The Impact of the Top 3 Strategic Imperatives on Kavak

Disruptive Technologies

Why: - Despite customers' interest in viewing vehicles in person, the expansion of eCommerce during the COVID-19 pandemic has made clients more receptive to viewing products online in Latin America (LATAM). - As online marketplaces and online transactional companies (OTCs) become more popular, more clients demand interaction with the company through digital methods.

Frost Perspective: - Online presence has become essential for all companies in the used car market. - For example, dealerships and local stores with physical presence will prefer advertising and presenting their stock and catalogs through online marketplaces. - Online companies will improve their technology to provide a better customer experience.

Innovative Business Models

Why: - With the emergence of eCommerce, more used car companies have joined the online market, including OTCs. - OTCs, unlike online marketplaces, own all the vehicles they advertise. These companies recondition all units and oversee the transaction, securing operations.

Frost Perspective: - Since 2022, OTCs have faced challenges such as decreasing sales and branch closures. - To survive in this competitive market, online companies must invest in attractive value-added services, such as extended warranties, certified vehicle programs, insurance, and vehicle test drives.

Internal Challenges

Why: - With the growth of eCommerce, Kavak’s operations skyrocketed, and the company became the 1st Mexican unicorn. - With its funding, Kavak expanded its business to 8 countries in a few years. - However, since 2022, Kavak has faced challenges and laid off some of its employees in a few countries.

Frost Perspective: - Kavak is transitioning from being a top used car seller in several countries to strengthening its presence in key markets. To achieve this, Kavak will stop operating in 2 markets. - A change of perspective is crucial to improve brand image with existing and potential customers.

Scope of Analysis

• This study provides a strategic overview of Kavak and analyzes its success in LATAM and its new chapter in the Middle East. Although the company will close its business in Peru and Colombia in January 2024, it will strengthen its brand in 3 crucial LATAM markets: Brazil, Mexico, and Argentina.
• The study examines Kavak’s strategies, focusing on its product portfolio, branding, and positioning. It dives into the company’s main competitors and important partnerships and mergers and acquisitions (M&As).

Segmentation

Used Vehicle Market

eCommerce Marketplaces

These websites advertise the products and services that their users provide for sale. The websites can advertise specific products, such as new or used cars, or general products and services for different market niches, such as furniture or apparel.

Instead of generating sales, marketplaces bring buyers and sellers together. Mostly, it is impossible to know whether a transaction has occurred because they divert clicks to other websites.

Advertising bundles and value-added services, such as banking and insurance (where available), are the main income sources.

OTCs

OTCs conduct product sales for the goods they provide. As they own the products, online transactional businesses test and certify items before selling them.

OTCs allow customers to book and buy products through their websites, which include their online catalogs. In addition, they offer assistance through phone or online chat.

Companies may have physical stores for clients who wish to view the product in person before purchasing or test vehicles before acquiring them.

The income sources include direct sales, auctions, and value-added services, such as finance and insurance (where available).

Stores (Resellers/Dealerships)

Stores are physical locations that can serve as resellers or dealerships. Although many of them are online, their major concentration is offline.

These stores buy and sell used cars, with some having quality certifications to guarantee a specific product level.

Some stores might have multi-branding or collaborate with certain original equipment manufacturers (OEMs) and follow their directives. Others may have permission to resell used cars independently, while some may have to offer a certified pre-owned program.

Direct sales, auctions, and value-added services, such as finance and insurance (where available), contribute to revenue.

Growth Drivers

With the emergence of digital solutions and contactless purchase processes, OTCs gained traction in 2021. Kavak is the largest participant in the online transactional segment in LATAM and is expanding its services to the Middle East.

Selling/purchasing a used car can be challenging because customers need to check if the documentation and the vehicle have legal validation. Kavak stands out among companies that sell certified used cars.

Technologically advanced tools in online purchases and aftermarkets can provide real-time customer retention information. Incorporating these products allows companies such as Kavak to understand their customers’ requirements, improve their service, and expand their growth.

Kavak’s leadership in LATAM’s online transactional market will continue. The company’s strong presence in the region supported its funding and expansion to other countries in the Middle East.

Growth Restraints

Owing to the COVID-19 pandemic-induced decline in new vehicle production and sales, the supply of vehicles up to 3 years of use will drop in the next 3 years. With fewer offers in the youngest segment, the used car market can hold back sales.

High interest rates impact car sales, as it becomes more expensive to finance a vehicle. Although Kavak has partnerships with financial institutions to provide good financing options, consumers do not always have access to them.

Cars depreciate fast. Therefore, companies that purchase and sell used vehicles must do it quickly to save capital. As Kavak owns all its vehicles, it is vital to have a fast inventory rotation.

Purchasing a used car without a testing drive may be difficult, as these units may have unaddressed issues. Although Kavak inspects all vehicles, customers cannot test drive the units before the purchase and may prefer to buy at a dealership or store to do it.