The Aftermarket in the Automotive Industry
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The Aftermarket in the Automotive IndustryHow to Optimize Aftermarket Performance in Established and
EmergingMarkets
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3The Aftermarket in the Automotive Industry
1 Executive Summary 4
2 The Aftermarket in the Automotive Industry 6
3 Characteristics of the Aftermarket 8
4 Investments Into Key Initiatives in the Aftermarket 13
5 Performance in the Aftermarket 16
6 Management Approach for Winning the Aftermarket 17
7 Conclusions 34
Contents
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analysis. The main aim of thisanalysis was to develop a framesetthat allows automotive companies tobest prepare for challenges in theglobal aftermarket business. Theanalysis is based on an in-depthsurvey in combination with additionalinterviews with over 150 aftermarketmanagers of the world’s leadingautomotive companies.
Based on the results of this study, thefollowing key conclusions can bedrawn for the aftermarket:
1.The Western Europeanaftermarket is a rather maturemarket with flat aftermarket
volumes. The competitive intensityremains at a high level and will befurther accelerated by newregulations and competitors.
2.Improvement of marketing andsales activities is the maintrigger to remain competitive inWestern Europe. Because of theflat nature of the WesternEuropean aftermarket, marketingand sales activities mustconcentrate on keeping thecustomer loyal to dealers andrepair shops across the carlifecycle.
3.Emerging markets offerattractive growth rates withrelatively moderate competitiveintensity in Eastern Europe,Russia and India but with highcompetitive intensity in China.In the future, the competitiveintensity is expected to increase toa similar level as in WesternEurope. To benefit from theattractive growth rates requiresimmediate managerial action,before the growing competitionmakes it more difficult to succeed
in the aftermarket. Still, low-performing companies in particularneed to focus on selected marketsthat best fit their strategy and theircurrent capabilities.
The automotive industry isexperiencing significant changes inglobal market volumes, with flat salesin Western Europe and increasingimportance of the emerging marketsof Eastern Europe, Russia, China andIndia. This growing importanceincludes not only new car sales, butalso the aftermarket. Given the factthat the aftermarket business creates
attractive revenues and margins,aftermarket activities are on themanagement agenda in bothestablished and emerging markets.
Winning the aftermarket is far fromeasy, since it entails significantcomplexity, a large number of maintenance and parts activities, andcrucial supply chains.
To identify key patterns about how tobest operate in the established as wellas in these fairly new markets,
Capgemini Consulting, together withthe University of St. Gallen (ITEM-HSG), conducted an aftermarket
Exhibit 1: Global Revenues and Headquarters of Participants
Asia Pacific
9%
America
13%
Rest of Europe
31%
Germany
47%
Headquarters of participating companiesGlobal revenue distribution of participating companies
31%
<100m 100m-
500m
501m-
1bn
1bn-5bn >5bn
27%
22%
14%
6%
0%
5%
10%
15%
20%
25%
30%
35%
Capgemini Consulting
1 Executive Summary
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5The Aftermarket in the Automotive Industry
different phases to optimize theaftermarket performance in WesternEurope and the emerging markets.This model helps companies to better
position themselves and developstrategic options to boost theiraftermarket performance in therespective markets to the point wherethey can become a global aftermarketchampion. To accomplish this, themodel uses three different levels: theexploration, exploitation and finallythe aftermarket champion phaseleading into the global aftermarketchampion phase.
In each of these levels companieshave to focus on differentimprovements in their aftermarketoperations. Most companies have leftthe level of exploration in WesternEurope, but have re-entered this levelin the emerging markets. Companiesshould strive to become emergingmarket champions in theiraftermarket activities in the next fiveyears. Of course, not every companycan and will succeed, but the pace of progress towards that objective willmake the distinction between marketshare losers and gainers, not only foraftermarket revenues and profits.
In the final level companies shouldalign their strategy and operationstowards a vision in which globalaftermarket champions concentrateon a control-tower type of supplychain operation. In this case, thecompany takes over full end-to-endresponsibility for the supply chain
from its suppliers up to itscustomers. Global aftermarketchampions operate optimized multi-echelon networks of warehouses anduse worldwide benchmarks totransfer best experiences amongwarehouses, dealers and repaircenters.
4.Each emerging market (EasternEurope, Russia, China and India)is specific in terms of thecompetitive environment and
customer needs. The differentcharacteristics of the marketsrequire a localization of theaftermarket. Companies trying toexploit the aftermarket with astandardized global approach willmost likely fail. Finding anindividual approach becomesessential.
I Surprisingly, most companies arenot prepared to exploit thepotential of the Eastern
European aftermarket and no onereaches high performance. Themajority of companies areconfronted with improvementactivities across marketing andsales, sourcing, distribution,planning and reverse-logisticsprocesses.
I Russia’s geographic expansionrequires improvements in thedistribution processes. A moredense distribution network would
enable a stronger penetration of the Russian aftermarket beyondthe major cities.
I China is the most challengingemerging market. To succeedhere, major improvements arenecessary in marketing and sales,sourcing, distribution andplanning processes to become andalso to remain competitive.
I In general, India is a ratherneglected market for Western
European car manufacturers andis increasingly being led by top-performing Asian companies.
Western European companiesmust learn from the successfulaftermarket practices of their
Asian competitors.
The results of the study led to thedevelopment of a model designed byCapgemini and the University of St. Gallen that evaluates the overallaftermarket performance (CHAMP –
Capgemini’s Health Check for Aftermarket Performance). Themodel visualizes the currentperformance and development needsof a company by identifying three
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definition also includes anyadditional innovative services thathelp to optimize the use of thevehicle.
Exhibit 2 summarizes the maincomponents of the automotiveaftermarket and also gives an outlineof average margin expectations percomponent. In addition, the
illustration shows how the valuechain of an OEM (OriginalEquipment Manufacturer) and OES(Original Equipment Supplier) isstructured and where the after salesactivities are based in the chain.
Globally, aftermarket volume,including retail sales, is growingrapidly and becoming increasinglyimportant to automotive companiescompared to new car sales due to the
This section provides an overview of the automotive industry’s aftermarketto set the scene for further analysis.Growth rates in the different regionsare discussed as well as how basicvalue propositions are set in thisindustry.
Aftermarket Volumes Aftermarket operations have a very
broad scope and contain all activitiesrelated to maintaining a car after itsinitial sale and until the end of itslifecycle. The relevant activities arealso referred to as aftermarket partsand services. The aftermarketencompasses all parts and servicespurchased for light- and heavy-dutyvehicles after the original sale,including replacement parts,accessories, lubricants, appearanceproducts and service repairs. This
2 The Aftermarket in the AutomotiveIndustry
Exhibit 2: Value Chain of OEM/OES and Focus of Study
Upstream Downstream
Accessories Appearance
Products
Lubricants
& Tires
Replacement
PartsService
Repairs
Telematics/
NavigationEntertainment
Parts Services
OEM/OES Margin OEM/OES Margin
New car sales is relevant for OEMs only. For OESs the
equivalent is parts/components sales to OEMs* The relevancy of the different elements varies for
OEMs/OESs due to the nature of their meaning
Product
DevelopmentLogistics
Manu-
facturingNew Car
Sales*
Financial
Services After Sales
Used Car
SalesRecycling
Capgemini Consulting
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7The Aftermarket in the Automotive Industry
Aftermarket Revenue andProfitsInnovative services such as telematicsand mobility service bundles offer
additional opportunities to generatebusiness and revenue improvementsand account for a growing share of the aftermarket. These services areincreasingly embedded into newtechnologies. In addition to morecomplex parts, they can compensatefor the declining share of traditionalparts, repair and maintenanceservices during a car’s lifecycle due tohigher general quality and reliabilityof cars and parts. Considering the
total revenue stream of a typical 13-year car lifetime,1 only 37% of thetotal revenue stems from the new carsale. The aftermarket businessaccounts for the remaining 63% in
Western Europe.2
higher margins. As can be seen inFigure 3, the Western Europeanaftermarket is more or less flat, whileattractive growth rates exist in
emerging markets such as EasternEurope. The average growth rate peryear is estimated at about 1% in
Western Europe, whereas in EasternEurope it is about 5.3% per annumover the past seven years. Among
Western European markets with atotal aftermarket volume of approximately 165 billion euros,Germany has the highest sales with48 billion euros and thus contributedabout 30% of the overall Western
European aftermarket sales in 2008.
Exhibit 3: Automotive Aftermarket Growth in Western and Eastern Europe
Automotive aftermarket retail value in billion EUR
in Eastern Europe b Automotive aftermarket retail value in billion EUR
in Western Europe a
a) Based on data from Germany, UK, France, Italy, Spain, the Netherlands, Belgium, Norway, Portugal, Sweden, Austria/Switzerland
b) Based on data from Poland, Hungary, Czech Republic
80.0
60.0
40.0
20.0
180.0
160.0
140.0
120.0
100.0
0.0
2008
165.4
100.6
64.8
2007
163.6
99.6
64.0
2006
160.7
98.1
62.6
2005
158.7
96.7
62.0
2004
158.8
96.6
62.2
2003
158.8
96.5
62.3
2002
95.9
62.0
PartsLabor
9.0
8.0
7.0
6.0
5.0
4.0
3.0
2.0
10.0
1.0
0.0
2008
8.6
5.3
3.3
2007
8.2
5.1
3.1
2006
7.8
4.8
3.0
2005
7.4
4.6
2.8
2004
7.1
4.4
2.7
2003
6.7
4.2
2.5
2002
6.3
3.9
2.4
PartsLabor
Increase 27%Increase 5%
157.9
Datamonitor, Capgemini Consulting
1 The automotive passenger car lifecycle model splits the average use of an automotive passenger vehicle over a period of 13 years into three phases. The first phase runs fromone to four years of the car’s age,mainly through the warranty period of the car.Phase two describes the years from four to seven. Finally the third phase describes the yearsfrom seven to typically 13. This model is relevant for the management of the automotive aftermarket business as it can be used to describe the usage patterns of endcustomers in their consumption of parts and services over the different phases. Typically,the older the car gets, the more sales of parts at OEM-owned retail and franchiseddealerships decrease in favor of independent retailers. OEMs are continually seeking solutions to minimize this situation as the parts business offers attractive margins.
2 Capgemini Consulting,internal research3 Capgemini Consulting,internal research
In 2007, the aftermarket businessaccounted for about half of theprofits of European automotiveOEMs/OESs, compared to 26% fornew car sales and 18% for carmanufacturing. In the aftermarket,the turnover for car and partsmanufacturers has increased to about63 billion euros and operating profitsgrew from 13 billion euros to 16billion euros, compared with theprevious year.3 In 2009/2010 this isexpected to level off due to the effectsof the vehicle scrapping programs,such as the Abwrackpraemie inGermany, on the service and parts
business in the major markets in Western Europe. In addition, the costof warranty is expected to increaseover the next three years.
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marketing and sales capabilities tomaintain their market position inlight of the increased competition.Moreover, the market will likelywitness the emergence of additionaland changed business models.
On average, OEMs’ parts revenue isexpected to decline by up to 5% inthe next three years, indicating that
margins could come under increasedpressure. On the demand side of standard high-volume parts, specialtychains and fast fitters such as Kwik-Fit, PitStop and A.T.U. will benefitand have more power to negotiateprices. Independent vendors,supplying, for example, Bosch RepairCenters, may also increasinglyreplace OEMs in the aftermarket.These shifts may result in lowerprices for standard and high-volumeparts by 10% to 15% in the next five
years. This means that most marketplayers except for copymanufacturers and specialty chainswill face a reduction in overallturnover. Additionally, margins aswell as profits will be squeezedthroughout the industry.
Total aftermarket volume in EasternEurope is low compared to WesternEurope (see Exhibit 3). The region’smarket volume is estimated at
8.6 billion euros.6
But with an annualgrowth rate of more than 5%anticipated by the study’s participantsin the next few years, the overallgrowth is expected to be considerablyhigher in Eastern than in WesternEurope. The aftermarket developmentin Poland, Hungary and the CzechRepublic is the main growth driver.
To establish a management guide, thecharacteristics of each aftermarketfirst have to be defined. This sectiondescribes the competitiveenvironment, market growth andpotential as well as the marketspecifics. Differences across marketsdo not only occur between themature Western Europeanaftermarket and the aftermarket in
the emerging regions but also amongthe different emerging marketsthemselves.
Market Potential and GrowthThe Western European aftermarketis a rather mature market with flatvolumes. However, with 165.4billion euros in 2008 it remains thebiggest of the study’s markets when itcomes to volume.4 In the research,54% of the respondents expectincremental growth of up to 5% until
2013.
Competitors that are able to utilizethe new European Union BlockExemption Regulation in 2010(BER2010)5 for their own purposecan expect additional growth rates of 5% to 10%, compared with themarket average. BER2010 will notonly help companies to shape theircompetitive edge but should alsofurther increase competition in the
aftermarket. The regulation will mostprobably attract more suppliers tothe aftermarket, since original partscan command a premium andinsurance companies often requirethem for repairs. This means thatOEMs and OESs will face significantprice competition from copymanufacturers. They need to showstrong operational excellence and
3 Characteristics of the Aftermarket
Key Finding
Western, Eastern Europe and
Russia will increasingly be
treated as “one” common
investment region, whereas
China and India are still focused
on independently.
Key Finding
Whereas the Western European
aftermarket is in the maturity
stage, strong annual growth
rates of 5% to 15% are expected
for the emerging EasternEuropean, Russian, Chinese and
Indian markets.
4 Datamonitor, Germany – Total Aftermarket Value 2008, 20095 The Block Exemption Regulation 1400/2002 restructured the automotive sales and after sales market and led to an increase in competition. For the aftermarket this meant
several changes such as, for example, more liberal access to relevant service information for independent dealers.This regulation will end May 2010 and be replaced by anautomotive aftermarket specific regulation (BER2010).This will continue to further liberalize the automotive aftermarket and increase competition in the parts and servicemarket. Source: Capgemini Consulting, internal research;European Commission, SEC(2009) 1053, 2009
6 Datamonitor, European Aftermarket Houseview 2009, 2009
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9The Aftermarket in the Automotive Industry
Competitive Situation in theAftermarketSimilar to market potential andmarket growth, the current and
future competitive situation in theaftermarket differs depending on theregion.
In Western Europe, the competitiveintensity is currently at a rather highlevel, according to the respondents.They categorized the market as beingone of the two most challenging interms of competitive activity (theother being China). All participantswere almost certain that Western
Europe can be considered a maturemarket, and on average they expect amoderate increase in the competitiveintensity.
The picture for Eastern Europe isdifferent. Here, it was noted that onaverage the current competitiveintensity is somewhat moderate butwith future increases anticipated.This can be seen in Exhibit 4, whichshows the positioning of the marketsin terms of their estimatedcompetitive intensity.
rates to be higher than 5% and half expect growth rates to climb up to10% to 15% within the next threeyears. The total volume of the
Chinese aftermarket is about 5.1billion euros.8
In general, India is a rather neglectedmarket for Western European carmanufacturers. The country is stilldominated by three carmanufacturers, namely MarutiSuzuki, Tata Motors and Hyundai,which account for 75% of the marketshare. Aftermarket volume is about 2billion euros, but the aftermarket
share for Western Europeancompanies is relatively small.9 Thegrowth rate in the Indian aftermarketis lower than in China, but stillexceeds most mature markets. In ourresearch 70% of the participantsexpect the aftermarket in India togrow between 5% and 10%, and24% anticipate growth rates between10% and 15%. Only 6% assume agrowth rate of less than 5%.
The Russian car market, in general,was expected to surpass the Germanmarket in 2008. Within the first sixmonths of that year, about 1.64
million new cars were registered inRussia, resulting in 100,000additional cars compared toGermany. However, the Russianautomotive market has been heavilyhit by the financial crisis, leading to adecline of more than 50% in the lastmonths of 2008.7 The total after salesmarket volume in 2008 wasestimated at about 8.2 billion euros.The expected growth rates are onaverage similar to Eastern Europe.
However, in our researchrespondents were split about equallyin expecting that the growth rateswould be up to 5%, 5% to 10%, andbetween 10% and 15%. This equalsplit indicates uncertainty about howmuch the Russian aftermarket willgrow.
The Chinese aftermarket has alreadyachieved relatively high volumes andthis success story is expected tocontinue. The vast majority of thecompanies surveyed expect growth
Exhibit 4: Current Competitive Intensity
Low Medium High Very High
Average
(1 = low; 4 = very high)
Level of current competitive intensity
10% 62% 23% 5%
WesternEurope
0% 100%
7%
0% 100%
45%
0% 100%
23% 25%
0% 100% 1 4
EasternEurope 0% 100%
6%
0% 100%
60%
0% 100%
26%
0% 100%
8%
1 4
Russia0% 100% 0% 100% 0% 100% 0% 100% 1 4
China0% 100%
0%
0% 100%
9%
0% 100%
65%
0% 100%
26%
1 4
India0% 100%
9%
0% 100%
47%
0% 100%
30%
0% 100%
17%
1 4
2.3
2.7
2.2
3.2
2.6
Capgemini Consulting
7 Ibid8 Datamonitor, 2008 – 2012 Global Aftermarket – Recession and Growth Beyond, 20099 Ibid
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very high level. The majority of theparticipants considered this marketto be even more competitive than
Western Europe. In the future,
competition in China, along withIndia, is expected to increase furtherbut with less momentum than inRussia, according to the respondents.The main rationale for thisdevelopment stems from two factors.First, there are an increasing numberof local Chinese car manufacturerscompeting successfully withinternational car manufacturers.Examples include Chery, Geely,SAIC10 and BYD11 for cars, and
Yutong, Dongfeng and Beiqi Fotonfor commercial vehicles. Second, alot of local suppliers still substituteoriginal with imitated parts meaningthat traditional OEMs will experiencefurther pressure in their aftermarketactivities.
Through the dominating role of thebig three market players in India –Maruti Suzuki, Tata Motors andHyundai – the current competitiveintensity is rather low. However,because other market players aremotivated to break through thedomination of the three mainplayers, the competitive intensity isexpected to increase in the future.The majority of the participants ratedIndia similar to China, meaning thatthe competitive increase through thenext years will be high, however stilla bit less than in Russia.
Exhibit 5 summarizes the
characteristics of the differentmarkets by combining the marketgrowth, market volume andcompetitive intensity.
Russia will make an important leapwith regard to competitive intensity.Today, the participants estimated thecompetitive intensity on average asbeing the most moderate of allmarkets. This is likely due to the
existing weakness of the domestic carmanufacturers. Russian carmanufacturers such as AvtoVAZ andGAZ still have strong disadvantagescompared to internationalmanufacturers due to theirorganizational infrastructure.
In the future, the competitiveintensity will increase dramatically,according to the participants. Theincrease in competitive intensity isexpected to come from the marketentry of nearly all international carmanufacturers. This includes theexpected strong presence of Chinese,South Korean and Japanesemanufacturers in Eastern Russia,with the Western Europeanmanufacturers concentrating not onlyon major cities such as St. Petersburgand Moscow, but also on the morerural areas in Western Russia.
The competitive intensity in the
Chinese aftermarket is already at a
Expert’s Quote
Christian Hummel, Capgemini
Consulting China:“China’s
automotive market generally is
fairly young and mainly driven byfirst-time buyers. So the
aftermarket will see high growth
rates soon. And due to
customers’ high expectations,
the installation of a dense and
professional service chain
becomes a critical
differentiation factor
for market success.”
Exhibit 5: Market Growth and Competitive Intensity
(bln EUR)
M a r k e t G r o w t h
4.0
3.5
3.0
2.5
2.0
1.5
Future Competitive Intensity
Strongly IncreasingConstant
2.0India
5.1China
8.2
Russia8.6
Eastern Europe
165.4 Western Europe
Increasing
Capgemini Consulting
10 SAIC: Shanghai Automotive Industry Corporation11 BYD: Build Your Dreams, Chinese automotive manufacturer in Shenzen
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11The Aftermarket in the Automotive Industry
of customization, proximity tocustomers and offering services forattractive prices play an importantrole as well. This is even more
important during times in whichcustomers are increasingly buyingparts on the Internet or fromindependent repair centers.Outstanding service quality, quickresponse and reaction times, andbranding of service can no longer beconsidered as differentiating factors.Furthermore, companies unable tolive up to these commodityrequirements will fail.
Eastern Europe is similar to Indiawith regard to branding andinnovative services. These are notdifferentiating factors. The sameapplies for service quality and quickresponse and reaction times. As longas prices are attractive, customers aresatisfied with relatively low servicelevels and more or less standardservices, according to respondents.Customization of services is also of
Achieving CompetitiveAdvantage
When it comes to the parts business,the way to achieve competitive
advantage is very similar acrossmarkets, according to the findings.Regarding business opportunities forcar manufacturers, parts sales aretightly linked to their respective carsales. Moreover, price is thedominant factor especially in highlycompetitive markets. Both factors canbe seen as hygienic factors thoughthe main differentiating factors areparts availability and originality of spare parts. When respondents were
asked about the service business, itbecame clear that factors thatdifferentiate the service offering varysignificantly for each market.
In Western Europe, the main factorsfor differentiating the serviceofferings are innovative services, thehigh emphasis on specific customerrequirements and customization of services. In line with the importance
Exhibit 6: Importance of Factors Differentiating the Service Offering
Average All Markets
1 Emphasis on service requirements
2 Customization of services
3 Outstanding service quality
4 Quick response and reaction times
5 Branding of the services
6 Originality of spare parts
7 Price of services
8 Proximity to customers
9 Innovative services
10 Parts availability
11 Proximity to dealers
12 Proximity to workshops
Average per market
IndiaChinaRussiaEasternEurope
WesternEurope
1
1
1
1
1
1
1
1
1
1
1
1
1
4
4
4
4
4
4
4
4
4
4
4
4
4
1
1
1
1
1
1
1
1
1
1
1
1
1
4
4
4
4
4
4
4
4
4
4
4
4
4
1
1
1
1
1
1
1
1
1
1
1
1
1
4
4
4
4
4
4
4
4
4
4
4
4
4
1
1
1
1
1
1
1
1
1
1
1
1
1
4
4
4
4
4
4
4
4
4
4
4
4
4
1
1
1
1
1
1
1
1
1
1
1
1
1
4
4
4
4
4
4
4
4
4
4
4
4
4
1
1
1
1
1
1
1
1
1
1
1
1
1
4
4
4
4
4
4
4
4
4
4
4
4
4
Note: 1 = low; 4 = very high
2.4 1.8 2.1 2.2 1.9 2.1
Capgemini Consulting
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12
not provide sustainable competitiveadvantage. This means that theChinese market is challenging ashigh price sensitivity together with
high requirements for logistics,marketing and service quality doesnot provide an attractive margin. Inaddition, the effort to satisfycustomer requirements is higher thanin other markets. Maximizing marketpenetration therefore requiressignificant economies of scale.
As shown in Exhibit 6, India seemsto be the least ambitious market interms of differentiation. Neither
service innovation, service quality,branding nor service levels seem tooffer significant differentiationopportunities. The most importantways to achieve differentiation areservice price and availability of parts.Furthermore, there seem to bespecific service requirements that aremost relevant to Indian consumers.Emphasizing these specificrequirements is a potential way toachieve differentiation. In this marketcompanies can be profitable byutilizing a strong logistics networkthat helps them maintain a highservice level and by a focus on costcutting and basic service offerings,while keeping an eye on customers’specific service requirements.
little interest to most customers,resulting in few differentiationopportunities. For marketcompetitors this leads to a low
margin per unit sold, but profit canstill be made by either cutting coststhrough limiting the service offeringand quality of service or by achievingeconomies of scale.
Russia is particularly demandingwhen it comes to branding of services.12 Prices are not consideredto be a differentiator for serviceofferings as price sensitivity forservices seems to be relatively low.
More important is that reasonableprices are in line with sophisticatedservice quality and close proximity tocustomers. Russian customers do notfully value quick response andreaction times, as shown in Exhibit6, limiting this as a differentiatingfactor. The sheer size of Russiacombined with customers’ serviceprice sensibility is leadingaftermarket champions to changetheir network strategy to set up high-quality dealerships in close proximityto their target customer groups’accepted locations such as bigshopping centers. Thanks to lowerRussian price sensitivity, participantsexpect companies to be able toachieve a reasonable margin if theyprovide good marketing and logisticsservices. Achieving high volume doesnot seem to be as critical.
In China, the price of services is themost important factor to achieve
market differentiation. However,besides attractive prices customersrequest quick response and reactiontimes and sufficient service quality. Inaddition, the service level is relevantfor Chinese customers as well asbranding of service, although priceshave to be quite attractive. The maintarget groups are less demandingwhen it comes to innovation andcustomization of services. Comparedto Western Europe these factors do
12 In addition to the results described in this study please also refer to Capgemini Consulting, Cars Online 08/09:Besides a very high Internet affinity for online car and after sales research, both Russian and Indian consumersare rather ambitious in selecting their after sales services.
Key Finding
The large Russian territory drives
aftermarket champions to adopt
new distribution network
strategies. Russian customers
also look for high-quality brands
and are less price sensitivecompared to other markets.
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13The Aftermarket in the Automotive Industry
to evaluating future businesspotential and making strategicinvestment decisions. Thus,according to their own judgment,with the current budget spent, theparticipants are hardly prepared forfuture regional market developmentsand risk their future profitability inthe aftermarket.
Main Strategic Initiatives andDirection of InvestmentsThe participants were also asked toprioritize strategic initiatives thatshould help them compete in theaftermarket. Four initiatives wereidentified as most important:
I Improving and extending theservice offering
I Adapting service offerings to localrequirements
I Increasing the local market
penetrationI Optimizing the planning processes
To respond to the variouscharacteristics of the markets, thestudy participants developed keyinitiatives and implemented themdifferently according to theirindividual assessments. Thefollowing section outlines theinvestment behavior into theaftermarket, the different strategicinitiatives as well as companies’
readiness for the aftermarket.
Total Amount of Investments inthe Aftermarket
According to Exhibit 7, theinvestments in the aftermarket tendto be quite low. As a consequence,only a few participants consider theiractual investment level to besufficient, and no one stated that theinvestments are fully sufficient. Thefindings indicate that, at least untilnow, the aftermarket appears not to
have received appropriate topmanagement attention when it comes
4 Investments Into Key Initiatives in the Aftermarket
Exhibit 7: Investments in the Aftermarket and Evaluation of the Investments
Estimate of actual amount of investmentscompared to requiredInvestments in the aftermarket
Very LowLowMediumHigh Not SufficientSufficient
15%
82%
3%
100%
80%
60%
40%
20%
0%
11%
78%
8%
3%
100%
80%
60%
40%
20%
0%
Very Sufficient
% of companies % of companies
Capgemini Consulting
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14
centralized and decentralizedorganizations. Additionally, industrychallenges such as increasingcompetition, price erosion, highercustomer requirements and financial
uncertainty may have sensitizedmanagement to rethink thetraditional business. These factorsmay have caused managerialattention to switch from marketingand customer relationship topicstowards more seriously consideringthe exploitation of the aftermarketpotential. The major focus is onincreasing efficiency in global supplyprocesses.
Companies’ Readiness for theAftermarketThe lack of investment correspondsto companies’ insufficient preparationfor regional market developments.This is particularly true for EasternEurope, Russia and India. In all theseregions only 35% of the participantssaid that companies are prepared forregional market developments. Incontrast, more than 50% indicatedthat they are at least largely preparedfor regional market developments in
China. And more than 80% said theyare largely or fully prepared forregional market developments in
Western Europe.
In the next step, participants had todetail their investment budgets forthese initiatives. Interestingly, bothamount and order of investments donot correspond to the priority of
initiatives, as can be seen in Exhibit 8.
The direction of investments reflectsroughly the participants’ assessmentof the overall key initiatives toexploit the aftermarket potential.However, improving and extendingthe service offering, which wasevaluated as important by manyrespondents, receives significantlylower investments compared to othertop-ranked initiatives. Furthermore,
optimizing the planning processeswas among the most importantinitiatives but receives the lowestinvestments.
As a consequence, there is a large gapbetween required and actualinvestments. The reasons might bethat the current situation calls for achange of investment directiontowards new strategic initiatives orformer initiatives that need revision.For example, optimizing the
planning processes seems to havegained in importance because itrepresents an essential factor for aglobal aftermarket business with
Exhibit 8:Key Initiatives Assessed as Important
Amount of investments in aftermarket initiativesKey initiatives to exploit the potential of the aftermarket
Establishing cooperation to achieve
competitive advantage
Improving the relationship with
wholesalers
Improving the relationship with
dealers and workshops
Optimizing the planning processes
among central, regional and
decentralized organizations
Increasing the market penetration
by setting up local organizations
Adapting the service offerings
to local requirements
Improving and extending the serviceoffering
Optimizing the planning processes
among central, regional anddecentralized organizations
Establishing cooperation to
achieve competitive advantages
Improving the relationship
with wholesalers
Improving the relationship with
dealers and workshops
Improving and extending
the service offering
Increasing the market penetration
by setting up local organizations
Adapting the service offeringsto local requirements
Very Low
1.4
1 2 3 4
1.4
1.6
1.7
2.7
3.4
3.5
High
1
2
3
420%
3%
3%
0%
0% 20% 40%
20%
21%
33%
Capgemini Consulting
Key Finding
To really be successful in the
aftermarket, companies’
investments need to bedrastically increased.
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Key Finding
High and low performers need to
apply different market strategies
due to their specific learning
curves. Whereas high performers’
development is evolutionary,
low performers need to be
revolutionary in order to catch up.
The lack of preparation in most of the emerging markets is evident invarious statements. Because theinvestments are rather low,companies only act reactively in theemerging markets. They do notapproach the aftermarketsystematically and not in strategicresponse to changing customerneeds. As a consequence, new
competitors seem to increasingly winmarket share. This is in principleconfirmed by more than 60% of thestudy participants.
The next goal was to betterunderstand how this investmentbehavior leads to low marketpreparation and finally results inincreasing competition. Here, theindicated loss of market share anddecreasing revenues and margin are
accelerated by a poor fit betweenexisting service offerings and theactual
15
Exhibit 9: Companies’ Preparedness for Regional Market Developments
% of companies
“We are fully prepared for regional market developments”
IndiaChinaRussiaEastern EuropeWestern Europe
0%
62%
20%
8%
10%
15%
25%
51%
9%
8%
36%
30%
26%
18%
43%
19%
20%
11%
10%
63%
16%
20%
40%
60%
80%
100%
Does Not Apply
Rarely Applies
Largely Applies
Fully Applies
Capgemini Consulting
customer requests. This poor fit isdriven by the companies’performance in the main elements of a service offering. According to theanalysis of the study results, theseelements are basically the type of services offered on site – servicequality as well as service innovation.
For example, more than half of theparticipants indicated that existingservice offerings often do not fit tolocal requirements. The respondentsalso do not recognize the importanceof pushing new service innovationsto protect their existing market shareand/or to regain lost share. Finally, interms of service quality offered, againmore than half of the participantsindicated that the quality offered issubstandard to customerrequirements.
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16
companies show considerableimprovement potential for theaftermarket. Specifically, theperformance in Eastern Europe issurprising because companies shouldbe able to transfer their successful
Western European aftermarketpractices to Eastern Europe. Theresults indicate that this transfer is farfrom easy and not a straight road tosuccess.
High- and Low-PerformancePeer GroupsThe performance of the participants,based on their self-estimation, varieswidely across markets. Nevertheless,as pointed out earlier, the analysisuncovered a dichotomy betweenhigh- and low-performing groups.
Also, the results of the study show adirect relationship between theseperformance groups and their
activities in the markets.
The following section examines themarket behavior of high-performingcompanies and identifies what lowperformers must do to become highperformers. These results areexamined by market, as the group of high performers can vary per market,with a few exceptions.
in the aftermarket differently in Western Europe than in the emergingmarkets.
As can be seen in Exhibit 10, theparticipants stated that highperformance varies considerably:
Whereas in Western Europe 67% of respondents said they were highperforming, no one seems to be ahigh performer in Eastern Europe. Incontrast, 17% said they were a highperformer in Russia, 4% in Chinaand 7% in India. This reflects astrong focus on excellence inestablished markets while the newermarkets are currently left for thelocal or regional competition.Established Western OEMs and OESsneed to react soon if they areplanning to take a share of thisbusiness potential.
The right graphic of Exhibit 10shows that average performance isnot consistent. Companies achieve arelatively high performance in
Western Europe (3.7). Interestingly,even companies with highperformance in Western Europe donot achieve even mediumperformance in the aftermarket inemerging regions. Across all markets,
It is fundamental to understand acompany’s current marketperformance in relation to its peers.Interestingly, the performance differswidely across markets and across thecompanies represented by the studyparticipants. These points arediscussed in the following sectionand lead into clustering high and lowperformers to start examining lessons
learned.
Regional PerformanceConsistent with the different degreesof preparation for marketdevelopment, the performance in theaftermarket differs between WesternEurope and the emerging markets.Participants also rate the currentexploitation of the financial potential
5 Performance in the Aftermarket
Key Finding
Even companies that perform
relatively well in Western Europe
still do not achieve medium
performance in the emerging
markets, indicating strong
potential for improvement.
Exhibit 10: Detail and Average Performance in the Different Markets
Performance in Western Europe and in emerging markets Average performance in Western Europe and in emerging markets
100%
80%
60%
40%
20%
0%
Western
Europe
Western Europe
Eastern
Europe
Eastern Europe
Russia
Russia
China
China
India
India
Prone
to Issues
Medium Good High
Performance
67%
31%
2%
89%
11% 17%4%
17%
27%
52%
7%
18%
2.3
1.7
2.3
2.1
3.7
69%
6%
25%
28% Prone toIssues
30%
Medium
Good
HighPerformance
% of companies % of companies
Capgemini Consulting
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17The Aftermarket in the Automotive Industry
The following section presents amodel designed to help companiesmanage the challenges in theaftermarket and providesrecommendations on how to bestpursue these markets.
6.1 Capgemini’s Health
Check for Aftermarket
PerformanceDespite their high potential,aftermarket operations in theemerging markets are fairly young.There are examples of first moverssuch as Honda, Nissan and Toyotawith their initiatives in high-speedand off-road test track camps open tocar owners. Other examples includeDaimler’s telematics joint venturewith Deutsche Telekom, GeneralMotors’ former investments in U.S.
dealers, or Renault’s joint venturewith Autobacs Seven to establish anautomotive accessories retail chain inEurope. Examples in the emergingmarkets include Maruti Suzuki’sinvestments into Maruti DrivingSchools13 or Mahindra & Mahindra’sinvestments in early aftermarketcustomer loyalty programs.14
Clearly, approaching the emergingmarkets is not a short-term
management trend, but a keyelement in a manufacturer’s long-term strategy. Still, aftermarketoperations in emerging markets areimmature. Only 7% of theparticipants say they have a globalapproach that is already operational.
Approximately one-third have animplementation in progress, and56% indicate they are at best still inthe planning phase.
Given the link between aftermarketperformance, service managementactivities and benchmarks to thedevelopments in other industries, itis likely that most companies willdecide to professionalize their servicemanagement operations in theemerging markets and to developfrom a cost- to a profit-centeroriented organization. Together with
continual and incrementalimprovements in Western Europe,companies will be able to takeoptimal advantage of theopportunities in the globalaftermarket.
To help companies achieve thisobjective Capgemini’s Health Checkfor Aftermarket Performance(CHAMP) has been developed. Thismodel indicates the level thatcompanies have reached on their
individual path to aftermarketexcellence in the different marketsand serves as a vital guide to furthersharpen companies’ competitiveedge. This model helps companiesunderstand their current positionand plot the actions required toexploit the opportunities in theaftermarket. Because of the strongdifferences in the performancebetween mature and emergingmarkets, the model distinguishes
among the markets. For each distinctmarket, the data suggest three levels:explorer, exploiter and aftermarketchampions.
I Explorer level means thatcompanies have created their firstexperiences in the aftermarket andare mainly in the planning phasewith some early, but limited returnsfrom the aftermarket.
6 Management Approach for Winning the Aftermarket
13 Asian joint venture Maruti Suzuki is a main facility for obtaining driving licenses in India (e.g., 500,000 mostlycommercial driving licenses are sponsored by Maruti Suzuki).
14 Mahindra & Mahindra’s daughter company First Choice, India’s largest multi-brand used car provider,offers abroad choice of good quality used cars and services such as different warranty packages for engine andtransmission (e.g., silver service level: three months and 5,000 km warranty, or gold service level: 12 months –three months for free plus nine months – and 12,000 km warranty).
Key Finding
True global aftermarket
operations are still in their infant
state. But the aftermarket offers
significant potential and
promising opportunities.
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18
Western European AftermarketStage 1: Exploring the WesternEuropean Aftermarket
In stage 1, companies havediscovered the strategic opportunitiesin the aftermarket. Companies arestarting to set up an aftermarketinfrastructure and develop processes.
According to the aftermarketperformance, companies achievesmall returns on their activities. Theaftermarket approach is still in theplanning phase and few activitieshave been implemented.
Stage 2: Exploiting the WesternEuropean AftermarketIn stage 2, companies can beconsidered as exploiting the strategicopportunities in Western Europe.The aftermarket approach has movedfrom the planning phase and is nowunder implementation. Activitiesrelated to various issues such asorganizational and network design,IT support and operational functionsare not fully implemented. As aresult, performance is only at a
medium level. Of course, given thematurity of the Western Europeanaftermarket most companies havealready left the exploring andexploiting levels.
I Exploiter level involves leaving theplanning stage and trying toimplement a broad scope of
aftermarket activities. In this level,the aftermarket creates higherreturns than in the explorer level,but there is still strong potential toimprove the aftermarket activitiesand create additional benefits.
I At the level of the aftermarketchampion, companies havesuccessfully implemented efficiencyimprovements and are exploitingaftermarket opportunities.
Aftermarket champions are
conscious of continually improvingtheir aftermarket activities.
As illustrated on the vertical axis inExhibit 11, companies can be still inthe stages of exploring or exploitingthe aftermarket potential in anemerging market and already anaftermarket champion in WesternEurope. This model in principle isintended to be a guide to optimizethe performance in any of the focusmarkets regardless of the origin of the OEM/OES and does notrecommend a market sequence onwhich to follow up.
Exhibit 11: Model for Approaching the Aftermarket
Mature Markets Emerging Markets %% of participating companiesassigned to this stage
Stage 7: Global
Aftermarket ChampionStage 3
Stage 5
Stage 6
67%6%
17%
4%
Stage 1
Stage 2
Aftermarket
Champion
Exploiter
Explorer
7%
18%
17%
11% 25%
0%
11%
89% 75%79%58%
Stage 4
22%
Western
Europe
Eastern
EuropeRussia China India
CHAMP – Capgemini’s Health Check for Aftermarket Performance
Capgemini Consulting
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19The Aftermarket in the Automotive Industry
of preliminary defined services tomeet local requirements. Theoperations are kept under tightcontrol by the central aftermarket
unit.
Stage 6: Emerging MarketChampionBesides performing key functionssuch as those already listed, essentialaftermarket operations are alsoinstalled in emerging markets. Theseare relatively independent from theheadquarters to adapt aftermarketapproaches to specific localrequirements. Emerging market
champions complement centralwarehouses with decentralizedwarehouses (local parts distributioncenters) for optimizing partsavailability and delivery times. Inaddition, they strongly penetrate theemerging markets with dependentdealers and repair centers. They lookfor integration in planning andpurchasing processes betweendeveloped and emerging markets andadapt local service offerings to thespecific customer requirements.
As illustrated in Exhibit 11, stages 4to 6 are repeated for each emergingmarket.
The percentage of companiespositioned in each of the stagesindicates that achieving the“emerging market champion” level intheir aftermarket activities will be theprimary driver behind manycompanies’ “global champion”
initiatives in the next five years. Theresults indicate that failing to reachthe local champion position meansrisking global aftermarket successand losing traction in the race tobecome a true global aftermarketchampion. Of course, not everycompany can and will reach thatlevel and that is where the markets inEastern Europe, Russia, China andIndia will automatically make thedistinction between market share
losers and gainers.
Stage 3: Optimizing the WesternEuropean Aftermarket (MatureAftermarket Champion)Mature aftermarket champions have
increased their performance over thelast years and are now in the stage of optimizing aftermarket activities.These companies have stronglyintegrated with dependentdealers/repair centers. They keepconsumers loyal for most of theproduct lifecycle. If customerschange to independent repaircenters, the goal is to sell parts tothese repair centers. Matureaftermarket champions strive to
control the whole breadth of distribution channels.
Aftermarket in Emerging RegionsThe three levels of explorer, exploiterand aftermarket champion also occurin the emerging markets.
Stage 4: Exploring the Aftermarketin Emerging RegionsExplorers in the emerging marketsperform key functions such as R&D,sourcing, manufacturing and sales inemerging countries, but theaftermarket presence is still in theearly implementation stage. Thisincludes defining operationalactivities for marketing and sales,sourcing, planning, distribution andreverse logistics as well asconsiderations for the whole supplyand distribution chain.
Stage 5: Exploiting the Aftermarketin Emerging Regions
Exploiters in the emerging marketshave succeeded in their firstimplementation efforts, but theaftermarket presence still can beimproved and optimized.Nevertheless, the early implementationeffort has proved the aftermarketapproach to be successful and hasled to defined operational activities.Cost considerations limit exploitersto operate a central warehouse ineach emerging country and a small
number of dependent dealers/repaircenters. Compared to the maturemarkets, these dealers and repaircenters offer only a narrow selection
Stage 7: Global AftermarketChampion
As global aftermarket champions,companies maintain optimized
aftermarket activities in variousregions/countries and integratedifferent local approaches into agreater regional or one globalaftermarket approach. They operateoptimized multi-echelon networks of warehouses and use worldwidebenchmarks to transfer best practicesamong warehouses, dealers andrepair centers. The centralaftermarket unit employs majorintegration of central and
decentralized warehouses, andoptimizes planning and purchasingprocesses across the network of localwarehouses. At this final level, globalaftermarket champions concentrateon a control-tower type of aftermarket operation whereby thecompany takes over full end-to-endresponsibility for the supply chainfrom suppliers up to customers.
As stated before, the performance of participating companies helped toshape a profile of high and lowperformers. Low performers areassociated with the exploring level.In more detail, explorers are thoseparticipants rating their performanceas medium or prone to issues. Incontrast, exploiters are thoseconsidered to be strong performers.Finally, high performancecorresponds with the level of aftermarket champions in WesternEurope, various emerging markets or
even on a global scale. Note thatcompanies can be at different stagesof performance in different markets.
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increase transparency both inprocess execution as well as on themanagement level. Typicaldecisions include the usage of standard or individual software.
The four levers in the aftermarketmodel essentially enable performancemanagement in the aftermarket.
Aftermarket champions seem to havereached a distinctly different maturitylevel in the operational excellenceperformance lever, compared withcompanies performing at a relativelylow level. Similarly, organizationaldesign, network and IT also seem tobe potential differentiators forexplorers and aftermarketchampions. In the following sections,the main levers for both low andhigh performers are described. Thelevers are further detailed according
to the strategic initiatives with afocus on the most important ones.
characterizes the managementwithin the aftermarket units. Thisincludes decision-making authoritybetween central aftermarketfunctions and market units.
3.Network Excellence: The networklever represents the inter-firmcollaboration with suppliers,wholesalers, distributors and
dealers/repair shops, and thuscovers all partner relationshipsboth in the supply chain and indistribution chains.
4.Information Technology: Thislever is a key business enabler andis essential to run the aftermarketbusiness. The most common usageis automation and coordination of processes with high opportunitycost. That cost occurs in organizingthe process other than with the
support of ERP or planningsoftware. Also, it is used to
Performance Levers in theAftermarket Model
As a result of the analysis, this studylays out four levers that are essentialto all the participants in order tooperate successfully in theaftermarket (see Exhibit 12). Theyform the basis for CHAMP and serveas a guide to allow positioning of thecompanies in the model.
1.Operational Excellence: Thislever represents indicators forfunctional excellence in variousoperational activities. Theseinclude sourcing, planning,marketing and sales, distributionand reverse-logistics processes.
2.Organizational Design:Organizational design indicateshow the relationship betweenorganizational entities and
decision-making authority isstructured. Decentralization
Exhibit 12: Dimensions in the Aftermarket Model
Strategic and operational excellence in the management of the value chain
Structure of warehouse, wholesaler and service center locations
Network Lever
Control levels selected by the company
Organizational Design Lever
Information Technology Lever
Operational Excellence Lever
Supplier/Manufacturer
IT for coordinating and supporting
the processes in the aftermarket
Cooperation
Control Autonomy
upplier/Manufacturer Wholesaler Retailer Repair Shops/Customer
Marketing & SalesReverse Logistics
DistributionSourcingPlanning
Marketing & SalesReverse Logistics
DistributionSourcingPlanning
Capgemini Consulting
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21The Aftermarket in the Automotive Industry
6.2 Aftermarket Model for
Western Europe
Performance Levers
The profile of the operationalexcellence lever attributed to bothgroups suggests which processesshould be improved and what areascompanies should further develop.Both explorers and aftermarketchampions share similarities in thepotential and priority attributed tothe marketing and sales process.Improvements in sourcing,distribution, planning and reverse-logistics processes are of low priority,
and seem to have low potential foraftermarket champions.
In contrast, to change from low tohigh performance, explorers typicallyput a high priority on reverse-logistics processes, which only entailsmedium potential for their businesssuccess. In addition, changing fromlow to high performance requiresfurther reducing the emphasis onsourcing, distribution and planningprocesses and freeing up resources tofurther push marketing and salesactivities. For explorers, theseprocesses currently are givenmedium priority and offer mediumpotential for improvements.
Interestingly, aftermarket championsin the Western European markets donot run the densest networks. In fact,confronted with stagnant WesternEuropean markets, these companieshave already started to restructure
their network and distribution
Exhibit 13: Comparison of Operational Excellence Levers Between Explorers and
Aftermarket Champions
Potential High
High
Low
Low
Marketing
& Sales
Group of Explorers
(Low performers/33% of participants)Group of Aftermarket Champions
(High performers/67% of participants)
Sourcing Distribution Planning Reverse
Logistics
Priority
Capgemini Consulting
Expert’s Quote
Frank Tennstedt, Vice President,
Strategic Service Management,Capgemini Consulting:
“Decreasing product-oriented
profits, the tendency to bulk
commodity, and intense global
competition have compelled
executives to increasingly rely on
post-sales service to stimulate
corporate growth. It is no longer
regarded as an inevitable cost of
doing business, but as an activelever to drive revenue, profit and
customer retention. It represents
a fundamental shift in how
service operations are managed
– moving away from a tactical
cost-center approach to
managing it as a strategic profit
center.”
channels. This leads to more cost-effective warehouses, wholesalers andservice centers. The balance betweencosts and customer proximity leadsto improved performance. Accordingto the IT lever, aftermarketchampions concentrate on acombination of standard andindividual IT solutions. Explorershave invested in individual softwaresolutions, but the higher costsassociated with individual softwaredo not seem to create thecorresponding higher returns.
That means that changing from low
to high performance primarilyrequires a more cost-efficientnetwork, leading potentially to areduction in the density of warehouse locations, wholesalers andservice centers.
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decisions and to allow local groupsless flexibility in self-management.
The study shows that aftermarketchampions control fewer levels in theaftermarket. The local decision-making authority is stronger in high-performing companies. In contrast,explorers restrict local initiatives andagree to only limited local decision-making authority. From this it can beconcluded that controlling thedistribution chain up to the very end
22
To analyze the organizational set-upand control mechanisms of the wholedistribution chain, the studyparticipants were asked when to bestuse integrated organizational and ITsystems. These systems are defined asa main lever to increase transparencywithin the supply chain and to allowbetter control and realization of end-to-end decisions. The mainassumption here is that the moreelements of the chain are controlled,the higher the trend to centralize
Exhibit 14:Comparison of Network and IT Levers for Explorers and Aftermarket Champions
Which IT solution(s) do you use for coordinating processes
in the aftermarket? (multiple answers permitted)Comparison of network for explorers and aftermarket champions
Medium Dense Very Dense
Target Current Performance
Medium Dense Very Dense
Medium Dense Very Dense
Explorers
(Low performer)
Aftermarket Champions
(High performer)
Individual SoftwareBest of BreedStandard Combination
Aftermarket ChampionsExplorers
50%
26%25%
16% 16% 14%
44% 44%
15%
40%
30%
20%
10%
0%
Warehouse Locations
Service Centers
Wholesaler Locations
Capgemini Consulting
Key Finding
High performers reduce
distribution network density and
optimize cost. They also manage
their distribution based on fewer
organization levels adhering to
the subordination principle.
Exhibit 15:Comparison of Organizational Design Lever for Explorers and Aftermarket Champions
13%
32%
26%
30%
23%
35%
For which levels of the aftermarket do you use integrated systems?
30%
25%
20%
15%
10%
5%
0%
13%
16%
21%
14%
12%
Explorers
(Low performer)
Aftermarket Champions
(High performer)
Central, decentralized/
regional warehouse,wholesalers andworkshops
Central, decentralized/
regional warehouse,wholesalers anddealers
Central, decentralized/
regional warehouseand wholesalers
Central,
decentralizedwarehouse andwholesalers
Central and local
wholesalers
Capgemini Consulting
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23The Aftermarket in the Automotive Industry
is time consuming and difficult tomanage, whereas the potentialbenefits, which are increasedtransparency and commonly
implemented decisions, do not seemto outweigh the disadvantages.Therefore, through well-plannedchange-management activitiesfocused on the organizational design,explorers should take steps to reducetheir control and allow moreflexibility.15 This helps enable localadaptation of centrally madedecisions.
Strategic Initiatives
Besides the performance levers, thestrategic initiatives introduced inchapter 4 play an important role inmanaging the aftermarket business of the study participants. In most cases,the strategic initiatives arecontributing to multiple levers at thesame time – a straight one-to-onerelationship could not be identified.For example, “adapting the serviceoffering to local requirements” mainlyaffects the sales and marketingprocess, but it might also involve therepair center infrastructure necessaryto provide local services and the IT
integration to manage relevant data.Contrary to this, “increasing themarket penetration by setting up localorganizations” can be linked to the
lever of distribution and supply chainnetwork definition.
Aftermarket champions and explorersdiffer essentially in the strategicinitiatives. These are listed by theirdiscriminating power and withdecreasing priority:
1.Adapting the service offerings tolocal requirements
2.Improving the relationship withwholesalers
3.Improving the relationship withdealers and workshops
4.Improving and extending theservice offering
These strategic initiatives are drivenby nearly all aftermarket champions,whereas only a few explorers focuson them. Others – such as increasingthe market penetration by setting uplocal organizations; optimizing theplanning processes among central,regional and decentralizedorganizations; and establishing
Key Finding
High performers win by regularly
innovating new services that can
be customized to local
requirements and by running
intense loyalty programs for both
the wholesale and retail levels.
Exhibit 16: Strategic Initiatives Implemented by Aftermarket Champions and Explorers
Establishing cooperation to achieve competitive advantages
89%
31%
78%
23%
34%
29%
48%
39%
44%
0% 20% 40% 60% 80% 100%
81%
74%
75%
58%
53%
Optimizing the planning processes among central,
regional and decentralized organizations
Increasing the market penetration by setting up
local organizations
Improving and extending the service offering
Improving the relationship with dealers and workshops
Improving the relationship with wholesalers
Adapting the service offerings to local requirements
Explorers Aftermarket Champions
Capgemini Consulting
15 Change-management activities play an important role in transformation projects and should be thoroughlyplanned. Often those activities are given lower priority than functional-oriented work streams. For furtherinformation please also see:Martin Classen/Felicitas von Kyaw,“Warum der Wandel meist misslingt” (“Whychange mostly fails”), Harvard Business Manager,December 2009
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24
its lifetime and improving theadaptation of existing service offeringstowards local customer needs. Themain objective is to be able to further
differentiate from competition. Thiscannot be achieved by improvingservice quality only, since quality as acharacteristic of either services orphysical goods starts to become acommodity. Service innovations aredriven by offering customer-specificsolutions and professionalizingproduct-related services (forexample, inspection, maintenance,spare parts and insurance). In anycase, customers’ requirements have
to be known quite well.
The participants rated down- andupsizing service offerings to localrequirements as the second mostimportant item of this initiative.Quite often, OEMs centrally seem tobundle services into packages thatare not yet ready to be locallyimplemented. Therefore, the localorganization, as mentioned before,must have deep insights about theircustomers to optimize thelocalization of these offerings.
In summary, it can be said that thecompanies will achieve a competitiveadvantage if they regularly use theirservice marketing to gain insightsabout customers’ requirements andtheir perception about the currentlevel of services. Here, aftermarketchampions frequently integraterepresentatives of both the value
cooperation to achieve competitiveadvantages – have less discriminatingpower. The difference in thepercentage of companies
concentrating on these last threeactivities is relatively small comparedto the first four initiatives. To movefrom the levels of exploration andexploitation to local aftermarketchampions, companies need tobalance both prioritization as well asinvestments into key initiativesaccording to the level they areplanning to enter.
The prioritization was obtained
subjectively from the participantsand does not reflect the effectivenessof each strategic initiative. Whereas,for example, increasing the marketpenetration by setting up localorganizations and optimizing theplanning processes create mid-termcost reductions and revenue increase,improving the relationship withwholesalers, dealers and workshopsmost probably creates long-termbenefits.
The four main initiatives requirefurther analysis, starting with theadaptation of the service offeringsto local requirements.
As can be seen in exhibit 17, the mostimportant element of this initiative isto focus on innovating new services.Here, major changes can be seen indefining improved options to makeuse of the vehicle more enjoyable over
Expert’s Quote
Prof. Dr. Heiko Gebauer,
University of St. Gallen:“In theautomotive industry high
performers increasingly
concentrate on successful global
aftermarket operations. Winning
in these markets requires
managing both a creative and
efficient service innovation
process that is one core
component to satisfy the
growing customerrequirements.”
Exhibit 17: Required Changes for Adaptingthe Service Offerings to Local Needs
Adapting service quality
Adapting service levels
Upgrading the service offering to local requirements
78%
21%
67%
43%
61%
37%
71%
52%
71%
52%
0% 20% 40% 60% 80% 100%
Downsizing the service offering to local requirements
Innovating new services
Explorers Aftermarket Champions
Capgemini Consulting
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25The Aftermarket in the Automotive Industry
Concluding this line of reasoning,high performers seem to successfullyinvest in business concepts that helpto both improve wholesalers’ loyaltyas well as the service level to fulfilltheir needs better and faster. Bothelements have an immediate effect onthe OEM’s business, since on the oneside the wholesaler feels tied to theOEM and on the other side the OEMgives the wholesaler more freedom todo business, from which the OEMfinally participates as well. Explorersneed to improve in this area.
chain as well as of different phases of the customer lifecycle16 in the servicecreation process. Furthermore, thosecompanies will be favored that spend
effort on matching up theserequirements with centrally offered“prepackaged” service solutions.
Also, it is advisable to set up astandardized innovation process thatsystematically develops serviceinnovations in an effort to changemanagement’s mindset in favor of services. Finally, companies have tosearch for new service innovationsbased on technological developmentsand new IT opportunities.
The relationship with wholesalersstill offers improvement potential,since it is the second most importantinitiative. Recommended changesinclude setting up strategic programsto improve wholesalers’ loyalty andimproving the service level to bettersatisfy their needs. These changesseem to increasingly be important tosuccessfully market both services aswell as parts due to their relationshipto retail. Therefore, pushing thewholesalers’ business and increasingtheir loyalty towards the own brandseems to have an immediate positiveeffect on the OEM’s results.
It is also recommended thatcompanies improve the reaction timetowards wholesalers’ needs, whichmeans an immediate benefit sinceagain own business is positivelyinfluenced as well. Fewer changes arenecessary in setting up service
quality and service level programs tosupport wholesalers in business withretail and for improving theinformation exchange withwholesalers. Improving the usage andadaptation of integrated IT systemsfor wholesaler relations seems to beof low importance. Because ITintegration with a focus on thesupply and distribution chain hasbeen on companies’ agendas for quitea while, the level of perfection can be
considered relatively high.
Exhibit 18: Required Changes for Improving the Relationship with Wholesalers
Improving the usage and adaptation of integrated
IT systems for wholesaler relations
Improving the information exchange with wholesalers
Setting up programs to support wholesalers in improving
the service quality and service level
Improving service level to better satisfy wholesalers
Setting up programs to improve wholesaler loyalty56%
14%
68%
28%
56%
28%
78%
56%
57%
46%
0% 20% 40% 60% 80% 100%
Explorers Aftermarket Champions
Capgemini Consulting
16 The characteristics of representatives of different stages of the customer lifecycle have been laid out in Capgemini’s Cars Online study and can be used as valuable input forthe service innovation process.This should help to develop services suitable to both extend phases of the customer lifecycle as well as to move customers between particularstages of the lifecycle:Capgemini Consulting, Cars Online 08/09
Exhibit 19: Required Changes for Improving the Relationship with Dealers and
Workshops
Improving the usage and adaptation of integrated
IT systems for dealer and workshop relations
Setting up programs to support dealers and workshops
in improving the service quality and level
Improving the information exchange with
dealers and workshops
Improving service level to better satisfydealers and workshops
Setting up programs to improve dealer
and workshop loyalty
68%
18%
73%
27%
71%
38%
67%
46%
53%
48%
0% 20% 40% 60% 80% 100%
Explorers Aftermarket Champions
Capgemini Consulting
The relationship with dealers andworkshops seems to require evenmore improvement. Here, the trendto source at least parts from thirdparties has an immediate negativeeffect on the OEM’s business. To helpturn this trend around, loyalty andservice level improvement programs
are on the aftermarket champions’agenda already.
Information exchange programs alsosupport this aim. In contrast toprograms on the wholesale level,
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26
not a differentiating factor anylonger. Premium services tend toturn into commodity services amongproviders and do not guarantee
customer loyalty. Instead, premiumservices have reached a stage of maturity. Here, it is important tounderstand that explorers still put ahigher emphasis on providing theseservices compared to aftermarketchampions.
Summarizing the key implicationsfrom the management perspectiveleads to the following conclusions:
I Overall, improvements in the field
of service offerings are the mainbundle of strategic initiatives onwhich explorers shouldconcentrate. Within this bundle,managers have to emphasize theinnovation of new services, insteadof simply focusing on the servicesalready offered.
I For both wholesalers and dealers,IT integration creates relatively littlecorresponding return, leading to arelatively low importance of IT-
related initiatives. Loyalty programsand service levels are moreimportant and create quick wins.Their ratio between investmentsand return is much better than forIT-related initiatives.
Key Finding
Superior Western OEMs
continually push retail programsto drastically improve service
sales and delivery capabilities on
the retail level. This positively
benefits the OEM’s parts and
service business. Understanding
local requirements and
implementation time is key here.
Exhibit 20: Required Changes for Improving and Extending the Service Offering
Concentrating on premium services
Improving the service quality through better qualifyingown service personnel
Improving the service quality through professionalizing customersupport services (e.g., consulting, training, financial solutions)
Improving the service quality through offering different servicelevels (e.g., basic, extended, premium)
Improving the service quality through professionalizingproduct-related services (e.g., inspection, maintenance, spare parts)
Improving the service quality through offeringcustomer-specific solutions
Improving the adaptation of existing service offeringtowards local customer needs
Supporting wholesalers to improveservice quality and level
Innovating new services83%
82%
78%
75%
73%
66%
52%
29%23%
43%
38%
31%
24%
23%
24%
18%
43%56%
0% 20% 40% 60% 80% 100%
Explorers Aftermarket Champions
Capgemini Consulting
which are already mature, the retaillevel has been ignored so far, at leastby explorers. Similar to the currentdevelopment on the wholesale level,
changes in the service quality andservice programs for dealers andworkshops and the usage andadaptation of integrated IT systemsfor dealer and workshop relations areless relevant. Associated costs of improving the dealer integration intoIT systems do not seem to pay off completely. The expected returns aretoo low. Other changes offer a moreattractive cost/benefit ratio and createsignificant returns with relatively low
investments.
The last major strategic initiative,improving and extending theservice offering, is closely related tothe first initiative in terms of adapting the service offering to localrequirements. Similar to thatinitiative, focusing on serviceinnovation is the most critical topic.Furthermore, companies have tosupport their wholesalers inimproving service quality and level.Few changes are necessary to qualifytheir own service personnel andconcentrating on premium services.
The results of the study imply thatpremium services are basic and are
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27The Aftermarket in the Automotive Industry
shown in exhibit 21. Therefore, inthe following discussion explorerswill be compared to exploiters in thismarket. Still, exploiters, althoughbeing the best performers in thismarket, need to drastically improveto turn into high performers. Toachieve this, the results indicate theimportance of learning from WesternEuropean aftermarket champions asthis is the market with the closestgeographic reach and fewest cultural
differences. Also, in a direct peer-to-peer market comparison, the Westernand Eastern European markets showthe most similar requirements forcustomer service offerings. This canbe seen in Exhibit 6. This impliesthat the actions taken in WesternEurope require fine adaptation toEastern European marketrequirements.
Explorers are concentrating strongly
on improving the marketing andsales activities. Less improvement
6.3 Aftermarket Model for
theEmergingMarkets
The aftermarket model for theemerging markets is similar to
Western Europe. It also covers themain levers that were alreadydescribed. In addition, the mainstrategic initiatives play an importantrole, similar to Western Europe.17
Performance Levers
Operational Excellence LeverUsing a similar approach withaftermarket champions and explorersfor the emerging markets also leadsto specific profiles for each market.The characteristics of the profilescorrespond to the market featuresoutlined in the section onaftermarket characteristics.
In Eastern Europe, a strong majorityof companies are still in the
exploration phase and no companieshave achieved high performance, as
Exhibit 21: Profiles of Operational Excellence Levers for the Emerging Markets
Marketing & Sales
Group of Explorers
(Low performers)
Group of Exploiters
(Low performers)
Group of Aftermarket Champions
(High performers)
Sourcing
Distribution
Planning
Reverse Logistics
Potential
Eastern Europe
High
High
Low
Low
Priority
Potential
Russia
High
High
Low
Low
Priority
Potential
India
High
High
Low
Low
Priority
Potential
China
High
High
Low
Low
Priority
Capgemini Consulting
17 The following initiatives are relevant for Western Europe:Adapting the service offerings to local requirements,improving the relationship with wholesalers, improving the relationship with dealers and workshops, andimproving and extending the service offering.
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functional processes. Theimprovements are assigned highpriority and potential. Even currenthigh-performing companies have
improvements in marketing andsales, sourcing, distribution andfinally the planning process on theirmanagement agenda. However,aftermarket champions have alreadyimplemented elements of necessaryimprovement activities tosuccessfully exploit the aftermarket.The marginal rate of aftermarketexploitation is decreasing andadditional investments in processescreate only limited increases in the
exploitation of the aftermarket.
Nevertheless, aftermarket championsfocus the most on reverse-logisticsprocesses. This could link back todemanding customers who are usedto returning parts at the smallest signof malfunction. In general it alsocould be a clear symbol of qualityissues combined with low cost of repair as well as an effort to generallyimprove margin wherever possibledue to the tight market situation. Incontrast, explorers can still increasetheir aftermarket success by makingimprovements in any kind of processes that already show a highpriority.
Finally in India, there is a generalbalance between priority andpotential associated withimprovement activities. Explorers areconfronted with multiple challengesin the marketing and sales,
distribution, sourcing and planningareas. Aftermarket champions seemto have already positionedthemselves and to have overcomemost of the initial challenges such assetting up local warehouses anddealer networks as well as integratinglocal warehouses and dealernetworks into their planning,sourcing and reverse-logisticsprocesses. Additionally, the Indianmarket does not provide significant
volume nor very demandingcustomers. This indicates that effortsin the operational level can bemanaged with cost focus and thataftermarket champions prioritize
potential is associated withimproving sourcing and distributionprocesses, but the priority of theseimprovements is very high. That
means that explorers are still in thephase of setting up the basics forthese processes. Implementing thebasics will not directly lead toincreased market share, but ratherenable them to maintain theirexisting performance levels.
Even for exploiters in EasternEurope, improvements in marketingand sales hold high potential.Nevertheless, at the current state, the
priority assigned to suchimprovement activities is quite low.This indicates that changes inmarketing and sales are mostprobably long-term initiatives takinginto account potential synergies with
Western Europe. In addition to these,planning processes seem to be mostrelevant for exploiters, indicating thatthe efficient supply of the market is akey competitive component.Explorers should consider this aswell when budgeting initiatives thatare planned for implementation.
In Russia, explorers are on the edgeof losing the markets. The prioritiesof all improvement activities wererated very high. Without a broadscope of improvement activities,explorers seem to risk losing marketshare to competitors. Therefore, theexpansion and focus on thedistribution process is estimated ashaving the highest potential. This is
in line with the former reasoning thatdespite quite a few market entriesalready, the competitive intensity isexpected to increase dramatically inthe next few years. High performershave achieved considerable successesin terms of market penetration andshare. Improvement activities aremore long term and concentrate ondefending an existing competitiveposition. They also have the potentialto gain market share whenever
explorers are struggling or are toolate in their improvement efforts.
In China, low-performing companiesconcentrate on improving all
Expert’s Quote:
Nick Gill, Global Leader of
Automotive, CapgeminiConsulting: “Foreign high
performers have an ongoing
chance to further develop the
Russian automotive aftermarket
due to the weakness of the local
OEMs. One critical component
for these market share gainers is
to develop the retail service
capabilities to both service
technologically advanced foreignvehicles and simultaneously to
cover the existing local
standards throughout the whole
country while keeping an eye on
the Russian customer service
requirements.”
Key Finding
The challenge for explorers is to
understand their core
capabilities per market and to
focus on dedicated topics they
are good at. This requires a
strictly managed strategic
development process that
considers the market specifics.
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29The Aftermarket in the Automotive Industry
tier cities but also third- and fourth-
tier cities due to either regional scopeor very high customer requirements.
Further differences can be found inthe warehouse and wholesalerlocation structure. In addition to thefact that high performers run adenser warehouse, wholesaler andservice center structure, companiesapproach the aftermarket in differentways. Here, infrastructure as well asdistance from the central warehouseseem to play an important role.
Whereas Western, Eastern Europeand Russia are easier to reach, the
Asian markets are harder to supplyfrom Europe and suffer from a lower-quality infrastructure.
The described trend of density of warehouse and distribution networkis contradictory when it comes tosales and distribution networks.Companies can either use existingand proven sales channels and
distribution networks or create newchannels and networks, dependingon their current situation. Highperformers often start by setting up a
joint venture with a partner, who
their efforts in this market accordingto the current market maturity stage.They seem to hold back until this
market really becomes attractive.
Organizational Design LeverSimilar to Western Europe, eachemerging market requires a specificorganizational design. Theorganizational design starts withintegration and control of differentlevels. Whereas in Western Europethe existing industry structure makesit difficult to control all levels, thestructure in the emerging markets isnot fixed and companies can try to
control more levels efficiently. Thisstarts with setting up a centralwarehouse, participating in wholesalechannels and investing in own repairand service shops.
The difficulty comes from the cost-intensive set-up and control of thevarious levels. But as the comparisonof aftermarket champions andexplorers indicates, this createsessential competitive advantages.
Specifically in Russia, China andIndia the number of control levelsdifferentiates aftermarket championsand explorers. In these markets,aftermarket champions tend to favormore control levels than explorers.To a lesser extent, this also appliesfor Eastern Europe.
Supply Chain and DistributionNetwork LeverIn the emerging markets, setting up adense network seems to be adeterminant for success. Thisespecially applies for service centers.However, in Eastern Europe andChina, the difference in the densityof service centers betweenaftermarket champions and explorersis smaller than in India and Russia,as shown in exhibit 22. This meansthat in both India and Russia,aftermarket champions and explorersoften cluster their network aroundfirst- and second-tier cities and have
not strongly penetrated the morerural areas in both countries. Incontrast, Eastern Europe and Chinaare characterized by high performerscovering not only first- and second-
Exhibit 22: Network Structure in the Emerging Markets
China
DenseMediumLow
Eastern Europe
Russia
India
China
Eastern Europe
Russia
India
China
Eastern Europe
Russia
India
Density of the network structure
Explorers(Low performer)
Aftermarket Champions(High performer)
Exploiters(Medium performer)
What is the structure of
warehouse locations
in the aftermarket?
What is the structure ofservice centers in the
aftermarket?
What is the structure of
wholesaler locations in
the aftermarket?
Capgemini Consulting
Key Finding
The early market phases of the
emerging markets offer a unique
opportunity to control more
value levels and to collaborate
intensively with wholesalers.
This helps to build a customer-
centric organization to finally
turn into an aftermarketchampion.
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successful entry, companies shouldstart to adapt the existing network.
Information Technology LeverEven if the emerging markets showunique characteristics, companies donot necessarily have to invest inindividual IT solutions. Both
aftermarket champions and explorersrecognize that standard IT solutionsoffer well-accepted and beneficialfunctionality. Also, individual ITsolutions might create furtherbenefits, but those do not outweighthe higher costs for implementationand maintenance. Standard andindividual IT solutions do notdifferentiate aftermarket championsand explorers, but all participantsseem to agree that using standard ITsolutions is a road to success in thedeveloping regions.
runs those networks. In addition,they also invest in adapting thesenetworks to fit their own needs.
In contrast, explorers oftenunderestimate the investmentsneeded to create complete new saleschannels and distribution networks
or simply are forced to make theseinvestments because of difficulties in,for example, finding the right partnerto deal with, as illustrated in exhibit23. The high investments are notlikely to lead to corresponding higherreturns. Thus, the study recommendsusing existing sales channels and a
distribution network as a marketentry for the aftermarket in
emerging regions. After a
Key Finding
In early market entry phases,
companies should avoidinvestments in own sales
channels, but should rather rely
on joint ventures with access to
proven sales channels.
Exhibit 23: Design Networks in Emerging Markets
Use existing and proven
sales channels anddistribution network and
implement in the new
market
Create new sales channels
and distribution network
downsized to market needs
Use existing sales channels
and distribution network for
adapting and installing an
own network
0% 50% 100%
0% 50% 100%
0% 50% 100%
Percentage of companies concentrating on the outlined concepts
Aftermarket Champions
(High performer)
Explorers
(Low performer)
Capgemini Consulting
Key Finding
Standard IT solutions have a
superior cost-benefit ratio over
individual IT solutions and are
supportive in building up a
winning governance structure
that gives transparency and
simultaneously allows
flexibility on the
market
side.
30
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31The Aftermarket in the Automotive Industry
Participants also were asked toevaluate the ability to fullyparticipate in the market growth inthe various emerging regions. Here,
aftermarket champions and explorersresponded differently. Most explorersindicated they were not reallyprepared for exploiting the growth inthese markets whereas aftermarketchampions said they were fullyprepared. This explains why ingeneral the importance of theimplementation of the followingstrategic initiatives is relatively highacross all four emerging markets.
Strategic InitiativesCompanies often face limitedfinancial and personnel resources.Thus, it is important for them to
understand which strategic initiativesthey should invest in to best allocatepeople and budgets.
Exhibit 24 illustrates that each regionrequires a different set of strategicinitiatives. This map can serve as abasic investment guide since thepriorities of the various initiatives canbe identified.
Further evidence arises from the
preparation for exploiting the marketgrowth in various emerging regions.
Exhibit 24: Investments in Aftermarket Initiatives Across Different Emerging Markets
Eastern Europe Russia
IndiaChina
A
B
C
DE
F
G
A
B
C
DE
F
G
A
B
C
DE
F
G
A
B
C
DE
F
G
AM ChampionExplorer
AM Champion
Explorer
ExploiterExplorer
AM Champion
Explorer
Scale: 1 = very low to 4 = high
Legend
A Improving and extending the service offering
B Optimizing the planning processes among central,
regional and decentralized organizations
C Improving the relationship with wholesalers
D Improving the relationship with dealers and
workshops
E Increasing the market penetration by setting up
local organizations
F Establishing cooperation to achieve competitive
advantages
G Adapting the service offerings to local requirements
1
2
3
4
1
2
3
4
1
2
3
4
1
2
3
4
Capgemini Consulting
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32
It should be noted, however, that thestudy participants weighted items 2and 3 the same and the differencecompared to item 4 was only very
minor. This indicates that thestrategy for the Russian marketincludes a mixture of market shareincrease and stabilization with a cleartendency towards stabilization-oriented initiatives, as again the lastthree initiatives are more oriented tomarket share stabilization.
Russia is the only emerging market inwhich explorers already follow thestrategy of the high-performing
companies in terms of initiativeprioritization. They only need toincrease the effort to follow up. Here,they can make up for competitivedisadvantages if they increase theireffort in adapting the serviceofferings to local requirements byalmost 40%.
The Chinese market shows a slightlydifferent set-up when it comes to themain initiatives:
1.Improving the relationship withwholesalers
2.Adapting service offerings tolocal requirements
3.Increasing market penetrationthrough setting up localorganizations
4.Improving and extending theservice offering
The main difference is basically thesequence of selected initiatives and
the inclusion of building up an ownlocal organization to better penetratethe market. The strategy is a mixtureof securing increased market shareand winning new share through thethird initiative. As explorers arefocusing on adapting service offeringsto local requirements, which is also amarket share stabilization strategy,they are advised to change theirfocus to better improve therelationship with their wholesalers.
The results of the study make it clearthat each market profile of the mostimportant initiatives in which theaftermarket champions allocate their
budgets shows similarities, but eachstill can be considered a unique set-up. The exceptions are Russia andIndia where the set of the four mostrelevant strategic initiatives appear tobe the same regardless of the order of initiatives within the set. The majoroverall difference is the priority theseinvestments are given. Whereas therespondents’ investments in thestrategic initiatives were, on average,the highest in the Chinese market,
the average investments in the othermarkets were ranked somewhatlower, with a difference of 15% to35%. Again, Eastern Europe isdifferent in that no aftermarketchampions could be identified.
As indicated before, due to thespecific situation in the EasternEuropean market the studyconcludes that explorers shouldorient towards business practices of exploiters, which, in turn, shouldrefer to aftermarket champions in
Western Europe. If strong explorersfollow the practice of the exploiters,this could be a shortcut for explorersand provide them with a chance toform the future group of aftermarketchampions. This requires a strongfocus on marketing to be able toanalyze customer habits and totransfer these findings in theadaptation and creation of newservice offerings.
The participants weighted thepriorities for Russia somewhatdifferently, yet the same initiativesstill apply:
1.Adapting the service offerings tolocal requirements
2.Improving the relationship withdealers and workshops
3.Improving and extending theservice offering
4.Improving the relationship withwholesalers
Key Finding
High performers have already
transformed or at leastare transforming their after sales
business from a cost- to a
profit-and-loss-centered
organization. Explorers
need to evaluate whether
this organizational change is a
relevant option as well.
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dealers and workshops, which isvoted second by the aftermarketchampions. And of course their pushin these investments is very different
since they basically invest with anaverage prioritization factor of 2.6,compared with 3.2 for theaftermarket champions.
Summarizing, the study indicatesthat, on the one hand, explorers arewell advised to follow up oninitiatives that help stabilize theirmarket position, as aftermarketchampions on average paid the mostattention to balancing their effort to
both stabilize increased market shareas well as to expand their footprint.On the other hand, explorers alreadyset basically the right focus becausethe initiatives they paid the mostattention to regularly are chosen byaftermarket champions as well. Thebiggest difference in this case is theconsequent push that is required toimplement these initiatives. It’s clearthat explorers have to improve quitea bit in order to become aftermarketchampions and reach a higherposition in CHAMP.
Finally, in India the focus of theparticipants is to shape anestablished platform from which toconquer additional market share. The
first three initiatives again are typicalmarket share stabilization strategiesand only the fourth is somewhatmore expansion oriented:
1.Improving the relationship withwholesalers
2.Improving the relationship withdealers and workshops
3.Improving and extending theservice offering
4.Adapting the service offerings to
local requirements
As can be seen, a similar situationapplies for India as for Russia. Thepicture is again a mixture of stabilization as well as expansion,although the focus shifts to morestabilization-related topics whenconsidering the first three initiatives.Only the last one focuses on marketacquisition. Furthermore, theintensity to follow up the initiativesis almost 10% lower in India,compared with Russia. Explorersmight need to rethink theirinvestment behavior since theirhighest priority is on improving therelationship with
Key Finding
In the beginning, explorers
should consider a tightpartnership model to leverage
economies of scale and build a
strong execution model.
33
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34
for repair, maintenance and partsservices will most probably require aconsolidation of the sales anddistribution channels and networks.In addition, keeping existingwholesalers and dealers loyal can beaccomplished through fundamentalloyalty programs based on improvedservice quality, customization of services and service branding.
Explorers should focus on their keystrengths, know their customers’requirements in order to catch upwith champions and try to build upgovernance structures to bettermanage the organization. This courseof action can also be applied to theemerging markets. Whereverpossible, partnering models shouldbe applied to profit from economiesof scale.
Bringing together the findings onhow companies can strengthen theirposition in the mature WesternEuropean aftermarket and also canchallenge in the emerging regionsleads to the following keyimplications:
In Western Europe, markets aremature and most respondents’
companies have already reached theexploiter or aftermarket championlevel. Nevertheless, the position of anaftermarket champion has to bedefended daily and requires strongefforts in innovating new services.New service innovations should gobeyond traditional offerings andconcentrate on the emergingtechnologies in the field of telematics, navigation andentertainment. The expectedstagnation in the traditional demand
7 Conclusions
Exhibit 25: Summary of the Aftermarket Approach in Western Europe
Strategic Initiatives in Western Europe
Aftermarket
Champion
Exploiter
Explorer
• Set up basic infrastructure at a central organizational level
• Define marketing and sales processes for services
• Establish cooperation with wholesalers
• Create a network of dependent repair shops
• Define basic logistics functionality for planning, distribution and reverse logistics
• Improve service quality of repair shops and parts logistics performance
• Increase the density of dealer and repair shop network
• Extend the breadth of wholesaler activities with independent dealers and repair shops
• Increase the usage of standard IT solutions
• Innovate new services
• Restructure sales and distribution channels
• Implement loyalty programs for wholesalers and dealers
• Improve service quality and service customization at dealer and repair shop levels
• Create brand awareness for services
• Reduce the network density
Operational
Excellence
Organizational
DesignNetwork
Information
Technology
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35The Aftermarket in the Automotive Industry
not entail specific solutions for eachregion. Across all emerging markets,it is sufficient to set up standard ITsolutions in the early stages of exploring and exploiting theaftermarket. In addition, aftermarketchampions across all emergingregions have strongly penetrated themarket and try to control the variousvalue levels starting with central toregional and ending up at adecentralized level. For explorers and
exploiters to catch up they have tocarefully plan their investments dueto limited resources and shouldadapt the aftermarket champion’sstrategies wherever meaningful.
In any case, these companies shouldtry to avoid taking the same learningcurve as aftermarket champions andrather try to identify shortcuts ordevelopment leaps. This is a complextask.
Differences across the emergingmarkets can be found in theoperational layers. Aftermarket
Typical pitfalls on the way fromexploiting the aftermarket toaftermarket champion come fromemphasizing individual IT solutionsand trying to control too many levelsof the value chain. The additionalbenefits offered by individual ITsolutions do not seem to cover thecorresponding higher costs. Thehistorical development of the
Western European aftermarketindustry with strong players and
fragmentation limits companies tocontrol every level of their valuechain. Instead of trying to penetratethe aftermarket with an ownorganization it seems to be moreimportant to cooperate withwholesalers and dealers. Thecooperation should be focused onimproving their loyalty by stronglyemphasizing a loyalty program.
A similar summary can beformulated for the emerging markets.The main dimensions such as IT,network or organizational designhave strong global attention and do
Exhibit 26: Summary of the Aftermarket Approach in Emerging Markets
Strategic Initiatives for the Emerging Markets of Eastern Europe, Russia, China and India
AftermarketChampion
Exploiter
Explorer
• Set up central warehouses to guarantee basic parts availability
• Establish joint ventures to penetrate the geographically disperse emerging markets
• Define basic services offered in each emerging aftermarket
• Define planning, sourcing, distribution and reverse-logistics processes
• Define preliminary sales and marketing processes
• Introduce standard IT solutions
• Try to break free from former joint venture partner and invest in own networks of dealers
and wholesalers
• Adapt service offerings to specific requirements of each market
• Redesign the marketing and sales processes and consider advanced and adapted
services offerings
• Optimize the warehouse network, parts availability and service level
• Run and control dense networks of dealers and wholesalers beyond first- and second-tier cities
• Adapt standard IT solutions to more dense networks and extended service offerings
• Continually improve the planning, sourcing, distribution and reverse-logistics processes
• Let the local aftermarket management break free from headquarter formalities
Operational
Excellence
Organizational
DesignNetwork
Information
Technology
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36
champions in Russia have to respondto customers’ strong brandawareness, whereas Eastern Europeshould be approached with an
aftermarket model focusing on costs.China seems to be the mostdemanding market where allprocesses including marketing andsales, sourcing, planning, distributionand reverse logistics are designed toachieve low costs and high servicelevels. Finally, all respondents arewaiting for India to show significantgrowth rates. Customers there seemto honor a strong focus onstandardization through their
prioritization of service requirementsand an attractive price/benefit ratio.
These various activities lay thefoundation for achieving globalaftermarket excellence. As globalaftermarket champions, companiestransform into a profit-centerstructure and maintain optimizedaftermarket activities across variousregions/countries fitting theirindividual set-up. They also integratedifferent local approaches into agreater regional or one globalaftermarket approach. They operate,for example, optimized multi-echelon networks of warehouses anduse worldwide benchmarks totransfer best practices amongwarehouses, dealers and repaircenters. The central aftermarket unitincorporates a major integration of central and decentralized
warehouses, optimizes planning andpurchasing processes across thenetwork of local warehouses, anduses worldwide quality standards
across local dealers/repair centers.
With regard to future marketdevelopments, both the results of thisstudy and the current economicsituation highlight that there is notraditional path for achieving success.Market players have to break throughtheir traditional course of action andfocus more on developing trueunique selling propositions –simultaneously making sure they
don’t lose focus on the consumer’srequirements. One key element inthis can be looking for newcollaboration that opens up the valuechain either horizontally or verticallyand especially focusing oncontinually developing serviceinnovations – for example, throughcollaboration with insuranceproviders.
Whatever the future scenario of theautomotive industry will be, astronger investment in theaftermarket is imperative. OEMs andOESs will be continually challengedto defend and even more to furtherdevelop their business models. Beinga global aftermarket championbecomes a vital success factor fordelivering outstanding businessresults.
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About Capgemini’s GlobalAutomotive Practice
Capgemini’s Automotive practice serves 14 of the world’s15 largest vehicle manufacturers and 12 of the 15 largestautomotive suppliers. The sector generates value forclients through global delivery capabilities andautomotive-specific service offerings such as Marketing& Sales Optimization, Strategic Service Management,Supplier Transformation, Optimization of Dealer-Focused
Operations, Global Emerging-Market Sourcing,Organizational Development as well as Operating Cost-Cutting Strategies.
For more information: www.capgemini.com/automotive
About ITEM-HSG
Founded in 1989, the ITEM-HSG operates a programfocusing on the development of problem and applicationorientated research concepts and using the “St. Gallen
Management Concept” as a holistic reference framework.The ITEM-HSG maintains close links to the industrythrough intense collaboration with Swiss and Europeanorganizations by means of major research and consultingprojects. Results from publications and theses flowdirectly into courses while students can develop realworld research through collaboration in the institute’sindustry projects.
For more information please visit www.item.unisg.ch
Capgemini
Frank Tennstedt
+49 162 - 2344589
Steffen Elsässer
+49 162 - 2343646
Ralf Betke
+49 162 - 2343168
Capgemini, one of the world’s foremost providers ofconsulting, technology and outsourcing services,enables its clients to transform and perform through
technologies. Capgemini provides its clients withinsights and capabilities that boost their freedom toachieve superior results through a unique way ofworking, the Collaborative Business Experience™.The Group relies on its global delivery model calledRightshore®, which aims to get the right balance ofthe best talent from multiple locations, working asone team to create and deliver the optimum solutionfor clients. Present in more than 30 countries,Capgemini reported 2008 global revenues of EUR 8.7billion and employs over 90,000 people worldwide.
Capgemini Consulting is the strategy and
transformation consulting division of the CapgeminiGroup, with a team of over 4,000 consultantsworldwide. Leveraging its deep sector and businessexpertise, Capgemini Consulting advises andsupports organizations in transforming theirbusiness, from strategy through to execution.Working side by side with its clients, CapgeminiConsulting crafts innovative strategies andtransformation roadmaps to deliver sustainableperformance improvement.
More information is available atwww.capgemini.com/consulting
About Capgemini
Contacts
For more information please contact:
University of St. Gallen
Prof. Dr. Heiko Gebauer
+41 (71) 224 72 42
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