Shoes today. A used car tomorrow. The list of products that consumers are comfortable buying online continues to expand. In this episode of Mastering Innovation on SiriusXM Channel 132, Business Radio Powered by The Wharton School, Mitch Berg, chief technology officer at Vroom, talks about how the e-commerce company buys and sells used cars. According to Berg, they are disrupting a market that sees 40 million used cars sold each year in the U.S. and one that’s traditionally been the domain of mom-and-pop brick-and-mortar retailers.
The company does more than just buy its vehicles. Vroom also bring them into its facilities and reconditions them. Berg talks about what it means to “own” the supply chain in this way, the technology and data Vroom taps to run the platform, and the challenges of scaling up the business. Investors see promise in the company: Vroom has raised hundreds of millions of dollars in funding.
An excerpt of the interview is transcribed below. Listen to more episodes here.
Saikat Chaudhuri: How does the business model there work? I know you’re reducing friction in a lot of ways and perhaps reducing costs in some ways. Is it worthwhile for you to [buy and recondition the vehicles] rather than just being the broker between buyer and seller?
Mitch Berg: Yes. We see the value in actually buying cars directly from consumers. If you look at the data, it suggests that we do better when we buy directly from consumers and fix them up and resell them.
Chaudhuri: Yes, it’s very interesting. Go ahead.
Berg: Let’s take a step back a little bit and talk about what we actually build here, what the platform looks like. It really is a tale of two platforms. We have an inventory management piece of the puzzle: What cars do we buy? What are we willing to pay for them? How much are we willing to invest in fixing these cars up? Then, when they’re ready, that’s our inventory. We have a supply piece of our platform, and then on the flip side of it we have this e-commerce piece. Just like any other e-commerce company, we need to get customers and drive them to our platform. Then advertise and look at all these leads, drive them through a funnel and do all those things that a normal e-commerce platform would do. There’s really two pieces to our platform.
“If you look at the data, it suggests that we do better when we buy directly from consumers and fix them up and resell them.” – Mitch Berg
Chaudhuri: I love how you decomposed it, and it’s really something, which I find very appealing. Let me break it down even further into those two parts and probe a little bit about that because I’m so curious. You, yourself, asked the question, in the inventory management piece, it’s about being able to identify the right cars to buy, perhaps the right price to pay, and then you also invest clearly in fixing up those cars. How do you develop an expertise for that? How do you do that? Because if you’re stuck with these assets and you do the wrong pricing, then you’ll be really sitting on something which you can’t sell and you’ll take a loss pretty easily.
Berg: Absolutely. That’s the core of our business, is trying to understand the market, and the demand for each different type of car. It boils down to data and decision sciences, what we would call data science, but this isn’t science’s problem. What’s the optimum mix of vehicles that we should have in our inventory, positioned where in the country to supply the demand, and maximize our profit of course.
Chaudhuri: Do you collect the data or do you get the data from elsewhere? Is it from your own experience or have you collected the data in order to develop these algorithms to make these decisions or help you make these decisions?
Berg: I think the answer’s both. We started to get data from all sources. We’re a national company, we’re buying and selling across the country and so we have our own data sets that we collect. But we’re also looking at third parties and getting data from third parties and mixing them all together to try to get a picture of what it looks like out there from a demand perspective.
Chaudhuri: Fascinating. When it comes to the e-commerce piece where you sell the cars as well, I am curious about two things. One is the process and then I want to ask you a little bit about how you work your magic in terms of the right sales price. But first, if I want to sell my car to Vroom, how do I do that? What’s the process like?
Berg: There’s two ways to do it. You know, if you happen to be in Texas, you could drive into what we call a “sell us your car” center and we’ll, on the spot, evaluate your car and do the transaction right there, cut you a check, and off you go. Hopefully, you have a way home. But if you’re online, you could get online right now and get an offer for your car, right from an online transaction.
“We’re a national company, we’re buying and selling across the country and so we have our own data sets that we collect.” – Mitch Berg
Chaudhuri: So, you use the traditional source of information as well as some new sources of information to really determine that, and you’re able to make this fairly frictionless.
Berg: We are.
Chaudhuri: Now, when it comes to selling and the markets, how do you go about analyzing the markets and the right prices to sell at? Is it proprietary, the way you do these things, or is it a combination of public data that you get with some of your own and it’s something that others could also figure out? A little bit provocative.
Berg: I’ll try to tread lightly on those kinds of questions, but clearly, we have our own secret sauce around how we price vehicles.
Berg: And, over time, of course, we want to make sure we maximize our profit and, of course, there’s holding costs involved and all the different costs involved with dealing with inventory.
Chaudhuri: Yeah, and it’s wonderful. I love the mix of the old and new.
About Our Guest
Mitch Berg is the chief technology officer at Vroom, a New York-based online used car retailer. Berg is in charge of building a world-class engineering and data team to power experiences for customers and employees and help design the future of buying and selling cars online.
Prior to Vroom, Berg was SVP of technology at dailymotion, the video-sharing technology platform, where he was responsible for building the team that developed a new ad tech platform to support the publisher side of online video advertising. He is also a former CTO and CIO and brings a wealth of technology leadership experience to the table, with particular expertise and interest in moving research and new ideas into the marketplace.
Mastering Innovation is live on Thursdays at 4:00 p.m. ET. Listen to more episodes here.