Do You Accept the Premium for This Road Trip: Yes/No?
In a prior post, “Your Car Does Not Lie”, I talked about the financial reasons why automotive OEMs want to derisk their business model by moving to a more predictable demand and technology model offered by sectors like insurance, business services, entertainment and logistics. A recent article in EurActive stirred my interest as it looked at similar concepts from an insurer’s POV.
The writer stipulates a number of facts in this sector:
- It is and always has been awash in data to mitigate risk and price a correct premium based on total exposure
- Now carriers can leverage big data to further hone in on their insurable persons/assets with big data basically “selecting” the right clients
- This would price some customers out of the market
- Thus, customers may choose to protect/not share/overshare certain data elements about themselves more readily than others (case and point: Snapshot by Progressive)
- This will create a multi-speed customer base sharing data about different aspects of their life when they see a direct benefit
- Insurers will have to figure out how to get this data, possibly pay for it or entice customers (via regulation) to sell it to them. The new EU data privacy regulations address only some of this.
The article also explores how the sharing (PAYG) economy touches some of this “selective” data access allowing service providers (insurers, OEMs, etc.) to engage in micro-segment pricing by the hour for a specific user/driver.
The rewards and perils of knowing thy customer
So what does this all potentially mean for automotive manufacturers or what could the implications be around customer engagement?
Not trying to sound Orwellian but the same way ultra-luxury fashion retailers are or aim to be selective with who they sell to, I could see high-end vehicle manufacturers to be more selective in their customer base as well. It may likely start with the ultra-luxury and trickle down to the $100,000 MSRP vehicles but in theory nothing prohibits it coming down to the compact car class as well.
Segmentation could be based on advertising and marketing channels selected, geographic regions of delivery, just plain pricing or available insurance and financing options. This level of have versus have-nots segmentations may start to appear like economic segregation but we have some of this already if you look at the gated communities in suburban America.
Why may OEMs consider engaging in some of these practices? Because it is in the brand’s interest to have the most reliable, accident-free drivers who fit its ideal-customer segment. This in turn will bring additional buyers from this segment to their (virtual) store to protect margins. Other buying segments may require entry-level branding to ensure a distinct buying and usage experience.
So there may be a vehicle/insurance/purchase channel for young males with terrible driving habits (think weekly midnight illegal racing) in their souped-up, red Camaros (with flame decals of course) in the rundown manufacturing belt of a metropolitan area versus a forty-year old mother of four driving a brown minivan to the grocery store and soccer field three times per week. If you roll these into subscription based pricing models, you have micro-segment based pricing.
This trip will cost you $29.99 including gas, tolls and insurance. Like to downgrade or a payment plan?
But hold on, we could take this even further. How about trip-based pricing. Imagine hopping in the car for a routine trip (school drop off, grocery store, work) vs special long-distance (sales visit, vacation). Punch in your coordinates, select your likely route, integrate traffic information on top of the driver’s behavioral profile over the last x months and his/her demographics and voila: $4.99 for a 7 hr trip to NYC with full coverage. Accept: Yes/No? Look for other carrier prices: Yes/No?
This is what is already happening on a larger scale when cargo ships float on the oceans between major ports around the globe. With increasingly faster data speeds (see my 5G post), real-time processing and massive amounts of data about your vehicle, roads, weather, traffic and yourself, we could get to “voyage-based pricing” in a jiffy.
Now all this may disappear once autonomous cars take over as the biggest factor of performance uncertainty gets eliminated: the human factor.
It will be a marvelous and scary world, especially for us over 35. With legislative bodies always behind on regulating various industries’ level of development, the appearance of negative externalities (unwanted side effects) is certain. First movers will certainly reap the benefits but also get exposed to some negative press (see Uber, AirBnB). Weathering this storm requires finessing the science of the possible with the art of the sensible.
Until then, do you accept this premise: Yes/No?