Maximizing Return on Investment: The Power of Automotive Platforms

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Hatched by Glasp

Jul 22, 2023

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Maximizing Return on Investment: The Power of Automotive Platforms

In the world of automobile manufacturing, the concept of platform sharing has become a crucial strategy for maximizing return on engineering investment. By sharing an automotive platform or architecture, manufacturers can leverage the expense of developing unseen structural elements across multiple vehicles, thus achieving economies of scale. This not only simplifies workforce training but also improves product quality. But what exactly is an automotive platform?

Traditionally, American automakers defined a platform as a set of shared dimensions between the front axle centerline, the cowl, and the driver's hip-point. It encompassed the hardware placed within those dimensions, such as the chassis, floor pan, powertrain, and more. The goal was to create a standardized foundation for various vehicle models.

Unibody platforms, which emerged in the middle of the last century, integrated the chassis structure with the body. This integration improved structural rigidity and reduced weight. Today, generalized hardpoints like the front-wheel centerline, cowl-point, and driver hip-point are commonly shared, along with the general powertrain location and drive wheels.

Modular platforms have also gained prominence in recent years. These platforms are designed to accept widely differing propulsion system modules, allowing for greater flexibility and adaptability. For example, the second-gen 2022 Subaru BRZ and Toyota 86 are identical cousins with minimal design differentiation. This shared platform enables cost-effective production despite low sales volumes for each model.

The Rise of DTC and the Challenges of Easy Access

In a different realm, the rise of Direct-to-Consumer (DTC) companies has been fueled by the ease of access provided by platforms like Shopify. These platforms have made it incredibly simple for anyone with an internet connection and a credit card to set up an online store and sell products to consumers. While this democratization of entrepreneurship is commendable, it also presents challenges for companies aiming to achieve scale and profitability.

The low barriers to entry in the DTC space have led to increased competition, resulting in chaos. With everyone armed with the same plug-and-play tools, the profit flows away from the rebels, and towards the arms dealers. Companies must now find new guerilla tactics to regain control of their profitability.

Shopify, along with numerous other ecommerce infrastructure companies, has armed everyone in the battle for DTC success. While this has empowered aspiring entrepreneurs, it has also intensified competition and weakened the ability of individual companies to become profitable, especially at meaningful scales and over extended periods.

The Concentration of Competition and the Battle for Acquisition

With the modularization of the value chain, the battle for success in the DTC space has concentrated around marketing, specifically paid acquisition and brand building. As every piece of the value chain becomes easily accessible and replicable, companies are forced to outspend each other to acquire customers. Therefore, platforms like Shopify, Google, and Facebook become the ultimate winners, benefiting from increased competition and the need for more powerful marketing tools.

The Challenges of Differentiation and Scale

The DTC space is characterized by intense competition and a lack of differentiation. Companies like Casper and Blue Apron have struggled to maintain their uniqueness and have resorted to paid spend and discounts to acquire customers. This approach has led to more expensive customer acquisition and limited profitability.

In contrast, the razor industry stands out as an exception. The limited number of factories capable of producing high-quality razor blades has allowed companies like Dollar Shave Club and Harry's to achieve meaningful exits. The scarcity of quality suppliers has created an opportunity for companies to differentiate themselves and build successful brands.

Strategies for Success in the DTC Space

To navigate the challenges of the DTC space, companies should consider the following strategies:

  • 1. Bootstrap and focus on profitability: Rather than relying on venture capital, companies can opt for a slower growth trajectory and prioritize profitability. By targeting small niches and developing a loyal customer base, businesses can build sustainable and profitable operations.
  • 2. Build an audience before launching a product: Instead of rushing to develop a product, companies can focus on building an audience. By cultivating a specific audience and capturing their attention, businesses can then develop products or sell their audience to incumbents seeking to reach that demographic.
  • 3. Develop unique technology or a captivating brand: To differentiate themselves in a crowded market, companies should invest in unique technology or build a captivating brand. This can help create a competitive advantage and attract customers who value innovation and authenticity.

Conclusion

Automotive platforms and DTC platforms like Shopify have revolutionized their respective industries. While platform sharing in the automotive sector has allowed manufacturers to maximize their investment and achieve economies of scale, the ease of access provided by DTC platforms has democratized entrepreneurship. However, it has also resulted in increased competition and challenges in achieving profitability and differentiation.

By recognizing the opportunities and challenges presented by these platforms, companies can devise strategies to succeed in their respective industries. Whether it's leveraging shared platforms for cost-effective production or adopting unique tactics to stand out in the DTC space, businesses must adapt and innovate to thrive in an increasingly competitive landscape.

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