final report brad podraza, anu banerjee, katie cowan, taro nagao december 5, 2006 industry 6; team a

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Final Report Brad Podraza, Anu Banerjee, Katie Cowan, Taro Nagao December 5, 2006 Industry 6; Team A

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3 Landscape in Period 0 StrengthsWeaknesses Market share leadership in two of the three segments we compete in (Economy & Utility) Overall highest volume share of market (~32%) Highest number of dealers / great coverage Large cash balance (~$1B) Large dollar value of ST debt (~$11B) High cost structure; low margins Poorly positioned / designed ‘Family’ segment product offering (e.g Alfa engine size is considerably lower than competitors) Lowest dealer ratings Lowest firm preference ratings High utilization rate in factory (limited capacity for future growth) Inferior technology capabilities OpportunitiesThreats Large potential B2B market player Growing demand for ‘Family’ segment products Emergence of the Hybrid and Delivery market Declining real GDP growth (-2.5%) Estimated declines in annual car and truck sales Shrinking demand among Value Seeker and Singles customer segments Potential for tough B2B and consumer market competition from Firms D and E

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Page 1: Final Report Brad Podraza, Anu Banerjee, Katie Cowan, Taro Nagao December 5, 2006 Industry 6; Team A

Final Report

Brad Podraza, Anu Banerjee, Katie Cowan, Taro Nagao December 5, 2006

Industry 6; Team A

Page 2: Final Report Brad Podraza, Anu Banerjee, Katie Cowan, Taro Nagao December 5, 2006 Industry 6; Team A

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Agenda

• Starting Point• Strategic Marketing Plan

– Legacy Brand Overviews– Alfa– Alec– Awesome

– New Brand Overviews– Arbor– Atonka

– Overall Firm Performance• 2F Customer Overview• Key Learnings

Page 3: Final Report Brad Podraza, Anu Banerjee, Katie Cowan, Taro Nagao December 5, 2006 Industry 6; Team A

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Landscape in Period 0

Strengths Weaknesses Market share leadership in two of the three

segments we compete in (Economy & Utility)

Overall highest volume share of market (~32%)

Highest number of dealers / great coverage

Large cash balance (~$1B)

Large dollar value of ST debt (~$11B) High cost structure; low margins Poorly positioned / designed ‘Family’

segment product offering (e.g Alfa engine size is considerably lower than competitors)

Lowest dealer ratings Lowest firm preference ratings High utilization rate in factory (limited

capacity for future growth) Inferior technology capabilities

Opportunities Threats Large potential B2B market player Growing demand for ‘Family’ segment

products Emergence of the Hybrid and Delivery

market

Declining real GDP growth (-2.5%) Estimated declines in annual car and truck

sales Shrinking demand among Value Seeker

and Singles customer segments Potential for tough B2B and consumer

market competition from Firms D and E

Page 4: Final Report Brad Podraza, Anu Banerjee, Katie Cowan, Taro Nagao December 5, 2006 Industry 6; Team A

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Strategic Marketing Plan

Firm Strategy•Our firm targets the ‘2, 3, and 5’ consumer segments with a heavy focus on

B2B markets•We invest our resources in new and existing vehicles when opportunities

and circumstances arise which allow us to better serve our core target consumers.

•We will maintain a broad dealer network in all regions and offer the proper training and incentives for them to sell our vehicles.

•Following this strategy we aim to increase consumer perceptions of our firm and recapture our market leadership position.

Strategy

Target

Alfa

Family

2F

Implementation

Alec

Economy

2E

Awesome

Utility

3U

Arbor

Hybrid

5H

Atonka

Delivery

B2B

Marketing Mix & Reports / Upgrades / New Customers

Results Market Share / ROI / Awareness / Perceptions / Dealer Ratings

Page 5: Final Report Brad Podraza, Anu Banerjee, Katie Cowan, Taro Nagao December 5, 2006 Industry 6; Team A

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Legacy Brand Overview

AlfaBrand Positioning Category leader in small family sedan segment offering

competitive attributes (Safety & Quality) at the lowest prices

Marketing Mix

• Price – kept lowest in 2F market (stable between P5-P9) due to fears of starting a price war

• Intense Advertising (P3-P8) – Overall average $220M, Intense period average $280M gaining over 85% awareness in 2F mkt. consistent message of safety

• Dealer Discounts – Highest in industry (Overall avg. 14%)• Direct mailings to ‘family ’ segment

Approach to Upgrades • 1 major upgrade (P4) concentrated on improving size• Subsequent upgrades to stay competitive (focus on safety)

Reports and Models Utilized

• 2F focus group – to understand competitive landscape• Perceptual Mapping – Utilized to understand consumer

perception of product attributes• Conjoint Analysis – to determine attributes beyond price

important to customers• Vehicle Sales by Customer (Alfa & Competitors) Utilized for

tactics and production forecasting

Segment

Family

Target

2F

Target Share

14%

Page 6: Final Report Brad Podraza, Anu Banerjee, Katie Cowan, Taro Nagao December 5, 2006 Industry 6; Team A

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Legacy Brand Overview

alec Segment

Economy

Target

2E

Target Share

30%

Brand Positioning Mid-sized, affordable economy car that meets basic family needs and business customers’ requirements

Marketing Mix

• Initially high-volume, low-margin (18%) strategy. Shifted to moderate-margin (25+%) strategy to maximize profit

• Keep product marketing budget low (around $100MM)• Take advantage of B2B opportunities to cut base costs• Direct mailings to ‘family’ segment

Approach to Upgrades • No frequent upgrades: exploit learning-curve effects• Focus on quality and safety

Reports and Models Utilized

Concept Test: Provide detailed price elasticity of demandProduct Contribution Estimation Model: Utilized to figure out profit-maximizing price/quantity mixB2B Contracts: To upgrade the vehicle in the most efficient way to meet B2B requirementsVehicle Sales by Customer: Utilized for production forecasting

Page 7: Final Report Brad Podraza, Anu Banerjee, Katie Cowan, Taro Nagao December 5, 2006 Industry 6; Team A

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Legacy Brand Overview

AWESOMEAWESOME Segment

Utility

Target

3U

Target Share

33%

Brand Positioning Small, low priced utility vehicle with the focus on styling and performance attractive to the target

Marketing Mix

• Comparatively higher dealer discounts in order to provide incentive for dealers

• Moderate industry advertising in all but upgrade periods in order to maintain current awareness

• Direct mailings to ‘singles’ segmentApproach to Upgrades 2 major and 1 minor upgrade during simulation in order to

better tailor styling and performance to the needs of the target

Reports and Models Utilized

Vehicle Sales by Customer: Utilized for production forecasting

Test Market: Multiple ran for pricing decision making3U Customer Detail: Used to track consumer preferences, market share, and awarenessFocus Groups: To determine ‘hot’ buttons & preferences

Page 8: Final Report Brad Podraza, Anu Banerjee, Katie Cowan, Taro Nagao December 5, 2006 Industry 6; Team A

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New Brand Overview

ArborBrand Positioning Mid-priced hybrid that appeals to value seekers sense of

practicality (quality) and emotion (styling)

Marketing Mix• Reliance upon advertising budget; higher at introduction with

reduction to steady level in later periods• No promotional budget• Direct mailings to ‘value seeker’ segment

Approach to Upgrades One major upgrade undertaken to properly size the vehicle and make it more competitive with new entrant

Reports and Models Utilized

Concept Test: Multiple ran to determine appropriate model to be developed and market potentialTest Market: Multiple ran for pricing decision makingPerceptual Mapping: Multiple ran to determine placement in the market and potential appeal to the 5H targetFocus Groups: To determine ‘hot’ buttons & preferencesVehicle Sales by Customer: Utilized for production forecasting

Segment

Hybrid

Target

5H

Class Share

34%

Page 9: Final Report Brad Podraza, Anu Banerjee, Katie Cowan, Taro Nagao December 5, 2006 Industry 6; Team A

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New Brand Overview

AtonkA Segment

Delivery

Target

B2B

Class Share

58%

Brand Positioning Delivery vehicle which meets the requirements of the most demanding package delivery B2B customers

Marketing Mix • No advertising or promotional budget• Direct Mailings to potential B2B customers

Approach to Upgrades No upgrades following initial introduction

Reports and Models Utilized

B2B Contracts: Purchased all four available Delivery contracts to determine what specifications will allow for the maximization of return on our investmentConcept Test: Ran to determine appropriate model to be developed and market potential

Page 10: Final Report Brad Podraza, Anu Banerjee, Katie Cowan, Taro Nagao December 5, 2006 Industry 6; Team A

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Overall Firm Performance

Product Contribution• +$5.5B in Period 10• Variance Analysis was performed for

each product to figure out the root causes of variance between forecasted and actual results.

• Share, Price, and Cost Variances are paid close attention.

Profit = Product Contribution – Corporate Expenses

Corporate Expenses• -$6.7B in Period 10• We did not pay attention to corporate

expenses as much as we should have.• Increased debt level (caused by

inventory and capacity increase) cost us about $1.5B/year after period 8.

Cumulative Income -$1,235 MM Stock Price $5.01 (-89.5%)Debt to Equity Negative (-22x) Firm Value $2,655 MMROA (OIBI,AT / Assets) 4%

Page 11: Final Report Brad Podraza, Anu Banerjee, Katie Cowan, Taro Nagao December 5, 2006 Industry 6; Team A

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Variance Analysis: Example

Page 12: Final Report Brad Podraza, Anu Banerjee, Katie Cowan, Taro Nagao December 5, 2006 Industry 6; Team A

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2F Customer Overview

• Key Challenge: Intense competition

• Alternative Strategies Our Strategy:

• Diversify + Strong Awareness of product+ strong dealer incentives

Rationale:1. Had capacity to meet B2B

contracts2. B2B contracts involved limited

upfront costs3. Only 1 brand to support in

segment therefore could afford to spend high on advertisement

4. Existing strong dealer network therefore higher ROI than competition on giving dealer incentives

Category Leader Diversify Exit

Strengths Guaranteed Market Share

Sizebable Market opportunity

Emerging market spaces with less

competition (Hybrid/Delivery)

Weakness Erosion of Profit margins (conjoint)

Some upfront costs (minor car upgrade/ sales force/ dealer

network)

Even in P10, 2F made up 73% of Alfa Sales and Alfa made up

RisksGrowing

commodisation with new entrants

Devalue of brandFamily car an

important/growing market segment

Cost High Med LowBenefit Med High Low

P1 P10 % Change

Units Purchased (000's): 867 1325 53%Industry Avg Spec 3/2/3/2 4/3/6/5 108%No of Players 5 9 80%Expected Price Range: $18,000-$26,000 $22,000-$34,000 22%-30%

Page 13: Final Report Brad Podraza, Anu Banerjee, Katie Cowan, Taro Nagao December 5, 2006 Industry 6; Team A

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Key Learnings

• Minimal investments in seemingly insignificant areas can yield significant returns– Even decisions based on simple ROI analysis can provide a high return

– Direct sales force, B2B entry, dealership increase, minor upgrades to vehicles

• Pitfalls exist where you pay the least attention– Financing should have been a bigger consideration, even when the firm

was performing well– Don’t ignore current strengths, they can become weaknesses in the future

• First mover advantage does not guarantee above average profits or dominant market share– First mover in hybrid, second in delivery– Competitors with enough resources can take a large portion fast

Page 14: Final Report Brad Podraza, Anu Banerjee, Katie Cowan, Taro Nagao December 5, 2006 Industry 6; Team A

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Key Learnings

• Decisions to invest should be make proactively, rather than reactively– Set tangible targets and develop a strategy to achieve them– If a decision makes good business sense, it should not matter if other firms

have made similar moves

• Not all consumers are worth going after– If you try to please consumers with differing need using one product, you

run the risk of losing both– The cost of introducing a new product may not be offset by the price

consumers are willing to pay

• Achieving strong results does not mean they could not have been better– Variance analysis can offer insight into where the growth came from– Alternate strategies may lower volume sales but increase margin to more

than offset it

Page 15: Final Report Brad Podraza, Anu Banerjee, Katie Cowan, Taro Nagao December 5, 2006 Industry 6; Team A

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Give A Car a Good HomeAlfa. Alec. Arbor. Awesome. Atonka

Thank you.

Questions?

Page 16: Final Report Brad Podraza, Anu Banerjee, Katie Cowan, Taro Nagao December 5, 2006 Industry 6; Team A

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Additional Slides: Value Chain Analysis

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