It’s now a certainty: the connected car will increasingly play a major role in the future (not just economic) of the automotive industry. If, on one hand, the technologies linked to the Internet of Things (IoT) are outlining the path that the industry will have to follow, on the other, this same technological evolution is taking place in an age of transition, marked by the transition between different value systems: from products to services and experiences, from hardware to software, from data as a mere result of processes to its redefinition as a creative resource, from the communication frictions of company silos to ecosystems that progress by putting information into circulation.
The Internet of Things has enabled transformative change in the automotive industry, probably more so than in other sectors, accelerating trends that are typical of the period we are living in, first of all personalization.
Faced with a fluid and constantly evolving reality, car manufacturers and software providers aim to gain value by controlling the aggregation and analysis of information. On the other hand, potential customers are developing buying and consumption habits where digital is becoming increasingly important.
As we will explain in this post, IoT in automotive has had (and is continuing to have) a significant impact because it plays a key part in rebuilding and enriching the relationship between the different players in the industry.
IoT in automotive: the answer to an urgent need for innovation
Global car sales, which have been declining for years, fell again in 2021, settling at just under 70 million units (there were 80 million in 2017).
In China’s auto market, a litmus test of the health of the entire industry, car sales fell for the first time in 2018, then plummeted in February 2020 and recovered shortly thereafter (source: statist).
The latest findings from the European Automobile Manufacturers Association (ACEA) highlighted how European car sales have also been declining more and more sharply, reaching an all-time low in 2020, coinciding with the first wave of COVID-19. According to ACEA’s forecasts, if it wants to remain competitive and relevant at a global level, the entire sector must get stronger.
In such a complex scenario, automotive sector players, from manufacturers to retailers, trade associations, and administrations, agree that, to boost the recovery, it’s necessary first and foremost, to invest in research, and to start by focusing on innovation.
Technology developments in the field of the Internet of Things (IoT) respond to this urgent need for change.
IoT in automotive: a growing market
The automotive IoT market has been expanding globally since the early days of the Internet. In 2020, it amounted to $31 billion, and in the past year it is estimated to have reached $38 billion, with 21.12% growth of nearly $100 billion expected by 2026 (source: researchandmarkets.com).
Even in the early days of digitization, automakers saw the business potential in connecting vehicles through diverse information streams. Thanks to IoT, today, cars are connected in real time to a real ecosystem that increases the possibilities of communication between customers, manufacturers, administrative bodies, and institutions exponentially. The growth of data emitted and received by vehicles and processed to improve the functionality of the vehicles themselves, in turn produces a direct positive impact on the purchase and use experience.
Thanks to IoT technology, it is now possible to connect vehicles and resources through powerful and flexible solutions and to exploit the information generated by different sources. Vehicle information systems can connect to our smartphones and mobile devices to perform a range of functions, with the aim of increasing the quality of the customer experience:
- record real-time traffic alerts,
- offer emergency roadside assistance,
- replace manual driving in certain situations,
- take advantage of personalized entertainment programmes.
The services offered are delivered in a radically simplified way, becoming easier, more convenient and, above all, personalized. This makes planning activities easier and speeds up all those activities that waste precious time, such as finding a parking space, scheduling maintenance, and getting useful information before making an upgrade or a purchase.
Digital technologies help complement the driving experience for users with a wide range of services: from performance analytics, to enhancements that increase the well-being of the in-car experience (hands-on driving support and cabin comfort), to multimedia offerings that include both entertainment and safety measures (e.g. systems that alert police and/or ambulances in case of accidents), to the development of new user-based insurance models (that use in-car sensor data to more accurately classify risk levels).
Trends to watch
Regardless of goals and aspirations, all companies operating in the automotive industry will need to consider a few trends that are currently taking place.
- New consumption patterns (from ownership to sharing): although car ownership will continue to be the dominant model, more and more people, especially those living in cities and younger generations, will decide not to buy a car, opting for alternatives such as renting, sharing, or using mobility services. It’s likely that many of those who continue to prefer to buy will turn to flexible, short-term subscriptions with additional premium services. This is the Mobility as a Service (MaaS) paradigm, which is redefining the idea of long-term ownership.
- A seamless digital ecosystem: customers expect a smooth, frictionless digital ecosystem where all services (connectivity, mobility, entertainment, social, hospitality) are seamlessly integrated.
- Personalized solutions that bring value to the knowledge made possible by data: data, from multiple points of origin, is mined, uploaded to platforms, interpreted, combined, and consolidated to generate relevant, real-time insights. IoT can contribute significantly to the personalization of the customer experience in automotive, powering solutions that are designed to meet consumer needs.
- Innovations integrated into the surrounding environment: in the long term, the development of data technologies – on which IoT relies – will also influence infrastructure design inside and outside the urban context. Automotive industry innovations, such as connected cars, will need to be able to be integrated within smart cities, where systems that manage traffic and oversee the emission of pollutant gases (to name just a few) are set to become increasingly “smart.” The use of 5G networks, the standard being implemented worldwide, to improve mobile data communication will impact the connection between cars and their surroundings.
The best approaches for gaining a competitive advantage
According to Deloitte, brands operating in the automotive industry can consider several approaches to strengthen their position:
- define the role they will have to play within the ecosystem, staying up to date in order to guide their transformations;
- map data, first identifying its points of origin to understand where to intervene to extract value;
- restructure so that the entire organization is more service-oriented (and not just the departments that are in closest contact with the consumer or those involved in managing connections with the vehicles);
- adopt new methodologies and tools, whether developed internally or acquired externally;
- work closely with technology vendors to consistently integrate software-driven feature development, deployment, and updates;
- identify and build strategic partnerships with key players in the ecosystem, including smart device manufacturers, and work across the value chain to build as broad and holistic a brand experience as possible.
The imperative, in any case, is to keep interaction with customers vital throughout the entire lifecycle. To achieve this, automotive industry companies can take advantage of the many opportunities that new technologies offer, especially that of IoT. Such technologies can give rise to innovative business models, scale rapidly, collect and process data on every single touch point, measure the quality of the customer experience, and intervene in a timely manner to solve critical issues as they arise.
IoT in the automotive sector: personalizing the customer experience
McKinsey’s trends and Deloitte’s suggested approaches highlight a further phenomenon: the creation, through IoT-enabled interactivity, of the conditions for a complete and personalized multimedia experience. As services are tailored to their actual preferences, habits, and requests, both drivers and passengers can enjoy better performance and increased safety.
Overall, we could conclude that IoT in automotive has the potential to push the boundaries of personalization and completely transform the consumer experience through connectivity.
IoT in the automotive from a consumer perspective
At the beginning of its recent article, The new key to automotive success: Put customer experience in the driver’s seat, McKinsey recalls how the success of an automaker once coincided with the superiority of its engineering capability, and that marketing was somewhat obligated to push the envelope on power and reliability performance. Although these aspects linked to technical performance are still important, today they are almost taken for granted. The customer experience is the true place of comparison, a battlefield where the consumer:
- expects products that incorporate high innovation content and are also focused on their specific needs;
- wants access to a variety of digital technologies, from tablet-based purchasing aids to apps and virtual reality-enabled devices.
Customer engagement is the result of a complex process that begins well before the purchase and continues long after the business transaction is complete. IoT in automotive is radically changing the very logic of this process.
At the top of manufacturers’ and dealerships’ priorities is the concern for delivering a better customer experience, which is more meaningful and memorable if it is personalized. Companies are redesigning the funnel by prioritizing the integration of advanced and digital technologies in order to facilitate the collection and communication of useful data for designing these same experiences.
Automotive brands can no longer hesitate to embrace an approach that is fully and completely customer-centric. They will need to discover, design, scale, and constantly refine solutions that excite customers, generate new sources of revenue and keep costs under control.
The convenience of digital interactions
In the 2021 edition of the Global Automotive Consumer Study, research that annually involves more than 24,000 consumers across 23 countries, Deloitte explores the new market scenarios that will emerge from the post-pandemic socio-economic environment. The study highlighted the changes in preferences, habits, and perceptions of consumers on some key themes
- the transition to increasingly electric and sustainable mobility;
- the adoption of new technologies and in-vehicle connectivity systems;
- the acceleration of digital and online channels in purchasing habits;
- the role of price as a driver of choice and consumers’ perspectives on their next vehicle purchase.
Although Deloitte’s study reveals that the role of dealerships and the traditional physical channels will continue to be central in the automotive industry, according to Giorgio Barbieri, Automotive Sector Leader at Deloitte Italy:
“The changes induced by the Covid-19 emergency, in addition to influencing purchase intentions and timing, have certainly favored and accelerated development of the online channel in most sectors.”
This means that, in the near future, customers, especially younger ones, will likely buy their cars online and be interested in contactless sales and services.
Most consumers in other industries expect fast, timely, and transparent online customer service. They don’t hesitate to switch brands if they don’t get a smooth, consistent omnichannel experience, and they will abandon the shopping cart if the checkout process proves too tiring. The same thing will likely happen in the case of car buyers, and so it will become increasingly essential for automotive companies to understand how to improve their brand experience.