Can the Smart Car Sustain a Competitive Advantage - Case Study Example

Running head: SMART CAR Can the "smart" car sustain a competitive advantage in the competitive microcar market ___________ ________________________ ________________ Can the "smart" car sustain a competitive advantage in the competitive microcar market Introduction This paper has the primary objective to look at the ability of Mercedes to position smart car in its main markets with highlighted competitive advantage through product features and advertising and media campaigns that not only emphasize such product features but also address the appropriate segment of buyers. Some of the specific questions probed in this paper are: How far would Hayek be able to translate its success of Swatch to the smart car in the form of its contribution to plastic engineering involved in smart car; what may be Hayek's role in the new-product development process with specific focus on the effectiveness of the Hayek-Mercedes venture; can the smart car be considered a market-driven idea; what market research should be conducted to make smart car positioning a success in terms of the four marketing Ps and if there is any justification for not basing new products on marketing research; critically assess the new product launch decision that MCC(Micro Compact Car) has made for the smart car; Should Mercedes rethink its ambitions in the small-car segment and what are the chances that the "smart" car will be a commercial success and ,finally, can the "smart" car sustain a competitive advantage in the competitive microcar market The paper would end with strategy based marketing recommendations to make MCC's strategic process of strategic choice and analysis with in organizations in relation to its competition. The paper also takes a theoretical look at strategy making within the marketing function in the smart car before making the above referred recommendations. Hayek's Swatch and the Smart Car Swiss watch making is recognized by one brand name: Swatch. Swatch made it possible for the Swiss watch industry to emerge out of a bankruptcy threatening recession in the 1970s, when over-confident manufacturers stuck to old technology ignoring the impact of new quartz technology which had allowed cheap, accurate watches from the Far East to capture the market. Swatch has traversed substantial distance since its formation in 1983, when the two Swiss largest watchmakers, ASUAG and SSIH, realized that under the onslaught of the new technology they were facing liquidation. Some of the prestigious brands such as Longines, Omega and Tissot, owned by these two watch makers, became ideal targets for foreign acquisition. The two companies panicked and decided to join hands and invited Nicolas Hayek, CEO of the business consulting firm Hayek Engineering, to organize the strengthening exercise. Hayek brought about one of the most amazing turn arounds in business health through his two pronged strategy in the face of fierce criticism. He amalgamated the two companies to form SMH (the company changed its name to Swatch in 1998); the Hayek Pool - Hayek himself and partners from Swiss industry - took over the majority of the shares, and Hayek became CEO. Then he radically altered the production lines and marketing. The now well known plastic Swatch watch was launched in the Swiss market in 1983, with 12 models with a price range narrowly defined between 39 and 50 francs. The basic product design was simplified from over 90 components to just 51 components, and remarkably all components could be welded together by robots on a single assembly line - the first on Swiss watch manufacturing landscape. This reduced skilled labour cost to almost naught as a proportion whereas in contrast in traditional Swiss watch making, the same cost used to account for as much as 10 % or more of cost of finished product. This made Swatch highly competitive in world markets. To add simplification and rationalization of production was the marketing ingenuity of Hayek. Hayek has ensured that strategic marketing plays an essential role in the success not only of the Swatch watch, but of all the brands in the group. Now each brand has its own message, which is strategically used in advertising and promotion. The message for Swatch is "highest quality, lowest price, provocation, and joie de vivre".As a result market segments get the message that the Swatch name is synonymous with cheerful fashion watches, cheap enough to enable customers to buy a new one according to season or to mood. However soon Swatch branched out of its narrow price range and now has high end models which price at the highest levels and cater to affluent segments. Even advertising was highly innovative, for instance, in Germany the company exhibited a functioning watch 140 meters long and hung it on the side of a major bank building in Frankfurt; it carried the three-word slogan: "60 DM, Swiss." Though the campaign lasted just four days, but by its end everyone in Germany knew what a Swatch watch was. (Clocks and watches)Now Hayek has joined hands with Mercedes to bring about the positioning of various models of smart car. MCC SMART (Micro Compact Car) was established in April 1994 by the Mercedes and Swatch association. The main idea was to create an urban, simple, environment-friendly and inexpensive car for the new century. The name SMART is a combination of Swatch, Mercedes and art. The partnership between these two firms represent a pairing f their respective strengths i.e. Mercedes and their engineering and Swatch and their plastic know-how. Plastics have been used in the automotive industry since the early part of the 20th century but the ongoing development of advanced, high-performance polymers has dramatically increased their use. In fact, the use of plastics for automotive applications has risen from about 27 kg per vehicle in 1970 to more than 163 kg in 1999. According to some 1999 European research studies, using 100 kg of plastic material in modern cars replaces between 200 and 300 kg of other materials. This, in turn, reduces fuel consumption by 750 liters over the 150,000 kilometers life span of the average car.(Plastics,1999) Hayek has a clear role to play. Plastic technology with advances in polymers is not only increasingly established in automobile industry but also is going to be the basis of product improvement in days to come. Futuristic cars, which are environment friendly, would need to be light in bulk so as to result in fuel saving and to shift to other energy substitutes which can support vehicles light on bulk. DaimlerChrysler, parent of Mercedes, is itself listing such alternative energy technologies as F-cell, Hydrogen, Renewable energy and Sun Diesel etc.Then Hayek would be ideally placed to get about another marketing ingenuity by positioning smart cars along side ultra popular Swatch and derive advantage out of the goodwill in watch operations highlighting in the same breath the superiority of their plastic technology and product features of smart car. Marketing Strategy for the Smart Car Urban development is decisive in the manner in which transportation planning is assessed which is critical point of strategic study for any car manufacturer. Pre-industrial cities in European and Asia were constructed with bicycles, mopeds and even horses in mind. While American, Canadian and Australian cities - mostly post-industrial in design - had cars in mind. The Green Revolution then is nominal in urban landscape where riding a bicycle or even taking public transportation becomes an arduous effort. For instance cities like Los Angeles have less than a 30% of the population using public transportation and regular bicyclists are almost non-existent. In contrast in any European city bicycles are part of the common traffic landscape. In car driven cities the only solution is to make cars greener. The latest commercial hit attempting to address this need of the city consumers is the Smart Car. Manufactured by Mercedes and owned by DaimlerChrysler this car runs off an internal combustion engine to power its small light frame. The Smart Car gets as much as 60 miles to the gallon and has low emissions (90 g of CO2 per kilometer).Its parking friendly size is an additional feature in crowded cities. Not just a novelty, the Smart Car's design enables its drivers to park width-wise and length-wise - a fact that is causing some parking companies to charge reduced parking fees. In addition to its pragmatic design the Smart Car is in its initial stages of using recycled and sustainable raw materials. To add to its environmental compatibility the Smart Car's gear shift indicator that helps you select the most economical gear.(Lightburn,2005).Given the above factors which speak for the smart car it can be an easy conclusion that smart concept was based on a concept similar to Swatch when Swatch began in 1980s with their plastic watches. There is a clear and large segment of urban consumers that are looking for light weight inexpensive cars such as the smart cars which are also fuel efficient and environment friendly. Smart car and its various models are definitely based on what market demands today. This has been exhibited by the sales of smart cars in Europe since their launch in 1980s.However US market is slightly different and low smart car sales, which fell much below the sales budgets and which made for US operations being in red, need a close look from the strategic view point. "DaimlerChrysler AG will sell its smallest Smart car, a minicar that fits on top of a regulation pool table, in the U.S. in a bid to help end losses at the unit, said Eckhard Cordes, a member of the company's management board. Sales to dealers last year fell 2,000 units short of a 155,000 target announced in September... Smart sold 139,600 units last year and has never met a goal of selling 200,000 vehicles a year. We see a clear potential in the U.S. for the Smart brand," Cordes, told reporters at the North American International Auto Show in Detroit yesterday. In terms of operating profit it's not where it should be; in terms of brand image, it is.Cordes said the company put "on hold" development of the Smart Formore sport-utility vehicle, being tested in Sweden, to limit the operating losses". (Bloomberg, 2005) Flaw in Strategic Marketing of Smart Cars-Lessons from Swatch Swatch had began with specific marketing strategy of position its plastic watches within a very narrow and low price range at consumers who were looking to buy trendy, accurate and inexpensive watches to suit all occasions. Swatch steadily continued with this strategy putting at its core the marketing USP as explained in paragraphs above and maintaining a rationalized and lean production process. While need for inexpensive watches was true for consumers of watches on global markets basis it did not come true for cars in US markets. The most compelling reason for which was that the car purchase was still a symbol of prestige and there was a distinct preference for well proportioned cars which may even be gasoline guzzlers. "Selling Smart may be difficult in the U.S., where more than half of all cars sold are light trucks and demand for high-quality compact cars is not as strong as in Europe, said Sal Oppenheim's Raab in Frankfurt"(Bloomberg,2005). However most category of consumers prefer any saving that might accrue to them from a low purchase price. Smart car though positioned as an inexpensive car was not priced as an inexpensive car-particualry when compared to the competition. "The Smart brand is too expensive to generate demand, said Martin Sachsenmaier, a fund manager at Frankfurt Trust which has about $16 billion euros under management and owns DaimlerChrysler shares. "It's a chic car, but why pay so much when you can get other small cars for less. The original Smart starts at 8,820 euros ($11,560), according to the German Automobile Club, while Daihatsu Motor Co.'s Cuore sells for 7,795 euros. The Smart Forfour, which costs 12,990 euros, competes with PSA Peuogeot's Citroen C3 and Nissan Motor Co.'s Micra, both of which cost less".(Bloomberg,2005).Thus the promise of an inexpensive car was also largely denied to consumers. This distinct preference for large cars can only be upturned through some equivalent advertising and media message which holds water with the US consumers. Such an argument was that of launching the smart cars as fulfilling the market slot of a green car. The media campaign had to adopt a mass social marketing zeal of inculcating environment friendly attitude in US vehicle owners in the presence of the fact that US vehicle owners have access to ready and cheap availability of gasoline. European customers are drawn to the Smart car for its reduced environmental impact. "The car also meets the EU's most stringent gas emissions standards, known as Euro 4. Its fuel consumption is also low, even by economy-car criteria. Yet that argument traditionally carries less weight in the US, where access to cheap and plentiful petrol is seen as a civic entitlement"(Vornic, 2004). While MCC retained its European USP message in the US it did not adequately build upon the green argument to sell to the Americans. With high fixed costs sunk in production facilities and sales not being adequate MCC was forced to cut down on launch of models in US as well as curtail on advertising spend as breathing measure. In fact this social campaign should have preceded the sinking of funds in production fixed costs. Strategic Remedies in Marketing function MCC needs to prune its production facilities to the leanest possible structure so as to spread fixed costs over vehicles sold in the thinnest possible manner. This would be reflected in more competitive prices for its models. Its media campaign have to reorient more to the environment friendly portrayal than any other product feature. Akin to Swatch marketing strategy, MCC need to concertedly adhere to an overall Low-Cost Leadership Strategy with its primary object being to find a sustainable cost advantage over rivals, using lower-cost edge as a basis either to under-price rivals and reap market share gains or earn higher profit margin by selling at going price. This has to continue till it leads to a "new best practice" in the industry, which eventually might be adopted by competitors (Porter, 2001).Cost reduction, however, is not necessarily a long-term strategy; it may barely be a tactic (Porter, 1996).The moment competitor enter and market turns mature, again akin, to the Swatch model, MCC can then adopt various product differentiation marketing strategies to address various market niches. These strategies can range from Broad Differentiation Strategy to Focused Low-Cost Strategy to Focused Differentiation Strategy and even Best-Cost Provider Strategy. It is also essential that an ongoing SWOT analysis is taken up in various major geographical markets to fine tune the strategic thrust. Stephen Haines' Centre for Strategic Management has built a new strategic planning system based on systems thinking and calls it the 21st Century Yearly Strategic Management System and Cycle. This system moves beyond planning into implementation. It includes a Plan-to Plan phase and a Plan-to-Implement phase. The steps include team building and leadership skill building as part of the planning. It also includes a parallel process whereby all key stakeholders are involved based on the premise that 'People support what they help create'. This process starts with a Futuristic Environmental Scan and defines the ideal vision in terms of mission, values and end outcomes that the organization wishes to set for itself. Only after the statement of such Ideal Future a Current State assessment based on SWOT(Strengths, Weaknesses, Opportunities and Threats) is taken up to identify the gaps and make strategies to close the gap(s).As a result of their clients adopting this model it was found that clients began developing competitive edge and the organization was much clearer on what their competitive "positioning" in market place was and found themselves moving positively in that direction, to the delight of their customers(Haines,2004).Thus this process leans directly into the process of competitive strategy making as it includes environmental scan both-present and future and enables movement in the desired direction. However this system's parallel process is a very critical aspect and strategic management literature has a common view that good strategies grow out of ideas that have been floating around the firm, and initiatives that have been taken by all sorts of people in the firm. This resource must be drawn upon as frequently as required even in competitive strategy making. This would enable MCC to address most of the competitive challenges and position itself robustly in micro car segment. References Clocks and watches. Swatch. Retrieved from http://www.swissworld.org on October 21, 2006. Plastics in-class. (1999). Plastics are lightening the load in automotive sector. Volume 2, Issue 3.May, 1999. Lightburn, Shelley. (2005). Car Talk for the Millennium - Profiles on Current Vehicle Technology. The Galt Global Review. October 19, 2005 Bloomberg. (2005).Fortwo will be first Smart to sell in US. 1-11-2005. Vornic,Andr.(2004). Can the Smart car move America BBC News, New York. April 27, 2004. Haines Stephen.G, 2004, Reinventing Strategic Planning: A Researched Based 21st Century Success Framework, Retrieved March 20, 2006 from http://www.csmintl.com. Porter, E. M., 1996, What is Strategy, Harvard Business Review, November-December: 61-78. Porter, E. M., 2001, Strategy and the Internet, Harvard Business Review, March-April: 63-78. Read More