For decades, the auto sales sector, with its hidden fees, bait-and-switch financing, and pressured add-ons, has been stacked against buyers. The recent partnership of Amazon and Hyundai to sell cars online is about to change things.
With its patented one-click ordering, Amazon can now eliminate the need to endure marathon torture sessions at dealerships just to get a reasonable deal on a car.
While other tech giants like Google and Apple are actively flirting with autos, none have Amazon’s startup mindset. The company’s focus on innovation and leveraging user data is set to disrupt the traditional car sales model.
We can be sure Hyundai is just the start of Amazon’s strategy of extensions, leveraging the awareness of an existing brand to launch a new offering.
Trojan horse partnership
What’s so special about the new deal? Amazon’s recommendation algorithms can suggest makes and models tailored to each customer’s preferences. Streamlined purchasing and financing integrated on one platform can replace today’s fragmented, analog process.
This ‘trojan horse partnership’ with Hyundai will provide key insights into the process of auto sales thatAmazoncan eventually replicate. As it learns the pain points and opportunities, Amazon will refine the experience and expand into selling other markets.
The auto industry should beware of Amazon’s encroachment, however. The company has single-handedly disrupted retail, electronics, cloud computing and other sectors. Auto dealers and manufacturers will need to adapt quickly or face the same fate as erstwhile giants like Sears and Best Buy.
Is brand extension a good strategy for a startup?
For startups, brand extensions can be a powerful growth strategy, but they require careful planning and execution. Done right, it can help founders quickly scale. However, brand extensions carry risks – they can dilute the core brand if not properly aligned and supported.
Brand extensions represent a balancing act. On one hand, this strategy can provide a cost-effective way to enter a new market without launching a separate brand.
Startups, in particular minority or immigrant founders, have limited resources, so building off existing brand equity can conserve capital. On the other hand, if an extension confuses customers or fails to live up to the original brand promise, it can tarnish the entire brand.
How to grow with high-reward, high-risk strategy
We’ve seen many startups succeed through disciplined brand extensions. Virgin is an example: the company extended its brand from music into airlines and telecom by emphasizing a consistent customer experience.
Amazon’s Prime started as an online bookseller and has strategically expanded into new categories like cloud computing, home services, and groceries. Each extension leveraged capabilities from Amazon’s core e-commerce business into adjacent spaces.
However, missteps with brand extensions can hurt startups. Uber’s brand did not translate seamlessly into food delivery. Google Glass and Google+ failed to deliver the same clean user experience as Google’s web services.
Overall, brand extension represents a high-reward but high-risk opportunity for startups. With thoughtful planning around brand fit, customer research, and experience consistency, extensions can help young companies rapidly expand.
But reckless extensions that confuse users or fail to align with the core business can spell disaster. Startups should carefully evaluate extensions as part of their growth strategy.
Lessons for startups seeking growth
- Test new categories cautiously at first. Amazon is entering auto sales slowly with just Hyundai to start. This minimizes risk and allows learning before bigger investment. Startups should validate new segments on a small scale before a full launch.
- Leverage your core competencies. Amazon is bringing seamless e-commerce and use of data to improve customer experience. Startups should build on proven strengths, and not attempt extensions too far from their core capabilities.
- Solve customer pain points. Car buyers loathe complex negotiations and pressure tactics at dealerships. Amazon is well positioned to ease these frustrations. Startups should identify where incumbent experiences frustrate customers and provide relief.
- Expect resistance from incumbents. Auto dealers are already resisting Amazon’s disruption. Startups must anticipate similar pushback from entrenched competitors and have a plan.
- Focus on long-term vision. Unlike many others, Amazon tends to take a long view to building dominant market positions. Startups need patience and commitment to achieve bold expansion goals. Quick cash grabs often backfire.
- Learn, refine, expand. Amazon repeatedly enters new categories, gathers data, improves and widens its advantage. Startups should systematically build on early extension successes.
- Maintain brand consistency. Amazon leverages its customer experience reputation across initiatives. Startups must ensure that brand extensions reinforce, not dilute, the core brand identity.
Amazon provides an inspirational model of brand extension strategies for startups, from entering markets intelligently to methodically improving customer experience.
Following these lessons can help immigrant and diverse founders successfully unlock growth in new domains. But reckless brand expansion without discipline risks tarnishing your startup’s reputation.