final report brad podraza, anu banerjee, katie cowan, taro nagao december 5, 2006 industry 6; team a
DESCRIPTION
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 ETRANSCRIPT
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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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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
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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
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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
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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%
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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
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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
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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%
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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
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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%
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Variance Analysis: Example
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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%
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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
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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
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Give A Car a Good HomeAlfa. Alec. Arbor. Awesome. Atonka
Thank you.
Questions?
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Additional Slides: Value Chain Analysis
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