At Tesla, a Peek Into Retail On-Demand
Among the glut of challenges facing the electric car maker, the most acute impediment may be the expectations of a seasoned automotive customer. The experience of driving the electric car is so fundamentally different than a vehicle with a traditional internal combustion engine that the feature sets that customers typical compare — the design of the car, its interior, the handling — fail to scratch the surface.
That’s part of the reason why Tesla has departed from many of the norms which have defined the way automotive companies have brought their products to market over the past century. The company has developed a retail and marketing strategy aimed almost exclusively at getting people into one of the company’s three fully electric models regardless of whether they can afford, or even are interested in buying, a luxury car. The model draws on some of the work of the legendary retail executive Ron Johnson, who used Apple’s retail experience to introduce the iPod and iPhone, as well as the emerging phenomenon of on-demand technologies such as Uber.
“[Tesla’s] retail model is very much driven by direct communication and contact with the customers,” Simon Sproule, VP of marketing at the car maker, told me in an interview. “And then the marketing and communications strategy goes to support that — its designed to deliver and raise the awareness of the product by encouraging people to take a test drive.”
The electric car maker has opened a series of showrooms, equipped with a sample of each model and interactive screens through which customers can design and order a car which is delivered weeks or months later. The demand-driven approach not only allows customers to buy an entirely customized car, but also gives the company the flexibility to open locations outside of the traditional auto rows in high traffic areas like malls and main streets — allowing the brand to reach consumers who may not be directly in the market for car.
It’s a strategy that a number of other upstart brands have used to break through in mature markets. Bonobos, an upstart apparel brand which exploded in 2011 selling men’s pants online, has opened up a series of Guide shops across the country, which allow customers to try on clothes and then buy online later. The same goes for Warby Parker, which signed a ten-year lease for a prime retail location in Soho last year and has plans to expand showrooms in other locations. Neil Blumenthal, the eyewear maker’s founder, went so far as to tell a crow last year that “the future of retail is at the intersection of e-commerce and bricks-and-mortar.”
Underlying these businesses is a more fundamental shift toward a more responsive, or on-demand approach to selling. A traditional retail model assumes that the customer should respond to the inventory which the company produces. Inversely, an on-demand approach allows the company to respond to customer demand in a scalable manner, fulfilling orders directly rather than creating inventory to sell. That shift has deep implications for the supporting infrastructure of a number of industries, as business built on more traditional models — say, franchises or auto dealerships — become less important, and in some cases disintermediated altogether.
“In theory, any automotive company can offer an order-based retail model, but the auto industry says, ‘buy stock,’ which is typically a mass market phenomenon,” said Sproule. “If you buy from a [car] lot you never get exactly what you want. There’s generally a tradeoff. There’s always some compromise. But we believe that the type of product people want to buy is just the one they want.”
The question for Tesla is whether an on-demand model can adapt as it works to expand beyond a luxury business into a mass-market auto maker. The company says that it plans to unveil a more affordable car by 2015, which could sell in the $40,000 price range and compete with lower-end luxury brands like Audi and BMW. Sproule says the company may offer more traditional retail stores, which include servicing and maintenance as well, but does not plan to ditch its order-based approach as it scales up production.
That’s part of what makes the company’s recent partnership with Uber so interesting. Last week, Tesla announced a program in Shanghai in which users could order test drives through the transportation startup. It’s a sign of what’s to come from Uber, but it’s also an indicator of the flexibility that a hybrid model provides a company like Tesla. Without deep ties to inventory, Tesla can bring the retail experience outside of the walls of the showroom.
Steven Jacobs is Street Fight’s deputy editor.
Check out the Street Fight’s “Commerce Graph” to learn more about emerging retail models and the future of physical exchange