Published in Automotive

Tesla: The Future of Automotive Retailing?

Tesla is not only redefining what the automobile is; it is fundamentally disrupting how vehicles are purchased in the United States. And, according to new research by MaritzCX, customers are loving it.

Tesla’s unorthodox retailing approach of having about 83 factory direct outlets (‘galleries’) in shopping malls and other unconventional locations scattered across the US with no inventory is a bet that appears to be paying off, especially with younger tech savvy affluent customers.

First Point of Contact

According to the MaritzCX Generational Retail Study, almost half (46%) ofmillennials start with the internet sales department in their shopping journey (compared to less than one third of boomers) when buying a new vehicle.

Therefore, Tesla is on point with a very attractive website, which almost all (99%) new owners report visiting as the first stop in their purchase journey. Without the need for a dealer dedicated website, the experience is streamlined and simple to use for would-be customers.

Shopping Experience

MaritzCX’s New Vehicle Customer Study (NVCS) has consistently shown that dealing with one person through the purchase process is one of the strongest drivers in creating a great dealership experience. Tesla has taken this advice to heart, with potential customers working with only one non-commissioned representative from shopping to vehicle delivery. A Tesla representative helps set up a test drive that is convenient for the customer – this can also be arranged on their website.

Once a customer gets behind the wheel of a Tesla S, however, it’s game over. The Tesla S receives segment-leading ratings on many dimensions, but most notably on driving performance. New buyers note the head-popping linear acceleration, achieving 0-to 60 in about 5.4 seconds. The P85D version even has an “insane mode” that evokes quite a reaction, launching it from 0 to 60 in 2.8 seconds, which is in spitting distance of the Bugatti Veyron supercar.  Indeed, 71% of buyers who test drove the Tesla S said the experience was extremely influential in their decision to buy the vehicle.

Another concept that Tesla has implemented is not doing same day, or even same week, delivery upon purchase. This might worry some automotive traditionalists who believe customers want a vehicle right there, right then. However, expectations for vehicle buyers have changed dramatically over the last few years. Many customers want to buy a car much like they would a computer, or other big-ticket item. And it’s not just young people. According to our Generational Retailing Study, 85% of American consumers are willing to wait 3 or 4 weeks to get the exact vehicle they want. More than two-thirds (67%) are willing  to wait several months or more. This is roughly in alignment with the 4-6 weeks it takes to build and take delivery of a new Tesla from their Fremont, California-based plant.

Based on our investigation, Tesla will help customers not only to finance their new vehicle, but also to dispose of their existing vehicle thorough online bidding, which are predominantly mid to high end BMW and Mercedes Benz trade-ins according to our data.

Tesla is demonstrating what we are seeing as a disruptive force across almost every vertical with a retail network. It is not the dissolution of the retail location and the human sales person, but the rejiggering and seamless augmentation of digital with brick-and-mortar retail locations. In the end, people still want to deal with people, and Tesla has implemented that credo in its retailing experience.

Customer Experience

Is it working? Despite what some other dubious sources say, the proof is in the feedback, from more than 900 actual customers in our database.  So far, Tesla is hitting it out of the park on customer experience, with 3 out of 4 new buyers giving it the highest possible marks in regard to their purchase experience, compared to a segment norm of 1 in 2. Owners report high levels of product satisfaction, with 97% giving the highest possible marks in recommending the brand to others based on their product experience to date (about 90-120 days of ownership). In our 30+ years of conducting the New Vehicle Customer Study (NVCS) we have seen very few instances of this extremely high level of retail and product satisfaction. Our findings are largely corroborated by other trusted industry sources.

Tesla currently only offers the Model S which retails well above the $70,000 range. It appeals to affluent ($342,000 house income on average) metro-technical males (83%). Therefore, at this volume and at this price Tesla can afford to provide the red carpet and white-glove treatment to its customers.  With the upcoming release of the Model X crossover at about the same price, it will appeal to not just the driving enthusiast, but also to wealthy families (look out Porsche Canyenne!).

But what about the vehicle for the masses? With the Tesla Model 3 scheduled to come out in 2017 in both sedan and a crossover flavors, and with a less heady price of around $35,000, Tesla could very well make a irreversible mark on the automotive industry.

Is it Sustainable?

My grandfather once said “if it was easy, you probably did it wrong.”  In the case of Tesla, this will most certainly be the case. With issues of scaling, their high-touch retail model, looming dealer franchise obstacles, developing recharging infrastructure, manufacturing challenges, and the ever-daunting task of continuously rolling out new technology, Tesla has a monumental job in front of it.  There is a completely different set of challenges at its current rate of 50,000 units a year versus their goal of 500,000 per annum.

However, if Tesla can scale its retail model, ramp up production, and sustain product quality, it will be sure to have faithful customers in the future. Indeed, currently nearly three in four (73%) of new Tesla S owners strongly agreed that they would buy another product from Tesla in the future, compared to the segment average of less than one in two (45%).  Admittedly, there is a significant electrified halo around the brand, and some may rightly question its staying power.  However, with that kind of engaged loyalty, OEMs and retailers should take notice.

 

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Special thanks to gear heads Jim Mulcrone and Shawn St. Clair for their help with this article.

 

This article was originally published on linkedin.