Servitization in Automotive Industry
Dr. Arsham Mazaheri . July 30th 2023
What is Servitization in Automotive industry
Remember when the value of an automobile was all about horsepower, torque, and perhaps a swanky stereo? Well, those days are in the rearview mirror. Fasten your seatbelt, because today Servitization in the automotive industry is rewriting the rules of the road. This rapid transformation is driven by consumers, who are demanding more than just a vehicle.
Servitization in the automotive industry involves car manufacturers offering not just vehicles but also services like maintenance, repair, leasing, connectivity, mobility and other solutions to meet evolving customer needs and preferences.
Basically, it's less about the vehicle itself and more about the total experience and value it delivers. Owning a vehicle itself is fading as a perceived value by consumers; flexibility, convenience, personalization, mobility, connectivity, and sustainability are the new benchmarks shaping the automotive industry's landscape. In such a landscape, servitization in the automotive industry is a response to this evolving demand, offering various benefits and opportunities to both car manufacturers and users.
Servitization Opportunities for Automakers and the Consumers
What servitization brings to the table for car manufacturers and also the users are diverse. From the car manufacturers' perspective, servitization opens up new dimensions of benefits, including:
Customer-Centricity: It allows automakers to build closer relationships with customers. It enables catering to specific needs and delivering a personalized experience, significantly enhancing customer satisfaction and loyalty.
Diversified Revenue Streams: The potential to tap into ongoing revenue streams emerges as manufacturers diversify from a one-time vehicle sale to an array of services.
Innovation: Focusing on services provides the opportunity to continuously innovate, adapt to changing market trends, and align closely with customer preferences.
Sustainability: Services like shared mobility and electric vehicle charging support sustainability goals, projecting the brand as environmentally conscious, a factor increasingly important to customers.
From the customer's standpoint, servitization presents exciting opportunities as well:
Personalized Services: Customers can enjoy tailor-made services based on their preferences, increasing overall ownership or usage satisfaction.
Convenience and Flexibility: Servitization brings services like car leasing, subscription, and maintenance services to the customers' doorstep, offering unmatched convenience and flexibility, and decreasing the total cost of ownership (TCO) for the consumers.
Advanced Services in Automotive Industry
In the world of automotive servitization, the range of services is as diverse as the models on the showroom floor. Some popular ones include:
Fleet Management-as-a-Service: Companies like Automotive Resource Internation (ARI) with ARI Fleet Management and LeasePlan offer comprehensive fleet management services, including vehicle acquisition, maintenance, and disposal, significantly simplifying fleet operations for businesses. Ford's Fleet Management is another outstanding example in this area. It offers Ford Telematics and Ford Data Services, which enable businesses to track their fleet's performance, usage, and service needs. Volkswagen also has "We Fleet," a full-service fleet management solution for businesses. Among the truck manufacturers, Scania provides a comprehensive suite of fleet management services that includes Scania Fleet Care, Scania Maintenance with Flexible Plans, and Scania Driver Services. Scania uses real-time data to plan maintenance effectively, handle repairs, and provide driver training, all aimed at optimizing vehicle uptime, efficiency, and performance. Scania’s Dutch competitor, DAF Truck, offers DAF Connect, a fleet management platform that enables operators to monitor their fleet's performance in real-time, maximizing vehicle availability and efficiency. The system provides detailed insights into fuel consumption, mileage, fleet utilization, and idle time, among other metrics.
Mobility-as-a-Service: Companies like Uber and Lyft have transformed the concept of personal transportation, offering ride-hailing services that eliminate the need for car ownership. Among the traditional car manufacturers, BMW and Daimler merged their mobility services to create "Jurbey," a joint venture that aims to simplify transportation and mobility. General Motors (GM) also launched "Maven," a platform offering car-sharing and ride-hailing services.
Maintenance and Repair Services: Automakers like BMW and Mercedes offer maintenance packages that provide regular service and repairs for a fixed fee. Similarly, Audi offers the "Audi Care" package, which covers routine maintenance for a specific period or mileage. Likewise, Volvo's "Service 2.0" includes complimentary diagnostics, software upgrades, and roadside assistance.
Software Updates and Connected Services: Tesla leads the pack here, providing over-the-air software updates and a host of connected services to enhance the driving experience. GM's OnStar system and Volvo's "Service 2.0" offer a suite of connected services, including automatic crash response, navigation, and vehicle diagnostics. BMW also provides over-the-air software updates to its iDrive system and other vehicle components.
Car Leasing and Subscription: Companies like Volvo and Toyota offer subscription models (Care by Volvo & Kinto Flex) where you can get a car with insurance, maintenance, and roadside assistance included in a monthly fee. Similarly, Porsche launched "Porsche Passport," a subscription service that offers on-demand access to a variety of Porsche models.
Car Sharing: Toyota’s car-sharing platforms in different countries (Hui, KintoShare, Yuko, etc.) use Toyota's proprietary global mobility service platform to offer mobility on demand to consumers. Daimler's former car-sharing service "Car2Go", later merged with BMW's similar service, DriveNow, to offer on-demand mobility under the 'Share Now' brand. Similar to these well-known car manufacturers, other companies like Zipcar also offer car-sharing services, allowing people to use cars on a need basis without owning them.
Vehicle Telematics Services: Companies like Verizon Connect provide telematics services that enable businesses to monitor and manage their vehicle fleets effectively, optimizing efficiency. BMW ConnectedDrive offers telematics services too, including vehicle tracking, emergency call, and remote services. Mercedes's "mbrace" is another system that provides vehicle telematics and hands-free connectivity.
Maintenance, Repair, and Overhaul (MRO) Services: Apart from traditional automakers like GM, Volkswagen, and BMW, companies like Jiffy Lube and Midas offer specialized maintenance, repair, and overhaul services. In this category, Tesla stands out with its remote diagnostics and over-the-air updates, which can solve some maintenance and repair issues without a physical garage visit.
Servitization Challenges for Car Manufacturers
The drive towards servitization presents significant challenges for car manufacturers. It requires an extensive shift in mindset, business models, and operations. However, recognizing these challenges can be the first step to transforming them into opportunities:
Understanding Customer Needs: An in-depth understanding of customer needs is critical. This includes keeping a pulse on evolving trends and predicting future demands.
Digital Transformation: Embracing digital technology is a must. Digital platforms can help in offering personalized services, efficient operations, and creating a seamless customer experience.
Strategic Partnerships: Collaborating with technology providers, service providers, and even competitors can help in enhancing the service portfolio and achieving the required technological advancements.
Infrastructure Challenges: Setting up charging infrastructure for electric vehicles, ensuring high-speed internet for connected services, etc., can pose challenges, particularly in emerging markets.
Regulatory Challenges: Autonomous vehicles, data privacy, and vehicle safety are areas of regulatory concern that manufacturers need to address proactively.
As we move further into the servitization journey, we can expect the automotive industry to redefine the meaning of owning and using a vehicle continually. With advancements in technology and evolving customer needs, more innovative services and solutions are likely to emerge.
Despite the challenges, the potential benefits make this journey worthwhile for the manufacturers. To successfully navigate this transformation, automakers need to invest in understanding customer needs, embracing technology, and fostering strategic partnerships. In this rapidly evolving scenario, companies that can swiftly shift gears towards servitization stand to gain a significant competitive edge. Hence, servitization isn't merely an option; it's a critical strategic decision that is shaping the future of the automotive industry.
Conclusion
As the automotive industry accelerates down the path of change, the age-old metrics of horsepower and torque are gradually giving way to more experience-driven value propositions. Servitization is not just transforming the automotive industry; it's redefining the relationship between automakers and consumers. The new benchmarks of flexibility, convenience, personalization, mobility, and sustainability have taken the driver's seat.
Diving into servitization might feel daunting; but with Avrogan as your partner in smarter business, it becomes a powerful tool. Avrogan's specialized consulting combined with its state-of-the-art service contract management SaaS solution (Avrogan Service Excellence™) for configuring, pricing, monitoring, and managing advanced service contracts ensures that the leap into servitization is both strategic and seamless. Our dedication isn't merely about providing services but weaving them into your organization, maximizing value at each interaction.
From fleet management to mobility-as-a-service, from software upgrades to vehicle telematics, the range of services provided under the umbrella of servitization is expansive. And while the road ahead may be filled with challenges, from understanding ever-evolving customer needs to addressing regulatory concerns, there's no turning back. The future of the automotive industry, with the guidance of partners like Avrogan, looks to be one where driving is not just about the car but about the holistic experience it provides. It's a world where servitization steers the industry towards greater innovation, deeper customer engagement, and sustainable growth. The journey of transformation has begun, and there’s no looking back.
Dr. Arsham Mazaheri
Chief Operating Officer
Arsham is a data scientist by background, with 17+ years of industrial and managerial experience in various disciplines. Throughout his career, Arsham has helped many of Fortune 500 companies with their data and requirement challenges and has been involved in many IT solution implementation projects. Arsham has both mechanical and industrial engineering backgrounds and has a D.Sc. in Risk Management from Aalto University in Helsinki, Finland. He is a certified change and problem manager (CCM & CPCM) and holds an MBA in shipping and logistics.