Car Brands In Us Market example essay topic

Case 9: New Beetle EXTERNAL ANALYSIS 1. Market definition New beetle is competing in the small size car industry in the US market. 2. Market size In US market, the total of small car sales in 2,217,813 units, which is equivalent to 32 million dollar. Market size in dollar term = 2,217,813 ($11,035 to $18,000) = $32 million In 1998, New beetle sales is 137,885 units, which is 6 percent of the market. Market share in 1998 = 137,885 = 6 percent.

2,217, 8133. Market growth The industry is considered to be in the position between the growth and maturity stage. Considering the innovation and continuous car developments are still taking place, there are still good signs for the growing factors. Moreover, the industry is less attractive to enter at the moment because of the already established industry.

The car manufacturer is approaching the maturity stage of the industrial life cycle. However, based on the small car sales in 1996 (2,322,021 units) and 1997 (2,217,812 units), the market is declining by 4 percent. Market growth = 2,217,812 - 2,322,021 = - 4 percent 2,322, 0214. Key Trends Socio-cultural: American consumers have ever-changing demands attitude and there is a trend of aging population. The baby boomers customer has a change preferences as they are changing preferences to larger cars-sedans, SUVs and pick-ups. o Economic: During the 1970's, the appreciation of the Deutsche Mark against the dollar threatened to price VW's cars - most of which were low or mid range models - out of the market.

The 1982 recession, drop in oil prices, and the declining popularity of hatchbacks contributed to the declining sales. o Technology: In this industry, it is important to always keep up with technology in order to satisfy customer's demands. Volkswagen offered the benefits of German engineered cars, which are perceived as high quality cars. For instance, with the New Beetle, VW is keeping themselves up to date with today's car industry standards. o Political / legal : As VW is an international car manufacturer; US government plays large intervention in importing the vehicles and parts from overseas. Thus, the US government can intervene the final price of the vehicles. 5. Industry Analysis (Porter's 5 Forces) 5 Forces Degree Rationale Threat of Potential Entrants Low The barriers to entry and exit this industry are high due to high costs of research & development, experiences in the components of cars, technology innovation, customer loyalty as well as the capital investment.

Hence, it is unlikely that any newcomer is able to achieve economies of scale in production and distribution. The existing intensity of rivalry between competitors builds up a high barrier to new entrants. Bargaining Power of Buyers High Switching costs for alternative substitutes are moderate (there is considerably high involvement for buyers to choose between alternatives), there are many varieties in this industry for customers to choose from. Moreover, there are many products (including substitutes) that could provide the same benefits (usage) the buyers are looking for and cars are long lasting products. Bargaining Power of Suppliers Low The raw materials used to manufacture cars are readily available from many suppliers such as shock absorber, sunroofs, spoilers, alloyed wheels, etc. Considering the large number of suppliers, as well as the ease for the competitors in the industry to switch suppliers, thus, the power of suppliers is low.

Threat of Substitutes High Different models and car brands are provided to suit the different needs and demand. The threats of substitutes of cars are any other form of transportation. Intensity of Rivalry High There are a large number of potential competitors in the industry. Due to costly research and development and downward pressure on prices, the competitors are competing aggressively for market share to maintain their presence in the industry and avoid high barriers to exit.

The market is in the Mature stage in ILC, and the prices between cars are extremely competitive. In summary, from the analysis conducted above, it can be concluded that the industry is rather unattractive. Thus, it is vitally important for the car industry to pursue unique and sustainable competitive strategies that can monitor these five forces into their own favour. 6. Competitors Direct Competitors: Domestic brands: Ford Escort, Chevrolet's Cavalier and Saturn, cumulatively sold over one third of the segment's cars, would be the New Beetle's immediate competitive set.

Japanese car manufacturers: Toyota Corolla and Nissan Sentra, which held a 15.4% market share. Indirect Competitors: Other car brands in US market, which are classified under the middle car, large car and luxury car. 7. Customer buying patternWhoCurrently, Volkswagen supplies their cars to the dealers who later sell the products to end consumers. Therefore, their customers are dealers and end users. What Most of customers seek safety, models, speed, and performance in purchasing cars.

Other factors that influence demand are the car quality, price, durability and personal taste and preference. Cars can take people from one point to another in a relatively convenient way and reasonably fast. Important buying criteria are the reliability of the brand, familiarity with the cars, customer's own perceived quality of the car, sensible pricing (special deals), good dealers networking and informative sales reps. Cars are generally compared on the bases of machine, the special features, distinct ability, level of innovation, driving performance as well as the car image. Customers expect to have superior customer service before and during the purchase, as well as having the after purchase service, car warranty and guarantee. How Customers in buying cars may have different types of payment, such as credit card, car loan, etc.

Buying process lasts for quite sometime, since it is a high involvement product, which involves a fairly large amount of money, a lot of discussion and thinking are put forward in the purchasing decision. Cars as a product needs constant development to attract new customers; and they also need to be promoted most of the time to work as a reminder and a reassurance to the customers. Cars ought to have the correct pricing strategy to appeal to certain segments. Distribution, in terms of the dealers' network accessibility is in addition important to ensure potential customers that they will be taken care of when they travel and dealers are there to help. Customers are usually willing to spend based on price for quality concept. When and where The decision to buy can be made at home, work, dealers or any other places.

Customers seek information from advertisement, sales people, dealers' promotion, word of mouth, product catalogue as well as the Internet. The customers can buy the cars from overseas or domestic car dealers. End user market segmentationDemographicAge: People above 18 years old. Sex: male and female. Marital Status: single, married, divorced, living together, widowed. Occupation: professional, blue-collar, white-collar, agricultural.

Income: medium and well above average disposable income. Geographic: all over United States. Benefit segmentation: convenience, prestige, economy, and value for money. Psychological / psycho graphic Personality: active, more adventurous, creative, confident, self-sufficient, experimenters. Psycho graphic (Lifestyle): Basic needs, Look at me, True conservatism. INTERNAL ANALYSIS 1.

Competitive strategy Current strategies used by US VW company to compete in the market are: o Differentiation strategy o Brand building Global brando Has a vision of high technology and advanced engineering 2. Marketing mix Product strategy o Diversified products customers have many choices. o Innova t ive continuous new product development. o New Beetle core benefits: Image nostalgia, unique body design rounded shape, distinct fenders, single head and tail lamps, and a face that looked like it smiled. o Branded offer: durability, quality of product and service, transportation vehicle, safety (with the car round shape and side airbags, brakes are upgraded), attract emotionally. o Extended offer: German made car, feel confidence, offer unique driving experience. Price Strategy In launching new beetle, VW has used the premium pricing strategy, where new beetle has the highest price in its class (US small car industry), which is believed to be a potential issue. Promotion strategy o Develop an effective advertising campaign and promotional activities. o The company uses and conducts the research in order to aid in developing the New Beetle marketing strategy. o The company use the Trek / K 2 promotion to expand to new customers.

Place Strategy In 1998, there are 600 Volkswagen dealers in the US, 10% of them exclusive, with both numbers growing. 3. Financial analysis Volkswagen sales in the United States had declined sharply from over half a million cars in 1970 to less than 50,000 cars by 1993. By the early 1990's, Volkswagen sales had fallen to 20% of its 1970 peak. By the end of 1997, Volkswagen sales increased 178% of its lowest point of 1993 sales, Volkswagen was selling 137,885 cars. 4.

SWOT analysis Strengths Implication Action Produce high quality German engineered cars Attract more customers Continuous product improvement Best known car brand in the United States High brand awareness Maintain brand reputation Pleasurable driving experience Increase customers satisfaction Enhance further car features Strong relationship with dealers Increase customers convenience in getting products Maintain good relationship with dealers Weaknesses Implication Action Brand image problem Limit demand Update brand image Slow response to customers preference Customers switch to other competitors Better research and quick response Opportunities Implication Action Increase profit More financial strengths Launch new products Increase market share Stronger company position in the car industry Produce better cars Increase demand Increase number of customers through sales Deliver good products and services Threats Implication Action Increase in potential competitors Decrease sales Continuous products improvement, compete on quality and service level Legislation in automotive industry Higher restriction on certain cars features / models Always comply with the legislation Easy for competitors to copy products and services Lead to price war, reduce profit Offer more added value transactions 5. ORGANISATION OBJECTIVES Corporate Objectives: To increase the market share by 3.5% by the end of the financial period in 1998 through the sales of New Passat and the launch of New Beetle. To offer affordable cars with the benefits of German engineered systems as well as delivering Volkswagen's unique driving experiences. Marketing Objectives: To increase Volkswagen revenue by at least 25% through the New Beetle sales in 1998. To gain more customers of the New Beetle into the US market by clearly defining the target audience and product positioning to achieve the right promotion activities, as well as having the right pricing. 6.

MARKETING PROBLEM " VW New Beetle is unsure of who their potential target audiences are " There are some issues concerning the launch of the New Beetle. VW is confused whether they should target the younger generation (Generation X) or the Baby Boomers. These two target markets have potential to be their consumers, however there are also limitations in targeting these two segments. Since the target audience is not clearly defined yet, New Beetle has difficulties in positioning the car; therefore, they do not know how they should go with promoting the product. Another factor affecting the positioning is the pricing of the New Beetle. They are not assured whether they should stick to their affordability concept or go with premium pricing.

Hence, in order to solve all these issues, it is important for New Beetle to know exactly whom to target. 7. STRATEGY APPROACHES AND EVALUATION Target the Baby Boomers Baby Boomers are an attractive target market as they are mostly financially well equipped, therefore if Volkswagen decides to go with premium pricing, it is still affordable for them. They also have a strong relationship with the previous Beetle. They can associate the New Beetle with the memorable image of the previous VW Beetle and have nostalgia with the cars, for instance, it was their first cars, they used it for their honey moon, etc. In addition, the Baby Boomers are normally better approached through the print media, be it magazines or newspaper, the advertising agency can actually execute a more effective advertising campaign with higher frequency, since the advertising costs will be lower than using TV as a medium.

However, consumer trends among the Baby Boomers reveal change in preference to larger cars, such as sedans, SUVs, and pick-ups. Target the Generation X (people age 18 to 34 years old) The younger generation associates the New Beetle as being a fun car, with the unique designs that is the circular shapes, which represent human forms, such as eyes, faces and heads that are eye catching, as most of younger generation like to be the centre of attention, thus New Beetle is the appropriate car for them. Moreover, Volkswagen had shifted its strategy, positioning the brand behind the "drive ability of their cars" to target a younger generation of drivers. Nevertheless, if Volkswagen decides to go with premium pricing, the younger generation may not able to afford it. Since the Generation X is the children of the television age, reading fewer newspapers than the Baby Boomers, the advertising agency may produce less effective TV advertisement to the low frequency compared to print advertisement. Target the Baby Boomers and the Generation By aiming both target markets, New Beetle can extend the market coverage and hence it can appeal to new potential buyers, which will result in higher revenue for the company.

New Beetle will not lose a large number of potential buyers to the competitors. Nonetheless, these two target markets are distinct from one and another. The media used for the advertising campaign might not be able as effective as if they only targeted to a specific target. This is a rather high-risk strategy because the message in the advertisement may become unclear and this will eventually lead to the image confusion and interest conflicts. If Volkswagen decides to use premium pricing for the New Beetle, it is not affordable from the younger generation point of view. On the other hand, if it is priced too low, the car might not be attractive enough to dealers due to lower margins and thus fall short of the company's profitability goals.

DECISION CRITERIA Baby Boomers Gen X Both Increase Market Share 4 3 2 Increase Revenue 5 4 3 Maintain the affordability concept 2 5 2 Increase number of customers 4 4 5 TOTAL 15 14 12 The strategy selected for New Beetle is to focus on the Baby Boomers market. 8. SELECTED STRATEGY AND JUSTIFICATION New Beetle is a differentiated product that should target a focus segment that is the Baby Boomers. In terms of promotion, the advertisements would be mainly using the print media with high level of frequency to achieve the ads effectiveness.

Since the main target market is Baby Boomers, Volkswagen can charge premium pricing in order to increase the revenue. The other competitors in the small car market may try to seduce the potential to buy their products instead, due to the lower price offered, dealers's special deals and possibility of design duplication by the competitors..