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12 SEPTEMBER 2017
AutoTrader: Disruptive innovation is more than shifting gear
by Nadine Todd

CEO of AutoTrader SA.
It was 2007. The recession had not yet hit and markets were booming. AutoTrader magazine sold 108 thousand copies each month, and it had so many pages that the company’s printers needed to import special equipment to bind it. Even then, the magazine was capped at approximately 1 000 pages. Business couldn’t have been better. And yet CEO George Mienie and his management team decided to completely pivot from a print publication to a digital and tech business — against the advice of highly paid consultants.

It was a huge risk, but George knew it would be even riskier to rest on their laurels and do nothing. Truly innovative and disruptive businesses know that to survive and thrive, business models need to be continuously adapted to current and potential future market conditions. More than that, they need to lead the innovation curve.

History is littered with companies, large and small that ignored this pivotal rule. AutoTrader South Africa wasn’t going to be one of them.

The road to Stasis

AutoTrader had been operational in South Africa since 1992, and George had joined the business in 2004. The UK holding company was completing its own transition into a digital business, but AutoTrader South Africa was still a print business. In fact, 2005 to 2008 was its boom period in print.

No one foresaw the recession, or the exponential change from print to digital. And yet, George and his team were looking to the future.

“We knew that at some point the market would shift, we just didn’t know when or how fast. We consulted our parent company at the time, who were invaluable in helping us with insights and resources from their more developed market. But the UK wasn’t the same and we knew the South African market would be different, and it was. We decided to contract a consulting firm to give us their insights into our market and where we should be focusing in the future,” says George.

“They told us that print wasn’t dead, and that South Africa wasn’t ready for the Internet yet. Their advice was not to focus on a digital platform, but to grow AutoFreeway. AutoTrader was a premium print product, with a cover price for consumers, and AutoFreeway was a free magazine distributed to consumers through retailers. The advice we received was that consumers wanted a free print model.”

It was expensive advice that George and his team luckily ignored. Why? Because even though South Africa wasn’t quite ready for the Internet in 2007, there would come a time when it would be, and AutoTrader could either have a market solution that was an industry leader, or be one more business behind the innovation curve and entering permanent stasis.

Changing the entire trajectory of a business and migrating its revenue model from one extremely successful product to an unknown entity is risky. But with high risks come high rewards, and for George and his team, doing nothing was by far the greater risk.

Market-leading mindsets

Today, AutoTrader.co.za’s online consumer base is exponentially greater than the size of its print readership at its height. The risk paid off. The business’s print revenue for the car marketplace has successfully transitioned to digital, and the company is now poised for growth in the digital market of buying and selling cars.

But even though George and his team knew the pivot was crucial, they couldn’t envision the scope that digital offered. “We couldn’t conceive of being 20 times bigger in magazine sales because we were already so big. We needed a different model to achieve it. But even as we recognised the need to shift, we couldn’t imagine the scope.”

And that’s the secret to being ahead of the innovation curve — understanding the need for change, critically analysing a market and implementing the right changes — without fully envisioning what the future market will look like.

Get it right, though, and you become the market leader; determining the shape of your industry and adjusting consumer and customer perceptions of what’s possible.

“There’s a cliché that change is like boiling a frog. The water warms up so slowly you don’t notice it’s happening until it’s too late,” says George. “The only way to avoid sure market death is to get out of the pot, without jumping into the fire. That’s what we did. It wasn’t easy, but today we’re an agile, disruptive tech business. We could have been an irrelevant print company that once used to be a household name. We got off the road that led to stasis, and got onto the road less travelled.” Here’s how they did it.

The art of the pivot

To pivot the business, two key areas had to be addressed. First, the team needed to determine how a digital business could potentially eradicate the limitations of print. Second, they needed to understand the customer and their needs, which would inform what AutoTrader’s new products should deliver.

“Print businesses offer limited strategic opportunity,” explains George. “A magazine is a one-dimensional brand. You can change its size, the paper stock, and the way it’s bound. You can determine where to sell it, and how much to charge to purchase it or advertise in it. But that’s it. There’s very little data you can extract from it.

“There are two ways of expanding with print: You can increase your readership in your existing geography, and you can expand your geographic footprint, which was what the UK business originally did when it began entering international markets.

“Our own magazine expansion had been capped at 1 000 pages and just over a hundred thousand copies sold each month. We were a successful print business, but there was no room for real, scalable growth.”

AutoTrader’s pivot was driven by dual motivations. George and his team recognised that the market would be shifting, but he also knew that in its current format the business model did not support scalable growth. The second challenge was that any change to a business model must take its customers into account. This means not only asking them what they want, but focusing on what they need. As in many cases, customers don’t know what they want until you give it to them. In the case of AutoTrader, the company has two distinct customer segments: Consumers (readers), and customers (car-sellers).

“Early on we defined ourselves as a two-sided marketplace; without our readers (now Internet users), we have nothing. Even though they don’t spend a cent with us, we have nothing to sell without them, and so we took most of our early lead from them. What did they need, and how could we ensure they found it? As South Africa shifted onto the Internet, we knew it would be simpler for consumers to find information online. We had to have a product ready for them.”

But what were car sellers looking for? “There’s only one thing that’s important to the car seller, and that’s selling cars. Whether this is achieved through magazine advertising or online listings is largely irrelevant to them. Once we had an online product that delivered value to car sellers, we could transition our customers onto the online platform.”

From theory to practice

Step one was being able to track how buyers engaged with sellers in the printed product, and this was a challenge for AutoTrader. The print publication had for more than a decade targeted serious buyers — consumers who had already moved down the sales funnel, and were ready to make a purchasing decision.

“The magazine had a cover price, and we believed that this ensured it was purchased by serious buyers. Magazine sales are easy to track, and based on how many magazine’s were sold each month and advert positioning within the magazine and paper stock, sellers were charged different prices.” But what’s the online equivalent of this model? There isn’t one. The metric is users, and comparing users to magazine readership is largely irrelevant.

A website can attract consumers anywhere in the car buying funnel: Browsers, people at the very beginning of the car buying process who are unqualified leads and in some respects still in the ‘tyre kicking’ stage, through to serious buyers doing final comparisons and actively looking for a vehicle. The problem was that there was no way of determining which users were serious buyers. “This had always been our selling point — we connected sellers with serious buyers. The digital platform was different, and it presented a challenge for us,” explains George.

The answer took a large upfront (and ongoing) investment to build a value proposition that sellers would buy. “This was a long-term growth strategy, so we believed the investment was worth it. We saw it as a calculated risk. Yes, there were costs involved, but without them we couldn’t develop a successful digital product, which would be the new foundation of the business.

“We designed a call tracking system that we gave to all our car sellers for free, with one telephone number and a line that we paid for. That number was printed on their magazine adverts, so we could track which in-bound telephone calls were a direct result of an AutoTrader magazine advert.”

While this sounds reasonably simple, AutoTrader is one of the few companies world-wide that has successfully transitioned all of its clients onto a call tracking system. “This is now a way of doing business with us and in the market,” says George.

“Car dealers love this call tracking system. Besides tracking calls from the buyer to the seller, the system includes a number of other benefits that add enormous value to dealers. And it’s all for free.”

This solution cost AutoTrader millions every year, but it was an essential cost for the successful transition to a digital business. “Even today it holds enormous empirical value for the dealerships,” he adds.

“In those early days, 90% of consumers called dealerships if they were interested in a vehicle. Today the ratios between calls, emails and dealership visits have shifted in favour of dealership visits without calling or emailing, but it served its purpose. Online and print ads ran different telephone numbers at times, and we were thereby able to track print versus digital telephone calls. By 2013 twice as many people as those buying the magazine were online, but the telephone calls between the two platforms were equal. Without this ratio, the transition between print and digital would have been damaged. We needed equitable measurements that made sense.”

The solution also served a dual role. As users grew on the digital platform, this ratio informed the business’s pricing model. This was the team’s introduction to clever leveraging of data.

Innovation and product development

The secret behind AutoTrader’s success is that it didn’t just place its magazine online. Specific products were developed for sellers (or customers) at different price points with different value propositions.

But that doesn’t happen overnight. George and his team needed a product that customers could use, and a plan to start migrating revenues from print to digital.

Bundling print and digital products would ultimately be the key to pivoting the business model.

This was achieved in two ways. First, all magazine advertisers were listed on the AutoTrader website for a minimal monthly subscription from 2007 to 2008, while the team developed its first iteration of online packages. Then, all advertising was converted to print and digital packages.

“We called this our multi-media product bundle. A print advertiser could choose print or a favourably priced multimedia option to encourage our advertisers to have an online presence.

“We maintained our print revenues while the transition was taking place and only unbundled the offerings in 2013 once the digital platform had reached a point where it could sustain the business.”

Second, to ensure that online advertisers on different packages received value, data was continuously collected and monitored and online packages adjusted to deliver the best results for buyers and sellers. It was a process, but the team accounted for it. “We couldn’t transition our buyers or sellers overnight. The online product offering needed to be tweaked continually. Doing this while we still had strong print revenue allowed us to build a robust digital offering with revenues that increased at the same rate that print revenues decreased. We were able to transition to a digital and tech business where revenue was now coming from the Internet, which is a massive achievement.”

Key to this was understanding what a digital product should look like. “We did a lot of ongoing research to fill data gaps. This started with our core — you need to understand and define who you are. For us, this was a two-sided marketplace for buying and selling cars. Everything else was secondary.

“We were clear about the magazine’s consumers and where they were in their buying journey. We needed to understand online consumers, the best way to reach them and move them through the car buying journey. For example, display advertising creates brand awareness and influences browsers at the top-of-the-funnel and this becomes important as a consumer becomes a more serious buyer. What have they been exposed to up until that point? What has influenced them.

“Over time, we have created our online offering to buyers (consumers) to tap into the different stages of the car buying journey. On the seller side, we created products to enable them to take advantage of the consumer offering by buying higher-end packages. The higher the package bought, the more attention they get from the consumers, the more chance they have to influence the consumer to choose them, which means more value, exposure and consumer touch-points sellers receive on the site — leading to better conversions if the seller uses the online levers/influencers in the right ways. While there’s a definite science to it, car sellers still have to influence car buyers to choose them no matter what package they’re on. This leaves a large part of the online selling up to the dealers in the way the vehicle is presented online, it’s pricing, descriptions, photographs and stocking the right cars for the dealers geographic and target markets. We constantly research how the packages are performing in aggregate, which means we can present listings and reviews to buyers in the best possible way, and we see better performance for dealers in our higher-end packages.”

The value of trust

An integral part of this journey has been creating trust between AutoTrader and its consumers.

“We’ve now become content creators as well — this was never our space before. The sellers understand that they have such incredible access to serious buyers because of us, and that’s because we offer a trusted motoring marketplace to the consumer. We have a huge, easy to navigate platform of listings and we do unbiased car reviews, keep the consumers informed with the latest news and more. Our users know that they’ve seen everything when they come to us — they don’t have to go anywhere else to do additional online research. The only way to achieve this is through honest reviews (that are also humorous and entertaining).

“Our job — and success — lies in our ability to create online offerings that grab consumer attention first. This is the crux of how we’ve managed to transition our revenue — we’ve given the consumer market something it wants, and our upper-end dealers are willing to pay premium prices for the additional value we have to offer.

“It’s taken a lot of planning, ideating and changing. As a team, we meet weekly, monthly, quarterly to avoid developing silos within the business. If the marketing director doesn’t know what the product director is doing, that’s a problem for me. We work best together — it’s the only way to create products that offer the highest value to everyone involved.

“For two weeks each year we get together, analyse all the data we’ve seen and argue about what to do next, what mistakes we have made and what to change — what is the data telling us about the online consumer and dealer offerings and the challenges that they face? The online offerings and changes are less drastic today than they were; we’re more established now, but you should never rest on your laurels. Always be tweaking, iterating and asking if you’re still relevant to the market.

“We define ourselves as an organisation that brings buyers and sellers together. How we do this will continue to change over time. Recognising this important fact keeps us relevant. For instance, Facebook is a potential future competitor — and we’re planning ahead.”

Disruptive innovation

“Successful disruption doesn’t lie in recognising you need to be disruptive, or even coming up with bold, innovative ideas — it’s all about execution,” insists George.

“I get bored in a room full of ‘ideas people.’ The world is full of great ideas and idea people. But successful execution is extremely rare — and it accounts for nine tenths of success. You can’t stay ahead of the curve without being an innovative organisation, and that all comes down to how well you execute your ideas.

“It’s an ongoing process. The moment you stand still, you become a template for others to follow. We are copied all the time, we change something and competitors follow suit. You grow, plateau, decline — that’s the innovation ‘S’ curve that business courses love to discuss. But innovators understand that when one ‘S’ is declining, another is conjoined and on the upward swing. The trick is to recognise when you’re going to plateau so that you’re already planning for your next business model shift. There’s a lull between the two. I call it the valley of tears. It’s painful. It requires serious change, and if you stay there your business is in trouble — but it also gives you the gift of time to re-engineer the business.”

Delivery is everything

Because execution is so important, the processes and team supporting innovation, and particularly business model adjustments, are crucial.

“Balanced scorecards play a big role for us,” says George. “When we began this process, top management had a vision that needed to be executed by the whole team.

“The balanced scorecard was our link, our sounding board for execution. It takes a lot of work. You have to break up what you want to do into little parts to ensure people and activities are all working together. It’s particularly challenging breaking old, established silos apart, but we managed to do it.”

Innovation is not a once-off activity. It’s a process that needs to become entrenched in the organisation. Integral to this is the constant re-evaluation of what the business has that adds value to its customers. “The business needs to view change as a constant, not just as a concept, but something deeply entrenched in our people’s DNA,” explains George.

KEY INSIGHTS

Prepare for future market conditions

It’s taken AutoTrader ten years to complete the transition from a print company to a disruptive tech and digital business. If the team hadn’t been prepared to disrupt itself then, it would be struggling with a radically new market, instead of being the company shaping what that new market looks like.

Understand the need you’re solving

AutoTrader’s product isn’t print or digital — it’s connecting buyers with sellers in such a way that leads are converted. It took thought and focus to develop and tweak digital products that deliver what the magazine had previously achieved. This allowed the correct pricing models to be developed as well.

Understand what you have — and how it can increase your offerings

Moving onto a digital platform has opened up a wealth of data for AutoTrader, from where vehicles are more popular, to price points that are below or over market expectations. This has allowed the business to continuously improve its offering to customers, as well as launch additional products of high value to the market.

THE NUTS AND BOLTS OF INNOVATION

The internal culture of AutoTrader has played a vital role in the company’s transition from a print classifieds company to an innovative tech business.

This has been possible due to a few key adjustments:

1. Balanced scorecards

Clear outputs allow teams to progress without being micro-managed. Implementing a balanced scorecard system takes time, and managing it takes effort, but the results outweigh the costs in time and effort.

Organisations that follow a balanced scorecard system first develop overall objectives for the business. Departmental scorecards are then developed that link directly to what each department needs to achieve to deliver those objectives. This is then broken down into what each team member needs to achieve. AutoTrader took two years to implement the system, but the benefits have been felt across the organisation.

The system gives employees accountability for their own time and workloads, which enables them to handle personal responsibilities during work hours and vice versa.

“Giving people personal and professional freedom encourages loyalty. Our employees and managers go to their sons’ rugby games for example, but voluntarily work nights and weekends to ensure projects are completed on time and to our standards. Acknowledging personal lives makes people more willing to give their all professionally.”

2. Open plan environments

The whole organisation is open plan. Different departments are encouraged to work and socialise together, ensuring no silos are created, and information and advice is shared freely. George and his PA sit at desks side-by-side in a communal area.

3. Tech innovation is embraced

Other than HR and finance, AutoTrader is a paperless office, embracing technology as a tech innovator should. Desks don’t even have drawers as each person is allocated a locker to store personal items. The company lives and breathes tech, ensuring tech solutions are at the forefront of everything it does.

4. Culture is more than just words

AutoTrader has five key pillars outlining the business’s ethos and culture. Each employee has to be able to demonstrate how those pillars impact and inform their work — with specific examples — in each of their balanced scorecard reviews. This keeps the cultural framework of the business a living, breathing thing, and managers quickly pick up if there’s discord between employees and the culture.
Useful resources:

Entrepreneur Magazine
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