Multi Channel Retailing in the Automotive Industry

Index

1 INTRODUCTION
1.1 CURRENT SITUATION AND PROBLEMATIC
1.2 AIM AND PROCEDURE OF THE STUDY

2 MULTI CHANNEL RETAILING IN THE AUTOMOTIVE INDUSTRY
2.1 DESIGN OF A MULTI CHANNEL SYSTEM
2.1.1 Distribution structure in the automotive industry
2.1.2 Vertical marketing system
2.1.3 Multi channel system
2.2. RETAILING FORMATS
2.2.1 Direct retailing by the manufacturer
2.2.2 Indirect retailing by dealers
2.2.3 Indirect retailing by agents/ intermediaries/ leasing companies
2.3. ECOMMERCE
2.3.1 Online direct retailing
2.3.2 Online dealer
2.3.3 eBroker
2.4. POTENTIALS FOR THE AUTOMOTIVE DISTRIBUTION FROM TECHNOLOGICAL AND LEGAL CHANGES

3 CONSUMER CHANNEL CHOICE IN CAR PURCHASING
3.1. CONSUMER DECISION MAKING
3.1.1 Decision making process
3.1.2 High involvement decision
3.1.3 Trends in consumer behaviour
3.2. DETERMINANTS ON CHANNEL CHOICE
3.2.1 Product related determinants
3.2.2 Consumer related determinants
3.2.3 Channel related determinants
3.2.4 Organisation related determinants
3.3 SUMMARY

4 PRIMARY RESEARCH APPROACH
4.1 INTRODUCTION
4.1.1 Target population
4.1.2 Aim
4.1.3 Objectives, research questions and hypotheses
4.2 METHODOLOGY
4.2.1 Research design and data collection method
4.2.2 Sampling plan
4.3 LIMITATIONS
4.3.1 Validity
4.3.2 Reliability & generalability
4.4 RESULTS FROM PRIMARY RESEARCH
4.4.1 Pre-work
4.4.2 Analysis of the results

5 DISCUSSION AND IMPLICATIONS
5.1 Discussion of findings
5.2 Implications for a multi channel automotive distribution
5.3 Conclusions and further research

6 REFERENCES

7 BIBLIOGRAPHY

Index Figures and Tables

Figure 1: The automotive distribution channel as a value chain

Figure 2: Basic distribution Structure in the automotive industry

Figure 3: Value capabilities from environmental changes

Figure 4: Model of consumer behaviour

Figure 5: High involvement decision

Figure 6: Maslow’s hierarchy of needs and motivations in car purchasing

Figure 7: Theoretical framework of channel choice determinants

Figure 8: Primary research framework

Figure 9: Methods of data collection

Figure 10: Current or past purchased car brand

Figure 11: Future purchased car brand

Figure 12: Reasons for channel choice

Figure 13: Channel choice of luxury, value and emerging brand purchaser

Figure 14: Likeliness to purchase from an independent middleman by income

Figure 15: Importance of channel related factors in decision making

Figure 16: Channel perceptions

Figure 17: Importance of organisational related factors in decision making

Figure 18: Most important criterion in channel choice

Figure 19: Preliminary model of channel selection

1 Introduction

“The use of multiple channels is probably the most common distribution strategy nowadays” (Coelho & Easingwood 2003, p 22).

The presented paper outlines the situation in distribution of new cars and the use of different channels in purchasing. This chapter introduces into the problematic, determine aims and objectives and outline the procedure of analysis of the studied topic.

1.1 Current situation and problematic

For decades the automotive distribution system has been dominated by indirect distribution formats. Cars are sold and serviced by the same, independently owned, franchised dealer (Jullens & Smend 2003). But at present the European automotive distribution structure shows an enormous change. This is mainly based in the development of the internet as sales and communication channel and the impact on consumer’s behaviour as well as a more open market and higher level of competition by changes in the industry block exemption rules¹ (BER) 1400/ 2002.

In 2002 the EU Commission opened up the market “to increase competition and bring tangible benefits to European consumers” (EU Commission 2002). Regarding Fritz & Graf (2007), Jullens & Smend (2003), London Economics (2006) and Wagner et al. (2002) the main legal changes are:²

- Manufacturers have to choose between a selective and an exclusive distribution system. Mainly all manufacturers have a selective one, which allows determining qualitative and quantitative selection criteria to limit the number of dealers in the market and to ensure that each dealer meets certain qualitative standards. Since October 2005 each dealer is allowed to sell anywhere in the EU market by opening additionally delivery points and showrooms (Akpinar 2007).
- The different business areas (new car, service and genuine parts) are no longer part of one distribution contract. This results in several “sales-only” distribution formats.
- The changes support multi brand dealerships because most of the existing restrictions on multi-branding and intermediaries are eliminated. Several new types of intermediaries enter into the market (compare chapter 2.3).³

Concentration processes already started. A further concentration on retail level is expected. The inter-brand competition will increase (Mintel 2006a; London Economics 2006). Another area of influence is the price level in the EU. Even if the EU commission tried to liberalise the market, high price differences are mentioned (Fritz & Graf 2007).⁴ This enables independent distributors to buy a car in a “low price country” like for example Italy and sell it in a “high price country” like the UK (compare chapter 2.3.3). Especially for high price markets such as the UK several expert prognoses determine a higher level of intra-brand competition. This will press the price level down (Degryse & Verboven 2000).

On the other hand ate technical factors which have an enormous impact on the automotive distribution. The innovation cycle is getting faster and faster. At the same time the technical complexity and the amount of car models are increasing.⁵ In addition there is an increasing differentiation problem between brand values and products. Especially a differentiation over technical features and functionality is becoming more difficult. Therefore branding, image and price are the main factors gaining competitive advantage in the market (Smend 2004; Schoegel & Sauer 2002).

One of the main technological trends is the development of the internet and the marketing related affects.⁶ Theion in the automotive market (Jullens & Smend 2003). For example it removes one of the major entry barriers that have prevented manufactures from forward integration into the market (Fritz & Graf 2007). The technology allows them to communicate direct with the consumer. Additionally the internet enables to develop new and innovative sales formats. For example it has the unique ability to create buyer segments in the cyber-space that have probably not enough value or mass in a specific geographic location (Diez 2006; compare chapter 2.3.3).

The online environment presents several value capabilities for consumers and suppliers. Online consumer’s searching behaviour is more extensive, more models, more dealers are compared during the decision making process (Ratchford et al. 2003). In addition internet user could reach more cost savings as well as they spend less time to get the model that fit with their individual needs (Morton et al. 2001). The online environment enables to improve customer satisfaction with the sales and ownership experience. The information they need is available at any time, answers to request could be provided in real time, unbiased third party information could be used to make a more rational and objective purchase decision. Additionally an eCRM and integrated communication strategy enables the supplier to an interactive communication approach to increase customer loyalty and value (Fill 2006; Jullens & Smend 2003).⁷

However, past studies show that today the internet plays more an important role in the searching stage of the consumer buying process rather than the purchase stage. One the one hand the willingness to buy online is ebbing to 6 per cent in 2006, on the other hand the proportion of consumers that bought new or used (including nearly-new) cars from the internet rose from 1 per cent in 2004 to 2 per cent in 2006. Online resellers and car supermarkets would benefit from this trend (Mintel 2006a).

The time stability and forecasting capability of the relationship with the consumer is becoming more and more instable. In recent years the customer behaviour in car purchasing was based on the assumption of a relative rational information and purchase process. But in the last few years several changes in behaviour are notable. “Consumers now have access to databases and tracking technologies that allow them knowledge about products, inventories,

profit margin and competitive offerings. They are not longer at the mercy of retailers who set the rules and the prices” (Schoenbachler & Gordon 2002, p 44; Loewe & Bonchek 1999).

The high information grade about the products and prices, a broader wealth of experience, impulsive purchase behaviour, experience oriented shopping attitudes as well as a high need of an individual lifestyle are mentioned. With the car as a status symbol the effect of third parties becomes even more influence (Andersen 2001; Schoegel & Sauer 2002). Nowadays consumer segments are more fragmented. Multi-optional and hybrid consumer behaviour is visible.

Schoegel and Sauer (2002) mentioned that the main purpose today is to develop an integrative multi channel approach over the whole buying process to increase customer loyalty and value. Out of this it is important to understand customer’s motivations and determinants of channel choice to define their requirements during the decision making process. Regarding the relative “early” stage of dealing with a multi channel environment, less market specific research exists which suppliers could use designing an appropriate multi channel strategy. Main studies focus on the buying process and product choice rather than channel decision making.

1.2 Aim and procedure of the study

The overall aim is to determine main factors influencing consumers channel choice behaviour in car purchasing and identifying their nature of impact. The results allow developing future requirements for new car suppliers and identifying improvements for their marketing approach to increase customer value and profit. Therefore the study analyse the area of new car distribution from the perspective of suppliers and consumers. The focussed market is the new car market for consumers in UK (for more detail see appendix 1b).⁸

To achieve the presented aim, the question what factors exist that determine the choice of a channel in a consumer’s car purchase process and how do these factors interact has to be answered.

To answer the research question and achieve the aim of the paper first the automobile distribution structure in UK (Europe) has to be characterised. Different distribution and retailing formats are explained and evaluated from the view of the supplier as well as from the customer’s perspective (chapter 2). The influence of current trends and the potential for suppliers and customers are outlined by the end of the second chapter. In the third chapter the consumer decision making process and determinants on channel choice are outlined from literature. Additionally motivations in using a particular channel as well as interdependencies between the identified factors are determined. A basic model of channel selection determinants is developed.

In the fourth chapter an explorative research approach is outlined. Exemplified by the 24-35 years old population in Edinburgh the importance of different influence factors on channel choice are exemplified and the theoretical model is proven. The fifth chapter analyse the results. By an improved understanding of consumer behaviour implications for the development of an appropriate multi channel strategy for suppliers of new cars could be defined. Finally in the last chapter findings are discussed and a preliminary model of channel choice is developed. Implications for the marketing strategy and limitations are outlined as well as recommendations for further research on the particular area is outlined.

2 Multi channel retailing in the automotive industry

Multi channel retailing is a relative new situation in this market. This section theoretically analysis the distribution structure and determine terms and definitions (chapter 2.1). The different retailing formats in the offline and the online environment are explained (chapter 2.2 and 2.3) and evaluated from the perspective of suppliers and consumers (chapter 2.4). Based on this in the following chapter customers channel choice determinates are analysed.

2.1 Design of a multi channel system

This section analyse theoretically the distribution structure in the automotive industry in general. The design of the distribution system is one of the main tasks in distribution policy. The theoretical concept of the vertical marketing system is compared with the concept of the multi channel system and evaluated regarding the usage for this approach.

2.1.1 Distribution structure in the automotive industry

The presented paper is part of the distribution research. The field of distribution policy contains all activities in marketing that are responsible for the transference of products and services. As one of the four elements (promotion, price and product) of the marketing mix it includes all aspect which determines how to get the product or service from the manufacturer to the consumer (Kotler & Keller 2006; Schoegel & Sauer 2002).

The over all duty in distribution is the design of the whole activities (appendix 4), which are important for a successful distribution. The value chain model from Porter (1985) identifies ways to develop more customer value (appendix 4). Primary (for example outbound logistics, marketing and sales or service), and support activities (for example human resource management or the firms infrastructure) are identified, that create value and cost⁹. The purpose is to find ways to improve these activities and examine the performance for each activity. Finally the firm’s performance is not only determined by how well each activity is separately improved, also how well all activities are overall coordinated in core business processes (Kotler & Keller 2006). In kind of current environmental trends (for example a multi channel environment), the management and the coordination of different activities is getting more and more complex. “To be successful, a firm also needs to look for competitive advantages beyond its own operations, into the value chains of suppliers, distributors and customers” (Kotler & Keller 2006, p 39). Especially regarding the legal changes the development of delivery networks by partnerships with specific distributors gains more importance. Figure 1 applied the value chain to the distribution channel in the automotive industry and outlined the main tasks involved in the core business process:

Figure 1: The automotive distribution channel as a value chain

illustration not visible in this excerpt

Source: Regarding Day 1990, p 221-222; Diez 2006, p 271; Porter 1985; Kotler & Keller 2006, p 39.

Figure 1 displays the complexity involved in the sales process of a car. Several elements additionally to the new car purchase have to taken into account. These are products like finance, used car trade-in and service/ repairing. These elements are more and more important in the customers purchase process (Diez 2006). Even if the paper focus on new car these parts could not completely separated and therefore have to taken into account by analysing channel choice.

Distribution channels are systems standing in an interrelated relationship to each other. Additionally to the manufacturer intermediaries, distributors and/ or retailers are involved in the system. Out of this different channel levels are differentiated. A direct channel exists when a manufacturer is selling directly to the final consumer. An indirect channel distribution contains one (or more) intermediary, such as a retailer (Kotler & Keller 2006, p 474). Regarding Kotler & Keller (2006, p 504) “Retailing includes all the activities involved in selling goods or services directly to final consumers for personal, non business use”. These customers could be fleet customers (e.g. police, post, chauffeur companies, etc), small business customers (e.g. company’s cars for employees) or private customers. The following figure display the basic distribution structure in the automotive industry (Diez 2006):

Figure 2: Basic distribution Structure in the automotive industry

illustration not visible in this excerpt

Source: Diez 2006, p 270.

The research about the design of the automotive distribution system could be attached to two main conceptual approaches. One the one hand there are these studies that are built up from the context of a cooperative, contract based vertical marketing system. On the other hand are these ones that look at the automotive distribution from a multi channel approach.

2.1.2 Vertical marketing system

A vertical marketing system (VMS) is built up from the manufacturer, wholesaler and retailer to act as one unified system. The purpose is to create a system that allows an efficient and effective achievement of marketing objectives from the manufacturer and the distributive trade. The channel captain owns the others, franchised them or has such power that they all cooperate. The VMS evolved as a result from strong channel members’ attempt to control channel behaviour. Additionally it allows eliminating conflicts compare to the situation that all members pursue their own objectives. A cooperate, an administered and a contractual VMS are differentiated (Kotler & Keller 2006).

Regarding Florenz (1992) the automotive distribution with the usage of franchised dealerships could be defined as a contractual based VMS with a cooperative orientation. The fundamental idea is to have a centrally behaviour coordination from the point of production to the point of purchase (Florenz 1992, p 328).

But the VMS approach is limited when a company starts to use more than one marketing channel to target their customers. The VMS approach focuses mainly on one channel. Interrelationships, conflicts and coordination issues between different channels are not considered. Additionally this approach is critically because it is based on the assumption that a channel captain exists, who has an important influence over the whole chain. But the current situation and prognoses of future trends show a decreasing influence of the manufacturer on the wholesale and retail level (Fritz & Graf 2007, compare chapter 1.1.4). There are more and more independent intermediaries that have not joined a VMS. How should they taken into account? The new competition is now between whole systems of networks rather then individual business units (Kotler & Keller 2006). Out of this critics in the next section a multi channel approach is outlined which takes these limitations into account.

2.1.3 Multi channel system

The concept of multi channel system is first analysed and outlined in general terms. In the second part it is transferred on the specific market of vehicles.

2.1.3.1 Dissociation of terms and definitions

A multi channel system is a format of a combination of different distribution channels that are used to sell a product range that are connected to each other (Stern et al. 1996, p 3). A multi channel system allows to increase market coverage, lower channel cost by selling for example direct over the internet to smaller segments as well as to offer a more customized selling approach (Kotler & Keller 2006).

The usage of the terms related to multi channel retailing and / or marketing is inconsistent. The following approach is based on the definition of Stone et al. (2002, p 40) who define multi channel retailing “as a distribution strategy to serve customer more than one selling channel or medium such as the internet, televisions and retail outlets”. Therefore it has to delineate from the term multi channel marketing. “Multi channel marketing occurs when a firm uses two or more marketing channels to reach one or more customer segments” (Kotler & Keller 2006, p 489). This includes sales channels as well as communication channels. In this research only sales channels are considered.

Regarding current approaches in the multi channel research four steps of development could be identified by their different main purposes.

1. Studies regarding the definition and increasing relevance of multi channel systems. They are mainly outlined by Mallen (1970) and Weigand (1977).
2. Researcher Cespedes and Corey (1990) as well as Rangan (1994) analyse these topic regarding the management of channel conflicts, channel integration and the division of functions by different case studies.
3. The main area is the evaluation of online channels. The research studies focus on the effective and efficient integration between traditional and new channels and their key performance indicators (e.g. Otto & Chung 2000; Vishwanath & Mulvin 2001).

At the current stage a consolidation of the various approaches could be identified (e.g. Adolphs 2004; Bauer & Smend 2005). An integrative multi channel approach is identified as a key performance indicator and empirical confirmed, but there is a further need of research in constitution and market specific adoption of multi channel systems.

2.1.3.2 Multi channel distribution in the automotive industry

The automotive distribution is dominated by indirect channel formats; cars are sold and serviced by the same, independently owned franchised dealer. But “(...) all major stakeholders - consumers, manufacturers, even the dealers themselves – have been dissatisfied with the existing distribution system for decades” (Jullens & Smend 2003, p 95). Therefore the pressure of change is there and the technological and regulatory developments show that this homogeneity already started to change.

In the last years several studies consider the multi channel environment of the automotive industry. One area is focussed on the development and implication of new channels, especially with the consideration of the internet (e.g. Urban & Hoffer 1999; Jensen & Toepfer 2001). Even if they emphasise the impact on the purchase process, these studies are inconsistent in evaluation this channel regarding the potential for the automotive distribution. Additionally only less implications on the design of a multi channel system are outlined.

For example studies from Geisler (2002) or Diez (2006) show a transaction coast based comparison of different channels, as well as they outline improvements for the value chain in distribution. But especially more innovative distribution channels are only named but not further analysed. The simultaneous usage of different channels is not considered.

Regarding the design of channels Schoegel & Sauer (2002), Smend (2004) and Markmann & Benze (2004) developed strategic implications and requirements for the coordination and configuration of multi channel systems in the automotive distribution. Important is the study from Smend (2004) which shows the following success factors for the development and the management of a multi channel system:

- high integration of channels;
- uniform design of the marketing mix, and
- central and systematic coordination and management with a cooperative character.

Out of the result of the expert survey, Bauer & Smend (2005) recommend the usage of innovative, low-cost channels for emerging brands (e.g. Hyundai or Kia). Value brands (e.g. Volkswagen or Volvo) should be sold carefully over new channels, without eliminating the system leadership of the manufacturer, by an exclusive presentation of the brand at the point of sales. For premium brands (e.g. Jaguar or Mercedes) the contact to the customer has to be brand exclusive at any time and any customer touch point. A strategic forward integration is recommended.

But they look at this field from a perspective of the supplier. Consumer meanings, trends and requirements on the channels and distribution formats are supposed rather than asking about it.

Out of the current technology and legal changes (compare chapter 1.1) several distribution formats exist nowadays. Especially the internet offers vary of new opportunities in retailing cars and channel choices for consumers.

2.2. Retailing formats

To analyse channel choice factors for the online and offline retailing of new cars the main different business models behind these channels are shortly described and analysed. This includes the traditional franchised dealer, the own retail of the manufacturers (flagship stores), agents/ mediaries, as well as the internet distribution by the manufacturer, dealer and by online cybermediaries/ internet middlemen (Specht & Fritz 2005).¹⁰

2.2.1 Direct retailing by the manufacturer

The direct retailing of the manufacturer is done by own retail or flagship stores. Especially for the premium brands like for example Mercedes, Audi, Jaguar these distribution formats are important and often used. This business model allows them to have a higher level of control in terms of the design and service at the point of sales by a direct customer contact. The retail image is brand adequate, no dealer margins are necessary as well as a presence of the brand at expensive but strategically important places is certain. But from a perspective of a manufacturer the main disadvantages are the high capital investment by a higher sales risk and a lower motivation of employees regarding the independent owned franchised dealer (Diez 2006). Therefore mainly luxury brands focus on these retailing formats, compared to volume brands which are using indirect distribution channels to cover broader market coverage. For volume brands an own retail system is not a realistic scenario in future. The capital and investment would be too high. From the consumer point of view these flagship stores and brand lands¹¹ are only single branded by a high brand experience and service delivery. Expert knowledge for this particular brand is supposed (Diez 2006).

Additionally mainly fleet and business customers are targeted direct from the manufacturer by central sales departments. Regarding the focussed group of end consumers this distribution format is not important for the presented research study (Diez 2006).

2.2.2 Indirect retailing by dealers

Much more important than distribution about own retail is distribution by franchised dealerships. Even if the new car buying from franchised dealerships was down in 2006 by 2 percentage points it is the third top source of buying a car, the first one of buying a new car¹².

The dealer is independent, but in a contractual relationship with the manufacturer and/ or distributor/ importer. The dealer takes ownership of the products. Therefore they take the market risk. A higher percentage in margin is expected to cover risk and costs (Doole & Lowe 2004).

The distribution system with dealers in the automotive industry is compared to universal distribution systems a ”selective” one. Manufacturers are allowed to select their dealers in kind of quantitative (e.g. determine the amount of dealers in a geographically market area) or qualitative (e.g. dealer qualification, standards in service and product presentation) criteria. It shows that these issues like the selection of intermediaries limiting competition and does not fit with the EU regulations of a free market. Therefore the block exemption regulation exists. Currrent regulatory changes mainly influence the distribution by franchised dealers (Schoegel & Sauer 2002).

Especially the UK market is characterised by polarisation and consolidation. Huge dealer groups determine the market. However, compared to other retail sectors (e.g. food grocery), there is certainly room for further consolidation.¹³

Another main trend in the indirect distribution channels is the increasing amount of multi franchised dealer, which allows to more independence from one particular manufacturer (Fritz & Graf 2007).

Compared to the own retail the main advantages of a franchised dealer system from the perspective of a manufacturer is the less investment and risk of the manufacturer by a higher motivation of the independent dealer. For the consumer multi franchised dealer offers them a wider range of brands to compare at one place.

But from a manufacturer point of view the main disadvantages are that the supplier needs a high brand power to coordinate and influence the whole distribution chain in kind of their objectives. The control and management possibilities are less compared to own retail. Additionally the need of coordination is much higher. In the last years the increasing amount of retailer insolvencies are risky regarding “open points” in the distribution network. From a consumer point of view less expert knowledge of the particular brands could be a result of the increasing technology complexity and higher amount of different brands, models and types of car. Additionally the mostly more outside the city centre located dealer is time costly and less brand experiences and events are presented compared to a flag store or a brand land.

However, it is the main distribution format in the automotive market. Especially for volume brands (e.g. Peugeot, Volkswagen, Fiat) several expert surveys prognoses the same importance for future (compare Fritz & Graf 2007; Smend 2004). They play an important role in the whole value chain from the perspective of a manufacturer. They have the direct contact to the end consumer. They interface with the manufacturer’s brands and products and mainly determine their performance. Out of the contractual regulations and the high brand power of manufacturers in the distribution chain, control and impact on franchised dealers is even high (Fritz & Graf 2007). But dealers are independent companies, with their own business targets and strategies. As mentioned before, the new competition force to a more network approach. Cooperation networks in form of “partner-relationships” are gaining more and more importance in kind of a successful sustain in the market by a competitive advantage through distribution (compare chapter 1.1.1).

2.2.3 Indirect retailing by agents/ intermediaries/ leasing companies

Agents are in a contractual relationship with the manufacturers, but they not own. Therefore they have less market risk (Doole & Lowe 2004). The main difference to the dealer is that the agent has price maintenance agreements, no inventory and do not close a contract with the end consumer. From the supplier perspective they are risky, because they not own, but they get fewer margins. Agents are not popular in the automotive industry. Only Mercedes in Germany uses agents for distribution. Therefore this business model is not more outlined in detail.

Middlemen/ intermediaries are becoming more and more an additional source of purchase in the market. They are defined as persons or companies who are buying a vehicle for a consumer without being a member of the distribution system (European Commission 2002; Diez 2006). They have to be supplied by the dealer or manufacturer, because they are working by ordered of the consumer. Particular through cross-border trade (EU importers) their sales participation in the market increased over the last years. This is mainly forced by the change in the BER 1400/ 2002 (compare chapter 1.1.1). It remains an option for consumers looking for a special model which is not available in the UK (Mintel 2006a). The total sales volume and market coverage of these middlemen is quite difficult to determine, because they are not in a contractual relationship with the manufacturer (London Economics 2006).

Car auction companies have been long time a channel for used car dealers, fleet operators or other large car users to dispose and source cars. But current trends in technology (e.g.: ebay motors) and law support the growth of this purchase source even for consumers. British Car Auctions and Manheim are the main companies in Britain¹⁴. They offer now also an online access to their auctions. Additionally there are several auctions which are specialised in special segments or product categories like for example Japanese imports or classic cars (Mintel 2006a). Additionally this new “supply responsibility” (BER 1400/ 2002) is effecting leasing companies. Since then they have to be named as a sales channel as well. Even if they do not have a specific end consumer; out of the reason to offer a fast delivering process they have to be supplied from the manufacturer. Therefore today they are an additional direct competitor to franchised dealers or flagship stores.

Finally customer’s adoption of these alternative retailing formats determine the impact on future distribution structure. In kind of the market of new cars for consumers these cybermediaries play especially a role in the online environment (compare chapter 2.3). The medium internet offers these business formats wide opportunities in the market.

2.3. Ecommerce

There is not one universal definition of ecommerce. Compared to ebusiness, ecommerce focus only on commercial transactions (Kotler & Keller 2006; Wyckoff & Coleccia 1999). Ecommerce could be defined analogous to the term market place. This means “ecommerce is the digital initiation, negotiation and development of transactions between business subjects” (Diez 2006, p 291; Kotler & Keller 2006, p 493). Out of a technical view ecommerce include all interactive digital media (e.g. interactive TV or mobile solutions). In this paper the internet as the main medium is focussed.

The internet as a sales channel is influenced by the product and service which should be marketed. Products that are completely digitised like newspapers, cds, software as well as services like online banking could be marketed over the internet. The situation for products and services which are not completely digitalable is much more difficult. An intermediation from the information part and the physical component of the product/ service is necessary. Specialised suppliers offer different components of the product and/ or service (Diez 2006). This is the situation for vehicles. Regarding the value chain in distribution (figure 1) not all sales processes are visible, like test drive, trade-in and delivering process. In the case of an only internet distribution the customer has to renounce these process steps or they have to be delivered in other ways.

2.3.1 Online direct retailing

From the manufacturer perspective the internet enables them to get more control over the customer interface by direct communication with the end consumer as well as an unbundling of the physical and virtual storefronts. Here the manufacturer provides the customer with information about the vehicle, including price and the order process. The distributor delivers the car and is responsible for the after sales service. Out of competition reasons with their franchised dealer, today the manufacturer acts mostly only as a portal for purchase interests. If customers are really interested they are delivered to their next dealer. Except of Toyota, who makes it possible to order direct by the manufacturer after car configuration (Buettner 2007). Today mainly all manufacturers use the internet as a direct channel to target fleet and business customers.¹⁵

Like mentioned before an only distribution by the manufacturer without any dealer net is possible if the consumer renounces on the elements like for example the test drive; but this is not a realistic scenario. Another possibility would be to use third parties like for example car rental companies for these processes.

2.3.2 Online dealer

The dealer could use the internet as an additionally distribution channel or could completely move online. The requirements and tasks for a virtual automotive dealership are presented by Urban & Hoffer (1999). Their prognoses of a completely change in distribution structure by a mainly sales over the internet in the 21st century is not realised today. There are advantages in for example costs, closer customer relationships or a more effective and efficient targeting and development of customers that are forcing these retailing formats from a manufacturer and dealer perspective (Fritz & Graf 2007; Urban & Hoffer 1999). But they did not count the adoption from the consumer perspective. The advantages from a customer view in for example price, more rational buying process, wider assortment have to compared with for example their perceived risk, product involvement and channel trust. Therefore an understanding of the motivations in kind of different channel usage is important to determine the value of ecommerce in future.

2.3.3 eBroker

Additionally the direct contact to the consumer could be taken by an eBroker, often also named as middleman, matchmaker or cybermediaries (Diez 2006, Jullens & Smend 2003). It is the highest developed business model in the internet at the moment. Additionally to the importance in the used car business it gains more and more market coverage in the new car sales as well (London economics 2006). There are at least three main different types of eBrokers in the market (Jullens & Smend 2003):

1. Online vehicle brokers like Carsdirect or Bestpricecar enable customers to price, order, purchase, insure and finance a vehicle online without visiting a dealer (Carsdirect 2007; Broadspeed 2007; NewCarNet 2007 Bestpricecar 2007).
2. Dealer referral services like AutobyTel are matchmaker models. They provide an online vehicle and pricing information service. Customers are matched with a participating dealer. The customer usually purchases the vehicle from the dealer, who pays the referral service a flat rate, success fee, or both (AutobyTel 2007).¹⁶
3. Reverse auctioneers like Priceline generate qualified leads for participating dealers. Customers are specifying the car they want to buy, the price they want to pay and how far they want to travel. When a participating dealer accepts this offer a contract is closed (Priceline 2007).

For example the matchmaker has less product knowledge, but could offer third party delivery advice and allows the consumer to make a more rational decision. They deliver the customer information about vehicles and their prices in the market and take the order. The consumer would then order the vehicle from the dealer or the factory itself. The dealer is responsible for the delivering and after sales process.

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¹ Europe's automotive manufacturers were granted a ten-year partial exemption from competition rules (Article 81 EU). This block exemption allowed manufacturers to control their vehicle distribution systems on an exclusive basis. With the BER 1400/ 2002 a new one was introduced to create new market dynamics (Compare chapter 2.1.1; Mintel 2006a; London Economics 2006)

² The BER are officially replaced the BER 1475/ 95 at the 1.12.2002. The main rules are valid since 1.10.2003; the “location clause” is excluded since the 1.10.2005 (London Economics 2006).

³ See appendix 1c for more detail.

⁴ The differences in price are based in the country specific tax regulations, the consumer wealth, differences in transport and delivery regulations as well as technical rules. The tax and price harmonisation in the EU runs quite slow.

⁵ The consequences for a multi channel environment in detail are outlines in appendix 1d.

⁶ This paper mainly focuses on the influence of the internet as a distribution channel.

⁷ For more detail on the benefits of the internet as a sales and communication channel see chapter 2.3.

⁸ The study does not include business customer as well as service products like aftersales, finance or used car trade. Geographically it is limited on the UK with a focus on Scotland. The empirical part exemplified consumer channel decision making by analysing a “young” age (25-34 years) segment in Edinburgh.

⁹ Support activities: Firm infrastructure, human resource management, technology development, procurement; primary activities: Inbound logistics, operations, outbound logistics, marketing and sales, service (Kotler & Keller 2006, appendix 4).

¹⁰ Service business formats are not focussed in this paper and therefore not taken into account.

¹¹ Several manufacturers have their own brand lands. They closed to the factory of the manufacturer and should deliver an experience brand event shopping (compare e.g. the bmw world (BMW), http://www.bmw-welt.com/; or the autostadt (VW), http://www.autostadt.de/portal/site/www/template.PAGE/). They are no relevant retail channel in UK and therefore not further discussed.

¹² The top four ways of buying a car in 2006 were to buy a used car from private seller (22 per cent of consumers), used car from independent dealer (22 per cent), new car from franchised dealer (19 per cent) and used car from franchised dealer (14 per cent) (Mintel 2006a).

¹³ Over the last years they became more and more dominant by acquiring rival groups and independent dealerships. Only 12 car manufacturers increased the size of their dealer network during 2005, while 18 reduced in size and five made no change (Mintel 2006a; appendix 2).

¹⁴ The Scottish Motor auction group dominates Scotland’s car auction market (Mintel 2006a).

¹⁵ These customer segments are not focussed in this research.

¹⁶ For detail of the matchmaker model compare Diez 2006, p 296ff