Comments on McKinsey Quarterly Article

A virtuous cycle for top-line growth

New data and better coordination can create value in the sales channel.

February 2015 | byParmeet Grover and Roland John


The CEO of an auto manufacturer was puzzled that its market share had been slipping for three years. The quality of its products was high, and it had made big strides in operational efficiency. But as one director had chided at the previous board meeting, “the sides of our sandbox are starting to pinch.”

The CEO commissioned a report on one seemingly comparable competitor whose market share and margins had been steadily increasing. He discovered that it had unusually high loyalty rates and much lower marketing expenditures. A point of leverage seemed to be the way it was accessing revenues beyond the first sale. The vehicles its customers were turning in after their leases expired, for example, held their value better than his company’s did, and these higher residuals made customers more likely to sign up for new products. Service and parts revenues were higher, too.

The CEO immediately challenged his top team to look across the value chain and duplicate what he saw as the competitor’s virtuous asset cycle. The team responded by going deeper, identifying a surprising list of data sources, many unexploited by the company. One swath related to customers. These included the prices they had paid for their current and former vehicles, the incomes and personal assets of current and would-be customers, the leasing offers they had found attractive, their responses to promotions, their preferences about product features, how they became aware of an OEM’s brand as they navigated among competing product offers, and how service agreements tended to affect repeat business. Cars and related parts created a separate and equally rich data trail, including the value of a vehicle at resale, conditions of use, maintenance history (increasingly in real time), and disposal value.

Combining data on customers and products showed the OEM where and when it could improve coordination in the channel to create and distribute economic value to its customers and dealers. That would in turn significantly boost its own revenue growth and cut its expenses. Our research and work with OEMs in diverse industries show that by rethinking their sales-channel practices, nearly all of them can increase their operating margins by 15 to 25 percent.

At issue is a strategic challenge that has in various forms tested OEMs for years, not just in autos, but also in heavy construction, medical equipment, aircraft, farm machinery, IT, and other gear with a long asset life: how to increase returns on products requiring heavy up-front investments in product development, marketing, and distribution. Thanks to a new data-enabled transparency that helps OEMs see what happens to such assets over their full working lives, across a continuum of owners, these companies can now shed new light on the behavior and economics of customers and wholesalers throughout the sales channel. Many OEMs, of course, already generate additional revenues from parts sales and service contracts. But even such companies can benefit by becoming more disciplined in their use of new data sources and by addressing tricky coordination issues across financing units and dealership networks as products travel from initial sale to resale and, ultimately, to disposal.


 My own words: 

This Article didn’t give any pragmatic suggestions, it basically talk about a Auto brand is suffering a marketing share declining, and it is because they neglect the need of reselling.  When a consumer buy a car, they would also consider how much can they get when they decide to sell it. So after they employed data analytic method, they find this need and put their business back on track. The first lesson I learnt from this article is depreciation is one of the most important things to consider for some manufacture industry.

Another thing I learnt from this article is an best example of “People don’t want to buy a quarter-inch drill. They want to buy a quarter-inch hole!“.  The Automobile industry!  All though to many people, having a car is about fun of driving or a sense of ownership. However, for some people, the only reason is purely transportation.  Because of the existence of these people, Uber took over some market share of the auto industry! This is kind smart. Like a new thing overturns the states quo.  Just like one hundred years ago the emerging of car finished the career of coachman.



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