Tesla Motors Inc - Strategic Marketing Analysis and Marketing Strategy - Essay Example

Tesla Motors Inc. By: This paper analyses the business model of Tesla Motors. Initially, the paper conducted a brief description of the company. After that, the paper designs the best strategic marketing direction to be used by the enterprise, in this case, open innovation. Also, the document explains the procedure of developing the best strategic marketing direction for an enterprise. From the procedure, it is important to note that good marketing begins with a well-informed and structured marketing strategy. A knowledgeable approach will assist in defining the business goals, and the ways of achieving these objectives. In the end, the paper concludes the study. Introduction Developing effective marketing strategies is critical to companies. Marketing experts argue that customers are the best source of revenues for most businesses. Therefore, it is necessary to understand the customers and develop strategies aimed at making them happy. A good strategy will enable a company achieve competitive advantage in the market. This paper will discuss various marketing strategies and will assist in developing an efficient marketing strategy to enhance the success of Tesla Motors. Company profile Tesla Motors was formed in 2003 by JB Straubel, Martin Eberhard, Ian Wright, Elon Musk, and Mark Tarpenning in San Carlos, California (Karamitsios, 2013). It is an American company that deals with designing electric vehicles. From their financial results, Tesla Motors is a global enterprise and is considered to be very successful (Karamitsios, 2013). Their strategies, especially technological strategies have enabled the company gain a competitive advantage. Apart from technological strategies, the company has embraced the best global branding and market adoption. Despite their success, there is a need for further research in strategic management and marketing. The paper will assist Tesla Motors in creating an effective marketing strategy to enhance its success (Chen, 2008). Market Context and Situational Analysis Company analysis Tesla Motors is a worldwide enterprise. The firm deals with the design and manufacture of electric powered vehicles. Its management is focused in innovation, and it is the only car designer that manufactures zero-emission sports car. They have the best technological strategies and currently it plans to expand its production of luxury vehicles with the use of the latest technology (Karakaya, 2011). Experts argue that Tesla Motors follows the business model of Apple Computers. They base their argument on the fact that Tesla Motors uses the strategy of selling eco-friendly products. Conversely, Tesla Motors differs completely with their peers in the motor vehicle industry such as Ford, in terms of business model. Taking Ford Motors as an example, the corporation has struggled to match the current technological trends such as design of hybrid vehicles (Gassmann, 2009). Tesla Motors is a very young company according to market analysts. However, they have penetrated the global markets just like other big companies. In fact, from the graph below, it is evident that Tesla Motors is growing very fast. T The company employed various corporate strategies in order to gain the competitive margin. A study by Kale noted that the corporation has three ways of making their products available to the customers (Kale, 2001). The first method is through their online websites. Additionally, they use their showrooms to avail their variety of vehicles available for purchase. Secondly, the corporation allows other vehicle manufacturers to sell their electric vehicles. Thirdly, the corporation focuses on marketing hybrid vehicles and encourages other manufacturers to follow suit because of high customer demand (Kale, 2001). A study by Lumpkin summed up Tesla’s strategy in three procedures (Lumpkin, 2005). Firstly, Tesla Motors introduced the Roadster model to the markets. In this model, the company was trying to bring in the idea of electric vehicles to the people. According to this study, the first step is already a success. The second step was the introduction of the ‘Model S’, in 2012. This step was intended to target the middle and the upper-middle class customers. Thirdly, the corporation in 2014 designed a new marketing model called ‘Model X’ (Karamitsios, 2013). To control a wider market, the company’s top management adopted the partnership business model. In this model, the company manufactures and markets its merchandise, and allows other companies to trade but with their brand names(Crane, 2011). A study by Bessant concluded that Tesla Motors has three strategic alliance types (Bessant, 2005). These are: Alliances of the suppliers Alliances of Research and Development Original Equipment Manufacturer alliances Tesla Motors has partnered with many firms. Among its suppliers include Panasonic and Lotus Cars. These are the vendors who cooperate with Tesla Motors. The corporation partners with the Research and Development department of Panasonic Corporation. This department helps in designing and development of new and efficient batteries. Tesla Motors also partners with Original Equipment Manufacturers such as Toyota(Bruccoleri, 2012). The table below summarizes all the partnerships undertaken by Tesla Motors (Karamitsios, 2013). Alliance(Location) The type of alliance Equity, Non-equity or Joint Venture Alliance Products/Services Provided Sotira(France) Supplier Non-equity Manufactures carbon fiber body. Works with Lotus, UK Lotus(U.K) Supplier Non-equity Manufactures chassis to be used in Tesla Panasonic(Japan) Supplier Equity alliance Manufactures battery cells Borg Warner(U.S) Supplier Non-equity Manufactures single-speed gearbox Panasonic(Japan) Research and Development Equity alliance Manufactures battery cells and researches on developing nickel-based lithium-ion battery cells Dana Holding Corp. (Canada and US) Research and Development Non-equity Researching on batteries that do not use wear out even at high temperatures Daimler(Germany) Original Equipment Manufacturer(OEM) Equity alliance Integrates Tesla batteries packs. Also charges electronics into Smart Fortwo development Freightliner OEM Equity alliance Designing of electric vehicles, components in the powertrain Toyota OEM Equity alliance Designing of electric version of Toyota Rav4 in Tesla’s manufacturing plant in Los Angeles US government Loans Provision of funds to assist in production, research, and projects Competitor analysis The main competitor for Tesla Motors is the WrightSpeed X1, a company that designs and manufacturers a small two-seater electric car (Karamitsios, 2013). The design is based on the trending design type. Experts argue that the company specializes on enthusiastic customers rather than daily drivers(Brews, 2007). The main entrants in this motor vehicle markets are large, mass-market manufacturers such as Toyota and Chevrolet. The other main entrants include luxury performance sports car such as Porsche and boutique manufacturers such as Aston Martin. The rivalry in this market is very low, and the entry barrier is high. Additionally, it is evident that the market sector is niche(Brews, 2007). The competition is not that stiff because the bargaining power of individuals is low. Demand is very high for luxury cars. The paper will now analyse the Tesla Motors competitor’s strategies. Toyota As of 2000, Toyota was regarded as the best hybrid car available. Statistics indicate that Toyota sold over 500,000 as of 2007 in the US markets (Aeker, 2000). Toyota hybrid cars vary in terms of price. The most expensive Toyota hybrid cars have the best quality and efficient. Experts argue that Toyota surpasses Tesla Motors when it comes to the battery pack. Toyota offers a larger battery pack. In this case, experts recommend that Tesla should conduct more research in technology. Additionally, Tesla’s management has a long way in building a brand name like Toyota (Aeker, 2000). BMW BMW is a competitor of Tesla Motors. According to engineers, BMW has efficient dynamics (Aeker, 2000). Technology used by this company is ‘Mild Hybrid.’ This means majority of its components use energy-saving elements. For instance, BMW has a small 4-cylinder gas and a regenerative braking. With this in place, many customers prefer BWM to other vehicles. However, BMW does not have electric vehicles. The car uses hydrogen technology, where the car uses both gasoline and hydrogen to power the engines (Aeker, 2000). GM Many experts argue that GM is a future threat to Tesla (Aeker, 2000). GM engineers are working on developing electric cars. They want to enter the hybrid car market. GM put their plans into action with the design of Volt. The car proved successful in the market. Therefore, GM plans to design more electric cars. A Volt owner drives for almost 50KMS with battery-powered engines before the gas engine recharges the battery. Engineers argue that Volt has helped to solve the problem of cars running purely on batteries. From the above discussions, Tesla still has a long way to go. Good strategies will enable Tesla to be successful. Experts predict Tesla Motors to follow the way of Porsche. Porsche is a high end low volume automobile type. For this to be a success, some experts recommend Tesla to be bought by a bigger company, say Toyota. Being an electric branch of Toyota, Tesla Motors will stay alive in the automobile industry. The company will increase its competitive advantage and in the end, they will become the world’s best electric car company (Aeker, 2000). Customer Analysis Many people have accepted electric vehicles. However, there are barriers that hinder the adoption of electric vehicles (Engel, 2007). First, it is the familiarity. It is natural for human beings to take long when familiarizing with a new product. Automobile designers offer inadequate knowledge to the consumers. From surveys, many electric car manufacturers are planning for massive public education, which may cost in excess of $1billion. The other barrier is brand. It is normal for customers to buy from brands they trust. From many surveys, majority of automobile owners prefer Toyota, Honda and Ford. Therefore, new designers such as Tesla Motors will find it hard to penetrate the market. Charging is another barrier to adoption of electric vehicles. There are less charging stations available. This reduces the will of customers to own electric cars(Levesque, 2006). Despite the above barriers, many customers are still willing to buy electric vehicles. A survey conducted by Levesque found out that majority of electric vehicle buyers make the decision to purchase because their expectations outpaced the reality (Levesque, 2006). This means that, many customers expect the price of energy to increase, the cost of electric vehicles to reduce, and the whole world will adopt electric vehicles(Aeker, 2000). The poor economic conditions hit many customers. They are not willing to continue to pay high gas prices. Therefore, with high oil prices, customers are more interested in buying electric vehicles. A study by Herzog noted three types of buyers (Herzog, 2011). These are advocates, who are committed to reducing environmental pollution, Moderates, who are not so committed to reducing environmental pollution, Resisters, who do not commit to reducing environmental pollution. Majority of electric car buyers are moderates. Moderates purchase electric vehicles because of many factors apart from trying to go green. These factors include enthusiasm, economic conditions, status, and such (Aeker, 2000). From the above discussion, market analysts predict an increase in the number of electric car buyers, but by a short margin. The main factor that may reduce the number of customers is the expectation of the reduction in oil prices (Aeker, 2000). Trends and forecasts Almost every country in the world is using electricity as the main source of energy. Environmental advocates are working hard to promote sustainable energy development. A sustainable energy used in vehicles is electricity. This will help to address the issues of changes in both climate and air quality (Holmberg, 2011). The world has experienced significant increase in fossil fuels prices. Additionally, the effects of widespread pollution of the environment by petroleum products have affected humanity. These factors are the main reasons for motor companies, such as Tesla Motors, to renew their interests in designing more and more electric vehicles (Holmberg, 2009). Despite many automotive companies showing the interest of entering the electric car business, there are challenges. Challenges include lack of customers’ acceptance for these cars, expensive prices offered, and insufficient charging stations (Crane, 2011). Normally, in an electric car, there is one or more electric motor. The motor is powered by the help of rechargeable batteries. There are many benefits associated with electric cars. These benefits include zero pollutions of the air, fuel economy, and many more. Companies such as Tesla Motors are investing a lot of money in marketing electric vehicles because they offer greater energy efficiency (Santamaria, 2007). In trying to predict the future sales of electric cars, the paper used the Porter’s five forces (Porter, 2014). When it comes to rivalry among competitors, there are factors such as bargaining power of suppliers and buyers, threat of substitute goods, and the threat of new entrants/barriers. In this case of Tesla Motors, their bargaining power of buyers is low. Tesla sells products in small quantities, their products are unique, and they have few competitors. Therefore, Tesla should expect an increase in sells(Brews, 2007). Tesla’s power of suppliers is low. Tesla Motors could easily switch suppliers because there are many in the market. Additionally, the threat of substitutes is low. Alternatives in this case include hybrids, public transport, and hydrogen vehicles(Brews, 2007). A closer analysis of Porter’s five forces will show how Tesla Motors enjoys a favorable market situation and competitiveness. Strategic Marketing Direction Statistics and studies predict a boom in the global vehicles market. Many people around the world are seeking to lower their expenditure in fuel. There are many factors that could affect the growth of this market. These factors include growing government initiatives, availability of electric cars at affordable prices and increase in concerns about environmental pollution. Governments and companies globally are initiating policies aimed at increasing the chance of people adopting electric cars(Mangram, 2012). There is a lot of opportunity in the electric vehicles market. For instance, just in 2012, this industry was valued to be $85 billion. This means that corporations in this sector receive a lot of revenues(Cravens, 2009). The graph below indicates the forecast and market size of global electric vehicles. In order to continue enjoying success in this market, Tesla motors have to develop the best marketing strategy. The paper will discuss the best marketing strategy for Tesla Motors(Lumpkin, 2005). Developing a marketing strategy From numerous literature reviews, it is important to note that good marketing begins with a well-informed and structured marketing strategy (Porter, 2014). A knowledgeable approach will assist in defining the business goals and the ways of achieving them. Any marketing strategy affects the way a business operates. Therefore, before designing a marketing strategy, there is a need for closer consultations with stakeholders. A marketing strategy has to: Define what the business offers, that is, the products and services Describes the role of the products and services in the market Defines all the customers and the competitors. Describes the marketing techniques used Enables the management to develop the best marketing plan Before writing down a marketing strategy, it is important to identify the business goals. Identifying a business goal will help the organization design a marketing goal to support it. For instance, the business goal may include: Making the products and services known to the people Selecting only one supplier Looking for new customers A study by Bruccoleri identified SMART method as a way of setting goals (Bruccoleri, 2012). SMART stands for Specific, Measurable, Achievable, Relevant, and Time bound. Specific: The goals have to be clear Measurable: There should be measures in place to measure the results Achievable: The organization should have the capacity to implement the goals Relevant: The goals have to be relevant and could help the business gain achievements Time-bound: The goals has to be achieved within some time The next step is stating the marketing goals. It is important to define specific marketing goals. For instance, a company may decide to increase their market penetration. Marketing penetration will see such a company selling more products to the existing customers(Aeker, 2000). The overall strategies have to be measurable. Additionally, they should be practical. These two factors will see a strategy become durable and last for long. After determining the above, it is important to research the market. A good research will enable the business operators to determine the market size, growth, and demographics(Aeker, 2000). The next step is profiling the potential customers. During the research, the researcher has to develop the profile of clients targeted. This will help to identify the needs. A good understanding of the customers will enable the business understand the buying patterns and the customer buying trends (Mangram, 2012). The next step is profiling the competitors. The profile should include the products they sell, their supply chains, and marketing techniques. A good profiling will enable the organization rate its competitive advantage. During this profiling process, the organization identifies its strengths and weaknesses and compares it to its competitors (Aeker, 2000). The next step is to develop the strategies that support the goals. The organization lists all the target markets and design tactics to keep these markets. At this point, the organization has to increase its online presence, through sites such as facebook and twitter(Karakaya, 2011). After the development of the strategies, the next step is to use the 5P’s of marketing. A good combination will make the marketing strategy to be a success. After all these steps, the last step is to test the ideas. The management should test the ideas on the customers and staff. This will help to review what works. If it works, implementation is the next step. The management has to monitor market performance(Karakaya, 2011). Tesla’s case Tesla is very successful in the electric motor industry. To continue to become successful, Tesla has to invest more in technological strategies (Chen, 2008). They have to concentrate on open innovation. To constitute innovation, Tesla has to focus on new products, new processes, and new markets (Chen, 2008). Product innovation refers to significant changes to the products offered by the company. Process innovation refers to changes in the ways an organization creates and delivers products(Karamitsios, 2013). In this case, Tesla has to concentrate more on product innovation. This strategy will enable Tesla gain a competitive advantage. In recent times, Tesla implemented product innovation by manufacturing only electric vehicles that have elements such as good deign, sporty performance and long driving range (Chen, 2008). Customers noted this and became more interested in Tesla products(Cravens, 2009). Open innovation strategy is a strategy that follows open innovation principles. Summarizing these principles, it is necessary for organizations to consult with people inside and outside its premises (Bessant, 2005). This will promote innovation and implementation of the best ideas. Tesla Motors already has a research and development department. This department is very useful in implementing the open innovation strategy. The research and development department of Tesla often collaborates with departments of other companies. The collaboration could yield more innovation ideas. From the past collaboration, Tesla invented some products. These products include the battery technology with Panasonic, and latest designs with Toyota (Chen, 2008). There are three processes involved in the innovation process. These processes are: Inbound process Outbound process Coupled process(Inbound+Outbound) Coupled innovation process is when a company combines with other organizations to develop a particular technology. Tesla’s research and innovation department uses the coupled innovation to cooperate with other departments. Additionally, coupled innovation has enabled Tesla Motors to cooperate with other companies such as Toyota. With this process, the company could gain more customers by inventing more products (Chen, 2008). Experts argue that coupled process has proved to be more successful than mergers and acquisitions. In this case, Tesla becomes more successful because they will concentrate more on forming collaborations and partnerships rather than forming mergers (DAveni, 2007). Open innovation strategy will allow Tesla Motors to renew their technology and product merchandise. Market experts argue that in mature markets, organizations are able to use corporate entrepreneurship to renew their technology and product portfolio (Bessant, 2005). For instance, Toyota uses this strategy by partnering with Tesla. Toyota is very successful in its market, but they are trying to enter the new electric vehicle market. Toyota is becoming successful in this new market because they collaborated with Tesla. This collaboration was beneficial to both companies. Tesla penetrated into Toyota markets, and Toyota renewed their technology portfolio. Open innovation strategy will see Tesla Motors partnering with many other big companies, such as Mercedes. In the end, the company will have opened new markets(Lumpkin, 2005). Tesla Motors are working hard to reduce environmental pollution. Open innovation will encourage Tesla to form alliances with green technology firms (Bessant, 2005). The strategy emphasizes on the importance of alliances. Therefore, it will influence the management of Tesla to form collaborations with green technology firms. Moreover, with more partnerships, Tesla Motors will establish strategic alliances. Strategic alliances are very crucial in keeping the customers, and attracting new clients. As by now, Tesla Motors has three strategic alliances: Original Equipment Manufacturer and Research and Development alliances. Open innovation strategy will enable the firm to form more alliances(Crane, 2011). Open innovation enables a company to form a big network of suppliers. Suppliers are crucial in developing core competences. In the past, Tesla partnered with Sotira who are their main supplier (Chen, 2008). The partnership was meant to discuss ideas of reducing the weight of vehicles. This case suggests that suppliers are paramount to a company. After previous partnerships with suppliers, Tesla Motors were able to plan well their financing streams (Chen, 2008). Components of strategic management Open innovation is the best strategy for Tesla Motors. In any strategic management process, strategy formulation, strategy implementation, and strategy evaluation are essential components (Porter, 2014). In implementing this innovation strategy, Tesla has to consider all the above components. There is need for Tesla Motors to keep researching on the various trends in technology. This will help the firm gain competitive advantage. When implementing the strategy, leadership is the factor that affects the process. The leaders of the firm have to give their all in the implementation process. The chief executive of Tesla Motors had a master plan. The master plan was to: Build a sports car Sell the sports car and use the money to build a more advanced car Sell the more advanced car and build a more and more advanced car This car had to use electricity as the primary source of energy. The master plan was a success because the C.E.O gave his all and provided all the available resources for the implementation. Conclusion The main strategy used by Tesla is applying product innovation. They invented new vehicles, and combined this with process innovation. They formed partnership with companies, and derived business plans from this collaborations. In summary, Tesla is an innovative company (Chen, 2008). Open innovation strategy will work very well with Tesla Motors. The company has already established numerous research and development collaborations with other big companies. These collaborations are very useful while designing and implementing open innovation strategy. The automotive business is a globalized market (Chen, 2008). The level of competition is very high. Tesla Motors is a new company; therefore, many people argued that it will struggle in the markets. For any start-up company to penetrate very well in the markets there is need for an enormous capital. Additionally, there is a need for proper infrastructure. When all this is in place, the company has to design the best strategic marketing direction. Tesla Motors had all the above requirements, but it is from its numerous partnerships that the company gained global attention. Open innovation promotes partnership, and this will enable Tesla Motors to gain competitive advantage and control a wider market (Chen, 2008). There are challenges of open innovation strategy. Some of these challenges include costs, lack of cooperation by partners, and opportunistic behaviors.Lack of funds by other partners is the most significant risk (Brews, 2007). A good example is BetterPlace, an electric car company that was bankrupted (Aeker, 2000). This means that Tesla Motors has to be cautious while implementing open innovation. Its leadership has to be wise enough in choosing partners and alliances. Additionally, Tesla Motors has to play its role in their collaborations, and should share a common goal. 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