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August 10, 2022

From push to pull in an age of omnichannel retail

National Sales Companies in the spotlight

National Sales Companies (NSCs) must successfully move from a push-to-pull market strategy to supporting an omnichannel retail model. That’s the view of Cox Automotive and the international research and strategy organisation ICDP. The two businesses set out the challenges ahead for NSCs and their future relationship with manufacturers and dealers in an increasingly digital environment.

Philip Nothard, Insight and Strategy Director at Cox Automotive, explained: “There’s no doubt that as we continue to embrace omnichannel sales and, in some cases, the transition towards the agency model, the future role of the NSC will have to change, transforming the traditional sales relationships we understand today. Within AutoFocus, some of these potential future models are explained with the support of the ICDP.”

Moving from push to pull

Steve Young, managing director of ICDP, summarises the state of play for NSCs today. He states: “NSCs carry an overhead level that reflects the culture and cost base of their parent organisations but do not appear to deliver more in return for that higher cost compared to an independent distributor. There are NSCs in markets where volumes are much lower than the 10,000 unit ‘rule of thumb’ annual sales level, which separates NSC markets from independent distributor markets in the eyes of many OEMs, so they might be better operated by independent distributors or clustered to create larger NSCs with a multi-market responsibility.”

Dealer attitude surveys in multiple markets show a wide variation between the most highly and least respected brands, often based on NSC relationships and behaviours rather than the product. Usually, the high scores can be tied back to the track record of individual senior leaders who have genuinely identified with the idea of partnership and put that into practice in all aspects of their relationships with dealers. However, such a target-driven approach can also be suboptimal. For example, encouraging NSCs to incentivise pre-registrations in the false hope that this may lead to a higher allocation of stock, even when vehicles are in shortage.

Steve Young suggests that NSCs must evolve their business models and strategies to support a more omnichannel retail environment effectively. He commented: “Today’s NSCs are wholesalers – persuading and incentivising their dealer networks to take the volume and mix of product that allows the NSC to meet their commitments to the OEM centrally. Unfortunately, under normal supply conditions, this type of push strategy leads to a disorderly market, where cars are pre-registered and sold through low-margin channels such as daily rental and brokers if the dealer channel becomes saturated. The model must move to pull rather than push to achieve an orderly market. Instead, the NSC focuses on creating true consumer demand, with pricing and incentives adapted continuously to achieve the desired balance. Unfortunately, this type of retail understanding and skill is rare in NSCs today.”

Shifting responsibilities 

Steve Young suggests that managing the order pipeline and market stock could shift to the NSC or OEM centrally in time. He believes that generating the initial order pipeline at a market or regional level will deliver a more balanced mix than consolidating orders generated by dealers. However, today’s NSC typically lacks these supply chain planning skills. 

Another area of change ICDP anticipates is within the rewards system for dealers. Today’s typical margin and bonus scheme is biased towards the bonus element, and the bonus achievement is crucial to whether a dealer makes a profit or not. With total bonus levels dropping – typically to around 2% under agency – ICDP believes they should be more straightforward, with campaign spending refocused on retail pricing support rather than dealer incentives.

Philip Nothard explained that the entire automotive sector is transforming, and it is only fitting that NSCs evolve with other key players. He summarised: “If you look at what is leading this fundamental shift in automotive retail – the move from internal combustion engines (ICE) towards electric vehicles (EVs) – it is clear that we need to rip up the traditional rulebook. 

“It takes more than some simple retooling to go from ICE to EV. Therefore, as we move from a distribution-led sales model towards omnichannel retail, there is a need for NSCs to find new ways to work with their retail partners, evolving their business models to help everyone in the value chain provide greater customer value.”

Further automotive disruption to come: Grant Thornton

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