After a year, is Toyota NZ happy with Drive Happy?

Wednesday, 10 April 2019

It's exactly one year since Toyota New Zealand (TNZ) launched its radical Drive Happy project - arguably the biggest change to automotive retailing in the history of the Kiwi motor industry.

Quick recap: TNZ identified six long-standing 'bothers' for customers and attempted to address them.

It made its dealerships agents (those dealerships are now called 'stores'), did away with recommended retail pricing and discounting in favour of no-haggle Toyota Driveaway Pricing (TDP), took stock away from its stores to central locations, expanded store demonstrator fleets and revamped its website to allow customers more freedom to research and configure vehicles online.

That's the short version. In reality, TNZ says it spent the best part of a decade preparing for this change. It was a momentous move for a company so well known for its rental/fleet business and a reputation for volume-chasing discounts.

Toyota NZ chief executive Alistair Davis: it's a long-term game.

* Driving Happy on the back of the Price Promise

* There's an all-new version of NZ's most popular SUV**

One year on, is TNZ happy with Drive Happy?

'The real test of whether this strategy is working is what the sales have been,' says TNZ chief executive and managing director Alistair Davis.

Drive Happy was launched at the same time as the new Camry. One of them is a revolution.

'We expected the results for 2018 [the Drive Happy project was launched in late-March] to be identical to 2017 and that's exactly how it turned out. Market share was identical. It's been business as usual.'

In 2017 TNZ sold 32,282 new vehicles for a 20 per cent market share (Ford 11 per cent, Holden eight percent).

Last year, with nine months of Drive Happy in the mix, it sold 32,260 for the same 20 per cent share (Ford 10 per cent, Holden eight per cent).

Toyota says Drive Happy will continue developing. Because it's a project rather than a one-time change.

Davis says that the proportion of retail sales (as opposed to rental/fleet) did slip in 2018 - but argues that was expected, with stock being shifted out of dealerships and a relatively weak April/May as the network adjusted to Drive Happy.

'But long term, the proportion of business will be more retail. Because if we're doing a good job with customer experience, more and more will come to us.

'That's a long-term game. You can easily get business in the short term - just discount your prices. We've certainly been guilty of that big-time.

'Walk-in' customer traffic now only comprises 10 per cent of Toyota customers. The rest do research online.

'But this is a long-term project.'

Davis says there are certainly car-shoppers that Toyota is no longer seeing because of Drive Happy: 'People who are avid dealer-hunters - we've lost them. But I think that's quite a small percentage. For the majority, they are enjoying the process and the fact that it's no longer a confrontational relationship.'

While bricks and mortar are still an important part of the business model, the upgraded website has been key to implementing Drive Happy, says Davis: 'The website is the key ingredient of future online commerce.

Toyota still looms large as market leader in passenger and light commercial in NZ.

'Already, the traditional phone-in or walk-in customer is down to 10 per cent. Ninety per cent of customers have researched everything online, they know what they want, they know the price range and they're often better prepared than the salesperson.'

The TNZ website gets about 140,000 unique visitors every month - a 50 per cent increase over pre-Drive Happy days. Many are just surfing, but 36,000 go into the new-car section and about 13,000 go to the trouble of configuring a car.

'That 13,000 number is good,' says Davis. 'The new car market is only 12,000 per month; some of those will be buying multiple cars, but typically there are 8000-10,000 new car buyers on there. We're happy with that.'

Lexus luxury brand isn't large enough to go the Drive Happy route.

Drive Happy moved all stores onto a common IT system, which means all of that website traffic data goes to a common source.

'We're now getting far richer data about what customers really want, what colours they like, what accessories appeal, and that helps us refine our planning for the future.

'I think we're further ahead than anybody else on this kind of thinking.'

The number of test drives under Drive Happy has increased 30 per cent. Stores now hold larger fleets and cars can be made available for more flexible times - anything from a few hours to overnight.

Moving stock away from stores makes it easier for customers to find the specific vehicle they want because there's a national pool. However, it also means they have to wait to get the vehicle they've selected.

'Conventional wisdom is that customers won't wait for a car to be delivered,' says Davis.

'Well, it turns out they will. We haven't had any significant complaints about slow deliveries… because the deliveries aren't that slow. Generally we're getting vehicles delivered within three to four days outside major centres. Inside cities it's often a one-day delivery.'

One of the more eyebrow-raising features of Drive Happy at launch was a seven-day money-back guarantee on new-car purchases, no questions asked.

So far, just 20 buyers have taken TNZ up on that offer. Fifteen swapped into another new Toyota, while another opted for a Signature Class used vehicle.

Overall, Davis says TNZ has been 'inundated' with interest from NZ and around the world about its new business model.

'I suspect a number will copy us.

'Some local competitors have tried different types of store, although none have been brave enough to tackle the fundamental customer 'bothers'.

'Just making a nice showroom and calling it an 'experience centre' is a bit like putting lipstick on a pig. The fundamental customer issues that come up time and time again in research are the hard sell and price negotiation.'

Drive Happy is currently just for Toyota; its Lexus luxury brand has stayed with the retail status quo. Why?

'It's easier to make a change like this when you're the market leader,'says Davis. 'For Lexus to do that - Audi, BMW and Mercedes-Benz are far bigger and it's a bit harder in terms of credibility. We're not rushing into it.'

But the Drive Happy model would still reap benefits for a luxury brand, says Davis: 'There are a lot of games played with trade-in values [for example, inflating them to bridge the gap to an expensive new vehicle] and customers buy into that.

'For the sophisticated buyer that's cool, but maybe others don't enjoy that.'