In May, Tesla Motors announced it was opening two new stores at the upmarket East Coast resorts of the Hamptons and Cape Cod. A Tesla spokeswoman explained why. “People can stroll by when they’re out on the beach, and come in and learn about electric driving,” she said.
Her statement revealed how Tesla has transformed the traditional approach to selling cars. After all, people tend not to interrupt their beach stroll with a visit to traditional used car lots.
Tesla has spent the last 15 years challenging the incumbent motor industry. It confounded the received wisdom that you couldn’t make cars in America. When it IPO’d in 2010, it became the first American car manufacturer to go public in 54 years. It also defied the logic that said motorists don’t want electric vehicles.
If you have ever seen the 2006 film ‘Who Killed the Electric Car?’ it’s clear that Tesla was not the innovator in this space. Why then, is Musk on route to succeed, when so many before him tried unsuccessfully?
One rarely cited reason is the company’s remarkable sales strategy. The company has reinvented how an automaker should sell its vehicles, not just by changing the distribution model, but by revolutionizing the entire approach to selling in the first place. It started by acquiring data about customers to develop products and guide their sales team, who in turn, became a key part of developing the Tesla brand.
Using data rather than an aggressive and generic sales strategy was a radically different way to find and convert consumers into buyers and brand advocates. In effect, Tesla succeeded because they set up their sales teams to be partners with their buyers rather than adversaries.
It turns salespeople into brand ambassadors – or Tesla Product Specialists, as the firm calls them. One customer described the buying experience as follows: “They knew I had done research before walking in the door. I knew the price was fixed. My salesperson had a PhD in computer science from Stanford who could explain to me not only the features of the car but the vision of the company.”
George Blankenship, formerly Tesla’s VP of Worldwide Sales, said in 2011 that, “If everyone who comes into a Tesla store leaves with a smile, we’ve done our job. Don’t take it the wrong way, but I don’t care how many of those people actually buy a vehicle after that first experience. Eventually they will come back and buy a Tesla not because it was sold to them, but because they really want to become part of the Tesla community.”
A Tesla showroom is a place to experience the vehicles rather than to buy them. In fact, you couldn’t buy one there even if you wanted to; you need to do it online. If you’ve indicated in the store that you’re interested in purchasing a vehicle, you’ll receive details via email about how to order it online.
When you step inside a Tesla store, it’s incredibly reminiscent of another tech giant’s retail locations; Apple. And that’s no accident. In 2010, Tesla recruited George Blankenship from Apple to lead the company’s retail experience. He was the Vice President of Real Estate for Apple from 2000 to 2006. He explained that the purpose of a Tesla showroom isn’t to sell, but to educate consumers about why an electric vehicle is a better choice for them.
In keeping with its sales strategy, in any one of these Tesla retail locations, there are no typical salesmen. Instead, there are product specialists and brand ambassadors who don’t receive commission for each sale they generate. This frees them up to ensure that they can give consumers the very best experience possible. Also, as Tesla’s vehicles are made to order, there is no inventory that must be sold as fast as possible.
People are swooping in to buy when their minds are already made up. Dealerships can no longer rely on in-store visits. They need to work far harder to keep customers close throughout the ownership cycle.
Tesla’s approach is so counter to the norm that the firm came bottom of a mystery shopper study by Pied Piper in 2016. The study measures how well dealerships follow typical a sales strategy, for example by ‘asking for the sale’. Pied Piper found that most Tesla reps were more like knowledgeable ‘museum curators’ than sales people.
Tesla founder Elon Musk must have been delighted. After all, it’s hard to think of a sales sector that needs a reboot more urgently than automobiles. In the US, buying a new car has changed little since mass ownership began in the 1950s. Would-be owners wandered onto the lot to be met by pushy salespeople, whom they distrust, in order to haggle, which they hate.
Research reveals just how much they hate it. A study by carfinance.com found that just 8% of people like haggling over the vehicle’s price. Meanwhile a survey by DME Automotive revealed that just 21% of those surveyed perceive car sales people as trustworthy.
Even today, there is little shoppers can do to avoid the car lot. The arrival of e-commerce has largely failed to break the stranglehold of the dealers. Most people don’t buy on the web. But online information – blogs, YouTube, comparison sites – has changed the way people research their purchases.
According to DME Automotive, 4 out of 5 people now use the internet for car buying, visiting 10 auto websites in the process. Simply put, people make their purchase decisions before they arrive and this has major implications for dealerships.
Dr Mary Sheridan, Manager of Research and Analytics at DME Automotive, said: “People are swooping in to buy when their minds are already made up. Dealerships can no longer rely on in-store visits. They need to work far harder to keep customers close throughout the ownership cycle.”
It’s no surprise there’s been a drastic fall in dealership traffic. McKinsey & Company said in 2014 that the average car buyer visits 1.6 auto dealerships before making a purchase. It was 5 visits just 10 years previously.
“This is the most dramatic change we’ve seen in the auto industry and how people buy cars in the last 50 years,” said Hans-Werner Kaas, a Senior Partner at the firm.
The interesting angle that Tesla exploited was less about creating a new product and more on changing an experience usually dreaded by consumers. Needless to say, Tesla is meeting the customer desire for personalization. Prospective owners can configure their Tesla on the web, choose a delivery option and then click the order button.
And Tesla’s relationship with its customers does not end when the car is delivered. Its vehicles are permanently connected, enabling Tesla to gather data that can be used to understand how owners drive. The company’s Autopilot program, launched in 2014, uses sensors and cameras to provide assisted driving. But the data is also used to improve the ownership experience and drive future sales.
With 160,000 cars already on the road, the company is currently adding a million miles worth of data every 10 hours. Trip length, time between battery charges, and how many people ride in each car are just three examples of data sets that can be easily tracked.
After you’ve bought your new Tesla, you receive continuous support, joining a community of Tesla owners rather than being just another car owner among millions of others.
It is subsequently incredibly easy to upgrade your vehicle. That ease was highlighted by a tweet from Jeff Weiner, CEO of LinkedIn.
More evidence of how disruptive Tesla is: Just upgraded my car, via web site, by clicking a few buttons. Was easier than upgrading my phone.
— Jeff Weiner (@jeffweiner) July 26, 2015
As part of its ‘experiential’ approach to ownership, Tesla also set up an online forum to encourage customers to feedback on the cars. In effect, it’s like a real-time, always-on focus group.
Of course, there is no need for a crowded sales lot when all cars are personalized for customers. This is why Tesla has rejected a traditional sales strategy. Instead, it sells exclusively at showrooms in high footfall malls. It is planning to have 441 open by the end of next year.
But it won’t be straightforward. Across the US, state law prohibits car manufacturers from selling direct to drivers. The legislation is designed to protect dealerships that could otherwise be undercut by car makers. It has meant that, as of summer 2016, Tesla’s direct-to-consumer sales strategy is prohibited by law in six US states.
Tesla is fighting to change the law, and its rivals are watching closely. They know they cannot upset a network of dealers who have sold their cars for decades. On the other hand, they cannot afford to ignore new consumer purchasing behaviors. The statistics are compelling: reports say Tesla’s showroom in Seattle’s Bellevue Square mall produced sales of $5,500 per square foot last January. That’s more than five times the mall’s average.
Some are inching towards the Tesla sales strategy model. BMW of North America has opened pop-up boutiques and wants all US dealers to participate in its Future Retail program by 2019. Future Retail stores are bright, white and open plan and even host BMW Geniuses who can answer tech-related questions.
Peter Miles, Vice President of Sales Channel Development and Customer Relations for BMW, said Future Retail is a necessary response to new digital buying patterns. He says: “We are on a mission to earn back our customers from third parties that sell us leads because we lost the trust and the transparency of our customers – that is why the digital environment has been so successful over the last 20 years.”