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3 Marketing Strategy: Branding Basics, Brand Hierarchy, Mercedes, Segmentation, Toyota - part 3
It doesn't use focus groups or research; Apple is its own focus group. It controls its channel and message better than any company on earth. Great marketing: the swoosh logo, "word of foot" advertising, and, of course, sponsoring athletes. Geico also has some of the best ad concepts on the planet: The Gekko, the Caveman, the little piggy, and my current favorite, the electricity-generating guinea pigs in a rowboat: "It's kind of strange. Such a simple word. There's simply no other way to explain how such a horrendously bad product -- in my sole and humble opinion and with all due respect to anyone who actually likes the stuff -- became an American institution and perhaps the most powerful and successful alcoholic beverage brand of all time.
Commentators are forever saying how dumb corporate name and logo changes are. Well, they're clueless. As with anything else, name changes range from dumb to brilliant and everything in between. Adopting the viral conjunction "FedEx" allowed Federal Express FDX to capitalize on its leadership in express mail while diversifying into ground and other business services. It was brilliant. And its advertising has been groundbreaking, as well. Shattering 10 branding myths Marketing is dead -- long live "real marketing" Marketing is like sex: everyone thinks they're good at it. Southwest Airlines. By focusing on the customer, doing things the right way instead of the way they've traditionally been done, allowing its staff to have a little fun on the job, flying short-haul routes to regional airports, and becoming the first no-frills carrier, Herb Kelleher broke the airline industry mold and made deregulated air travel profitable.
Southwest LUV broke the mold. We anticipate five major changes in future automobile distribution patterns and practices: 1. Multiple channels and formats will coexist to satisfy different market segments. Channels are distinct paths between a manufacturer and a customer through similar economic entities in new car sales, for example, traditional dealers vs. Formats are distinct combinations of points of sale, service offerings and business processes within a general channel definition for example, the Lexus format versus the Chevrolet format. We expect much more variation in channels and formats in a physical sense and more distinct positionings in terms of the purchase and ownership experience they provide, further shifting the basis of competition from product to services and brand attributes.
Undoubtedly, the traditional dealer channel will continue to play a major role, although most of the innovation and volume growth will occur elsewhere. In many other consumer-durables markets, multiple channels with different value propositions coexist quite happily. See Exhibit III. The six separate businesses under the roof of the traditional dealership will be unbundled. The integrated model -- new-car sales, used-vehicle sales, finance and insurance, service, parts, fieets -- was established early on when automobile retailing was still a new industry.
In today's world it makes little sense. Different operational structures will be required to serve a variety of customer needs and economics. The cost of distributing and marketing automobiles will be cut significantly. New formats and channels will discipline the current system to drive out non-value-adding cost. Dealer consolidations may unlock substantial economies of scale in back-office functions and purchasing leverage. Much larger savings are possible, however, by driving out inventory; reducing investment in brick-and-mortar and real estate investments, and optimizing the delivery of services.
Marketing and distribution will concentrate on establishing durable customer relationships. Customer acquisition costs are high and going higher; it is logical for manufacturers and their channels to work harder to hold on to the customers they have. We see these relationships developing on two axes: "follow the car" and "follow the customer. Used-car certification programs are a "follow the car" concept increasing in popularity today as a means of supporting initial sale prices. The "follow the customer" axis means building more direct relationships with a targeted set of customers to define their needs, develop tailored marketing programs and stake out unique brand positions. Identifying these customers and keeping them happy will require substantial investments in market-understanding capabilities that go far beyond the functional, demographic and pyschographic information that most manufacturers study today.
Manufacturers will seek and attain much closer contacts with consumers. We have no doubt that someone will figure out the riddle of consumers' needs, aspirations and experiences as they relate to cars; the tenuous part of this prediction is that manufacturers, and not other channel players, will get there first. Manufacturers are surprisingly -- if not shockingly -- cut off from their consumers today. Their dealer partners spend much of their energy figuring out ways to disguise the product-push allocation system in a way that conceals true market demand from the manufacturer.
Manufacturers spend small fortunes on advertising, sponsorships, customer clinics and surveys but continue to introduce market duds. Internet technology enables more effective and efficient direct contact between manufacturers and their ultimate customers. If, however, manufacturers fail to exploit this and other technologies to establish meaningful relationships with consumers, more powerful channel intermediaries will gain the upper hand and end up dictating customer needs to their suppliers -- the manufacturers. These transformations will not be easy, and many of today's players will fight them aggressively.
But the revolution in automotive retailing has begun, and now that it is under way it will be impossible to stop and nearly as difficult to contain. Appropriate responses are to some extent situation-dependent, of course, but we believe the three stages of channel evolution observed in other industries provide valuable insight into what is and will be required to prevail in the automotive industry. In fact, first-stage channel evolution activities are rampant in automobile retailing in the United States and Europe, and second-stage changes have begun to emerge for used cars.
We expect that participants who fall behind in this evolutionary process will suffer severely, particularly as more and more of the value creation and differentiation in the industry occurs downstream. The future winners in the automobile industry likely will be the ones that drive third-stage evolution. Accordingly, we recommend the following strategic responses consistent with the three stages of channel evolution and the future automotive distribution vision described above: Aggressively and systematically pursue functional improvement beyond the factory gate. The most prominent opportunity is cost. Develop a vision of a desired end-game distribution channel strategy and begin making progress toward that vision, taking care to achieve consistency between the long-term vision and short-term functional improvement agendas.
Build the means to create and capture much more of the "downstream" value associated with the automobile -- and, in so doing, strive to innovate "game-changing" approaches to the business. Most manufacturers and many large channel players are jumping at these opportunities, given their magnitude. However, these players tend to select a limited number of programs, and they typically concentrate on single functional improvements independently or on a single functional path.
A better approach is to address systematically the whole realm of possibilities with an integrated view of benefits within and across specific functions. This is not easy. Even programs with moderate scope and ambition typically require reforming entrenched business philosophies; coordinating several organizational groups with disparate incentives; managing complex and imposing legalities, and facing up to dealers resistant to change. But manufacturers must recognize that new players unencumbered by these constraints are raising the bar and traditional players must reach higher or fall behind.
Based on our experiences and analyses, we estimate that about 7 percent of the total cost to serve consumers, or nearly one-quarter of automotive marketing and distribution costs, can be reduced based on a typical traditional dealer operation. See Exhibit IV. The cost reductions derive from three sources:. The consolidation and rationalization of channel activities to achieve economies of scale and eliminate inefficient operations.
Large numbers of small competing dealerships impose significant cost penalties. The unbundling of dealer businesses, for instance used-car selling, to optimize the operating model for a specific business. The application of best practices across outlets. Given the wide variation and the resulting large differences in efficiency and effectiveness in operations among dealers, the application of best practices is a powerful cost-reduction lever.
Here are some examples of potential functional improvements: Reduce inventory costs. Dealers can cooperate among themselves and with the manufacturers to pool inventory in regional centers. Also, analytical methodologies, information- systems tools and best practices can be used to evaluate the dealer-level sales history to determine the best amount and mix of vehicles, including option packages, to hold in inventory. Finally, to improve future demand visibility and forecasting accuracy, dealers can use improved information systems and marketing techniques to track customer and sales-promotion information, lease-renewal marketing campaigns and historical data on sales-promotion effectiveness.
Leverage purchasing power. Dealers can also capitalize on economies of scale. The economies result from lower costs in areas such as financing, advertising, management personnel, payroll handling, insurance, supplies, administrative functions and parts purchases. The reported cost savings from these economies alone can be as high as 20 percent of a dealer's total costs. Hollingsworth Jr. Most manufacturers today have some sort of certified used-car program, although the programs vary in effectiveness. These programs are critical to managing the risk of large losses from infiated lease residuals that have become commonplace, and to minimizing the huge cost of incentives. There is a direct link between the value of the used car and new car prices for the same model.
In one case for two comparable high-end sedans, we found a difference of 8 percent in the used-car price between the make with a certified used-car program and the one without, despite the fact that they were priced the same when new. This used-car relative discount was then refiected directly in the new-car pricing differential between the two models in subsequent years. Unbundle used-car sales. A large-scale operation designed specifically for used cars can achieve efficiencies relative to the conventional dealer's used-car format.
These include economies of scale in areas such as advertising, management, personnel, facilities and systems. In addition, there is the obvious savings of a lower-cost location. Joint ownership and operation by dealers and manufacturers can make an unbundled used-car operation plausible for existing franchised dealers. Use best practices to sell cars. The traditional selling approach for new cars is replete with cost and effectiveness opportunities.
Manufacturers and dealers typically use expensive shotgun approaches to these phases; alternative, more cost-effective information exchange mechanisms are available for each. These include information technology tools and approaches such as: Direct marketing databases Kiosks for interactive customer information exchange, vehicle selection, pricing, delivery-date promise, order checking and "soft offers" warranties, financing, insurance, service packages, etc.
Internet sites for some of these same functions. Benefits include reduced mass-media advertising expenditures, more effective targeted marketing and reduced sales force resources for almost every phase of the process. See Exhibit V. Use best practices in service and parts. Techniques for parts inventory management, service personnel staffing practices, service bay scheduling and repair and maintenance procedures typically vary greatly from one dealership to the next. Systematically identifying the differences and meticulously implementing revised practices results in an average parts and service cost reduction of 15 percent to 20 percent with only nominal investment. Increase customer satisfaction.
Customer satisfaction and loyalty are rich veins of potential functional improvement. Manufacturers' efforts are usually unsuccessful when they try to bribe the channel to improve customer service. Good performers in the channel end up getting paid for what they are already doing and the poor performers undertake short-lived, superficial steps to "manage the measurements. Service advisors and computer-driven follow-up calls will not regain ground lost to sloppy execution. Realizing the full potential of these programs is not possible without a reasonable view of the different customer segments that should be targeted; the appropriate mix and level of marketing and distribution functions needed for each segment, and the best portfolio of distribution formats and channels to reach the targets.
Just as specific groups of customers have their own product requirements, different consumer segments have their own requirements for the purchase and ownership experience. These requirements can be effectively targeted with channel, format and "soft offer" package variations such as service contracts, financing or sales incentives. Ultimately, the consumer-segment requirements will drive the service requirements and in turn help determine the best cost and operating structure for the specific distribution format and customer-value proposition.
Creating purchase and ownership experiences to meet the needs of specific consumers has two other significant implications. First is the need for parallel formats and channels in a given region, each with its own pricing and bundle of service offerings. Parallel sales channels can range from the traditional dealer to the Internet or to direct sales. See Exhibit VI. Parallel channels and formats raise the possibility of channel confiict and the need for expanded skills to manage and reduce it. It has a wide presence from sedan to SUV to Sports racing cars. Differentiation targeting strategy is used by Mercedes to attract the customers and satisfy their wants.
Positioning itself through emotional appeal and creating top of mind awareness has helped the company in becoming the best luxury car makers in the world. Marketing mix — Here is the Marketing mix of Mercedes Benz. Strong parent company Daimler Inc. Mercedes have a total of 38 plants of which 23 plants 9 Vehicle plants, 9 powertrain plants, 5 car assembly plants worldwide are company-owned plants. All plants are situated in strategic locations which are helping them in targeting the developing nations and at the same time will keep their operational costs under control.
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