Image credits: John Schnobrich

Case study: How to Succeed in the Digital Aftermarket?

By Alejandro Enríquez | Tue, 09/22/2020 - 06:00

Keep reading. This is the story of how a spare part seller discovered the advantages of online trading and managed to have 85 percent of its sales coming from digital channels even before the pandemic started. "Many of our customers had their first e-commerce experience with us," says Antonio López, Director General of MLD Online, the spare part wholesaler ranked No. 1 by GM México and sole operator of Bosch and ACDelco's official stores on Mercado Libre. 

E-Commerce in Mexico

In 2Q20, there were approximately 63.1 million e-commerce users in Mexico according to the Competitive Intelligence Unit, a think tank focused on telecommunications and digital trends. Meanwhile, the Mexican Association of Online Sales (AMVO) estimates that digital sales grew 82 percent during the 10-day Hot Sale in April compared to the MX$11.1 billion (US$489 million) spill in 2019. "Sales professionalization has been happening for many years now at different stages but the pandemic and resulting lockdowns have accelerated the implementation of these strategies by five years," says Ileana Vetrano, Head of the Automotive Division at Mercado Libre, the Argentinian unicorn and online sales leader in Latin America.

The aftermarket was no exception to accelerating digital sales strategies. It is true that companies that envisioned a digital future a few years ago were better prepared than others. "As a supplier of original equipment, our market niche are vehicles aged one to five years. The faster we innovate the better, because after that period, vehicles go further into the aftermarket," says López. It is not a coincidence that MLD has been in the market for more than 30 years. As of February 2020, the company handles an average of more than 11,000 SKUs and 25,000 on demand.   

The Challenge of Going Digital

"We are constantly integrating new SKUs to our catalog and one of our main strengths is having spare part availability even when the dealership does not," says López. As many companies across the supply chain are aware, efficiency is key to remain competitive. Thus, the only choice for MLD to grow was to adopt new schemes to maintain its quality and customer service intact.

Embracing online sales is easier said than done. For any company managing a large number of products and purchasing orders there needs to be validation processes first. MLD launched a beta version of its platform in late 2017 with 25 of its best customers. "Over the first month, 33 percent of our product orders were processed through the site," says López. Two years after the formal launch of the website in February 2018, the company reports that product orders have increased 85 percent as of February 2020.

"E-commerce is changing the way aftermarket works," says Óscar Balcázar, Director America Region of GiPA, an intelligence firm focused on the aftermarket. The challenge, however, remains in how to drive customers toward embracing a new digital solution they might be unfamiliar with. "Newer technologies are revolutionizing the industry but in Mexico, most aftersales services are done using traditional means. Indeed, it remains a challenge to advance aggressively," adds Balcázar. 

Raising Digital Awareness

According to López, many customers had their first e-commerce experience with MLD and acknowledges the reluctance of some of them toward using a digital platform. "While some were very excited about it, others were weary of the platform. However, when they realized what they were missing, they started to participate in the process," he says. MLD implemented different strategies that included online discounts, reward points and financing, among others to grow interest in the platform. "To offer financing or discounts, for example, we require that at least 75 percent of the client’s orders are online. Some of our customers already process all their orders online.”

An online platform designed exclusively for potential customers of spare parts can be slightly different from other platforms. That includes making all the catalogues digital while updating SKUs as they change for newer models. The amount of data MLD displayed to the public made it difficult to manage. "Our site drove so much traffic that it slowed down the service. Consequently, we created a user-only service to make it faster," says Antonio. 

Innovation Pays Off

MLD's expertise in original equipment allowed it to operate the official stores of ACDelco and Bosch on Mercado Libre., a platform with more than 1,000 official stores in Mexico. "The idea behind such agreements is to improve the companies’ offering and bring their brand closer to consumers. We only open official Mercado Libre stores when the identity of the person or the brand is confirmed, which ensures the existence of only one official store per brand or retailer," said David Geisen, Country Manager of Mercado Libre, to Mexico Business News. 

According to the company, Mercado Libre has the biggest online auto parts and general equipment catalogue for auto shops. In 2019, ACDelco's official store was ranked fourth in the auto parts sector and, along with Bosch’s store, it generated 30 percent of MLD’s income.

Then the pandemic arrived. 

Despite COVID-19 boosted digital sales, MLD experienced 40 percent negative growth during 2Q20 compared to 2Q19.  The performance was a direct result of the pandemic. In March and April year-on-year sales decreased by 50 percent, but May sales were almost at 2019 levels. As 3Q20 finishes, MLD expects sales to be above 95 percent of what they were in the previous year.

The company continues to rely on a digital environment that already masters to brave the worst of the crisis. In fact, MLD was among the few companies in Mexico that did not pause operations since vehicles always need maintenance. The used-vehicle segment is recovering faster than the new-vehicle segment and opportunities abound in the aftermarket. While some large players like NAPA Autopartes chose to leave the Mexican market, others like MLD will make the most of it. 

You can read the full interview with MLD's CEO, Antonio López, here.

Photo by:   John Schnobrich
Alejandro Enríquez Alejandro Enríquez Journalist and Industry Analyst