Audi has a problem. It isn’t sales; the cars practically sell themselves. The brand, stalled in the mid-1990s, is now the fastest-growing luxury automaker in the U.S. While still behind such peers as Lexus (TM), Mercedes (DAI:GR), and BMW (BMW:GR) in total unit sales domestically, Audi is coming off 24 straight record months. The trouble is, few drivers come back. Only 46 percent of Audi (VOW:GR) drivers buy another Audi, compared with other German imports who lure over 55 percent of their customers back.
In September, Audi of America President Scott Keogh began visiting dealers around the country, telling them he attributed the low numbers partly to the dealership experience, and that he wanted to focus on customer service. The dealerships ranked second to last in the U.S. Sales Satisfaction Index. Audis routinely win accolades for their seamlessly updated mapping and telematics packages, yet in car showrooms, young, affluent buyers entering a dealership have been greeted with a Bunn drip coffee machine and a crackling PA system. “We’re not satisfied with what the customer service experience is like in our retail environment. At dealers today, people encounter a lot of unknowns, a lot of waiting, bottlenecks,” says Mark Ramsey, the general manager of digital and retail marketing for Audi of America.
If Audi doesn’t solve the dealership disconnect, the company’s rise could be a blip. A 2012 study from consumer marketing analyst Maritz Research found that the average car dealership could sell as many as 217 additional cars per year by improving customer service. So last year, Ramsey went shopping among the small number of design firms in the world that specialize in so-called service design, which emphasizes not just the aesthetics of a product but the actual process of buying it. He found just two in the U.S. and two abroad, and tapped Newton (Mass.)-based Continuum to make over Audi dealerships.
Photograph by Mark Mahaney for Bloomberg Businessweek
Not long ago, Continuum was an industrial design outfit best known for creating the Swiffer and the Reebok (ADDYY) Pump sneaker. But in 2010 the company shifted the majority of its 160-person staff to designing experiences. “By that time we felt that products were already designed,” jokes Alanna Fincke, the agency’s public-relations chief. Continuum realized that the design of gadgets such as cell phones is less important than the services that come with them, whether it’s going to the store for tech support or sorting through billing snafus online. The firm’s new specialty is service design, a little-known corner of the industry that’s gotten a lot of recent interest from large national brands.
The practice typically involves product design firms who shift their focus from objects to developing commercial spaces and services. The idea is to use the design sensibility—ethnographic field research, sketching, prototyping—to make a retail space run as smoothly as a high-performance car. “Instead of designing tangible things, it’s about designing all the interactions a customer has with the brand,” says Kerry Bodine, a vice president and principal analyst with Forrester (FORR). “One by one, brands are taking the plunge into this world, and there is a lot of hunger in the U.S. for these services.”
With a new mission to get inside the consumer’s head and help businesses troubleshoot their consumer relationships, Continuum began to inject fresh ideas into old business models. The designers developed a process called “experiential modeling.” For Spain’s second-largest bank, Banco Bilbao Vizcaya Argentaria (BBVA), designers built a full-size, 11,000-square-foot mockup of a bank lobby entirely out of foam that paved the way for changes in six branches from Barcelona to Atlanta (more are expected to be renovated this year). For the owner of the 93-restaurant chain Bertucci’s, Continuum designers studied the way millennials go out to eat, and designed a new eatery to have smaller plates in a more social setting. The new restaurant, 2ovens, has appeared in two locations so far, with more arriving this year. The kitchens at 2ovens are equipped with only two handmade brick ovens that create a hearth-like atmosphere.
Continuum’s biggest project is its reimagination of the lobbies of 1,243 Holiday Inns, which resulted in a more social space where kids play video games on large-screen TVs, businesspeople check e-mail on kiosks near the bar, and vacationers socialize. As with the Spanish bank, Continuum built a foam model of its Holiday Inn lobby of the future, tested by everyone from general managers to chefs. At the first site where the design has been implemented, in Duluth, Ga., beverage sales rose 36 percent, while food revenue grew 25 percent. “The bar and food areas are intentionally more cramped than in other hotel lobbies,” says Craig LaRosa, Continuum’s design lead. He believes that if people bump against each other, it precipitates a friendly conversation among strangers, lightening the mood and encouraging guests to sit down for a drink.
When the firm tested the foam model of the Holiday Inn lobby, a bartender from a Lowell (Mass.) franchise complained that the ultramodern bar was too wide for him to reach glasses. In response, a designer came along with a hacksaw and cut the bar to size right then and there.
The Continuum process is more akin to crowdsourcing than handing down a singular vision from a single gifted designer or workaholic CEO. “At Apple (AAPL), experience design came from Steve Jobs and Jony Ive. But that’s lightning in a bottle,” notes Charles Austen Angell, the chair elect of the Industrial Designers Society of America and head of design firm Modern Edge. “Most companies can’t be so lucky; they need someone to come along and help create alignment across all the different departments of the organization. They need someone to help figure out what’s really giving value and what’s unnecessary. You can’t get bigger if you don’t know those things.”
On a frigid late December morning, Audi of America’s Ramsey visited Continuum’s Boston headquarters in an enormous former shoe warehouse. Over the next seven hours he heard the designers’ proposals to fix Audi’s 278 U.S. dealerships. Ramsey dismissed some suggestions out of hand, asked for revisions to others, and granted a tentative green light to a few. Despite having traveled that morning from Herndon, Va., he looked neatly pressed in jeans, a crisp button-down, and a logoed black fleece. The five designers pitching ideas looked awful, having forsaken their desks long ago to hole up in a second-floor conference room cluttered with coffee cups, cameras, and Chinese takeout. Some had recently returned from travel around the country observing various showrooms for Audi and other automakers and were ready to share the highlights—and horror stories. Others were formulating the next stage of the Audi project: a full-scale model of an Audi location, a dealership of the future, rendered in more than 10,000 square feet of the all-white Styrofoam material called foamcore.
Photograph by Mark Mahaney for Bloomberg Businessweek
As Ramsey batted down ideas, designers frequently rose to add pink fluorescent sticky notes to a 22-foot paper flowchart affixed to one wall of the room, chronicling the Audi customer’s experience from the moment he walks into a dealership to the day he returns for a repair. At one showroom, a designer saw a busy laser printer on the receptionist’s desk. Any customer wanting sales information had to navigate a throng of employees coming by to hunt for their expense report printouts. At another dealership, a designer observed a manager’s office with two pairs of dry-cleaned pants hanging over his chair. Designers suggested guidelines to help staff understand which areas are the back of the house and which are for customers. They also proposed a digital wireless network to replace the old-school PA system and digitized records to streamline customer service. That way, car owners don’t have to reintroduce themselves and their repair history every time they visit the service desk.
While this went on, another designer with purple-highlighted shoulder-length hair quietly built pieces of prototype furniture on her laptop using the free 3D software SketchUp, dispatching these files down to Continuum’s workshop, where they were being cut into full-size foam models.
The giant full-scale foam models are key to Continuum’s process. After the idea stage with a company, the firm typically collaborates with its client via the models, which are great caverns of flossy white material that help managers envision spaces and act out scenarios as if they were onstage in a theater. The models are made fast (they go up in less than a month), cost relatively little (typically around $45,000 in materials), and bear an unfinished look that gets executives to think more strategically and not get caught up in the nitty-gritty of materials and finishes. The mockups are intentionally left all-white to give the impression that the ideas are provisional and in progress. “We discovered with Holiday Inn that a full-scale model becomes a tool that gets people excited about the project. People can feel it, see it, experience it, then give their feedback,” says Continuum’s LaRosa.
Continuum doesn’t typically bring customers or focus groups into the models. The design-intensive work is done with managers and employees, the main details are nailed down, then the project goes into real-life pilot installations where customers will interact with the space. The firm believes the financial success—or failure—of the real-life beta sites is the best way of testing the designs with the public. If Continuum has its way, any new retail site will have plenty of tangible experiences. “After all, somebody got off the couch and came into the dealership to look at cars and look at tangible things. … They want to have experiences with a brand that you can’t have in your living room,” says LaRosa.
Audi will need to coax dealers into major design changes by convincing them that the updates are revenue-generating and bulletproof. As anyone in the auto industry knows, car brands have limited control over their dealers; because of widespread state laws, manufacturers can’t take a financial interest in the retail arm. In practical terms, influencing dealer behavior is tricky business. “There are carrot-and-stick approaches,” says Ramsey. “But we’re certainly not going to make this a fight. We’re looking for great solutions that will free the dealer from constraints and help them with customer service challenges.”
Ramsey’s visit to the Continuum studio was the first time any of the hundreds of dealership design ideas got the insider’s critique. Results were uneven. To one designer’s plan to help eradicate haggling, Ramsey pointed out that some buyers like aggressively negotiating price and will feel dissatisfied without it. To an idea to install whizzy electronic displays next to each car that would explain special features under the hood, Ramsey shot back that few showrooms have electrical outlets installed in the floor. And after hearing a rather nice idea to offer gifts to customers after their repair is done to show the brand’s appreciation, Ramsey knew better. He recalled his first job at Mercedes, which used to give loyal customers a woolen blanket at the close of each repair. It backfired when customers accumulated more than a few blankets in the trunk and started to wonder about the car’s reliability.
Ramsey’s session with Continuum is just the beginning: A week later, the firm will present its proposals to Audi of America President Keogh. The critics will just get tougher until the day Audi representatives walk into the white foamcore mockup. Some of Continuum’s ideas may be implemented in dealerships this fall.
LaRosa remained upbeat because he saw that those ideas were being tested. “Mark’s only voicing concerns that others will no doubt raise down the line,” he said. “I think our design culture prizes humility. If you try to push through your ideas at all costs, change never gets to the world.”