Angélique Tourneux at BearingPoint, Michael Agar at Michael Agar Design, Chris Norris at CopyGhosting.