The Boston Consulting Group on Strategy by Stern Carl W. Deimler Michael S. Boston Consulting Group. & Michael S. Deimler

Author:Stern, Carl W.,Deimler, Michael S.,Boston Consulting Group. & Michael S. Deimler
Language: eng
Format: epub
Publisher: John Wiley & Sons, Inc.
Published: 2012-04-17T04:00:00+00:00

De-Averaging as a Threat

The de-averaging of competitive advantage can transform a business beyond recognition and undermine its traditional sources of advantage. The typical auto dealership, for example, is a complex bundle of physical and informational services. As a physical distributor, it is less efficient than direct factory delivery or regional distribution centers. Its service is inferior to that of a specialized repair chain. As a provider of unbiased product information, its value added is negative. Its financing is overpriced. As a market maker in used cars, it exploits the ignorance and anxiety of consumers. What is it, then, that holds these activities together? And what makes them collectively advantaged when they are individually disadvantaged? Nothing but the consumer’s economics of searching: the high cost of acquiring comparative information about price, service, delivery, quality, and interest rates.

Fortunately for consumers, the bundle is unraveling. OEMs are moving toward manufacture-to-order, using tighter information links between customers, factory, and suppliers to eliminate the need for retail inventory. Microsoft’s CarPoint, Autobytel.com, and others are creating comprehensive car-shopping services on the Internet. Similarly, Quicken enables consumers to search for the cheapest credit and insurance across hundreds of institutions. Used-car rating systems, a vast array of electronic classifieds, and free Internet access to blue-book information are all improving the efficiency of the used-car market. The only potential source of advantage left to dealers is the test drive—for which they currently don’t get paid.

At the very least, these trends mean that the dealer cannot continue to lose money on the new-car sale and make it up on warranties, service, and the trade-in. Every single activity will have to be competitive and profitable in its own right. Far more likely is that dozens of focused competitors will pick apart the dealer’s business. Dealers will lose volume faster than they can shed overhead. Thousands will go out of business. The traditional auto dealership is being destroyed by the de-averaging of competitive advantage.

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