The global automotive industry is entering a new business era as the landscape of the industry has drastically changed. Successful companies operating within the industry will survive by being innovative in the way they design, develop, and deliver their products and services to the end user. With the new theme being green, auto manufacturers are outdoing themselves in the search for the ultimate price, a car that can run efficiently on renewable energy.
The smart began in 1993 as a joint venture between Daimler-Benz and Swiss watch maker-Swatch to create a company non as micro concept car A.g. (MCC) in Switzerland. The company would later move to Germany to be known simply as Smart. The city cars would feature the build quality and engineering of Mercedes Benz cars, while Swatch would contribute the funky design. The resulting to passenger Smart city compact was designed for Europe's urban environment, with a specific emphasis placed on fuel economy and parking ease, as it could be parked perpendicularly in a parallel parking lot. Swatch was later bought out by Daimler-Benz and the car proved to be a hit with consumers in the nine European countries in which it was introduced in 1998. This led to further expansions of the Smart model, including the Roadster and Roadster Coupe in 2003, and the For Four Sedan in 2004.
Going against the Smart in the small/mini car segment is the BMW Mini, recreated after BMW bought the brand in 1994 along with the Rover Group. Retaining the basic shape and interior design of the vehicle, the BMW group looked to re-enact the loyalty shown to the cars predecessors. Both companies are renowned market leaders in supplying automobiles. They both have a history of providing inn`t.
This study aims to examine the marketing strategies of these two automobile giants with respect to their mini car segment, the smart and the Mini Cooper. The study looks to develop a new value proposition for the Mercedes brand, smart.
A value proposition is simply a business marketing statement summarising the customer segment, competitor targets and core differences of one's products from the product's competitor's offer. In recent times, with markets getting smaller most companies not only put their products on the shelf but also include services which help consumers enjoy the product. It is usually a combination of activities put in to words telling a potential target segment what they stand to benefit from buying the product. According to Piercy (2009) to develop a value based market strategy, a company should follow a strategic pathway model comprising - market sensing and learning strategy, strategic market choices, customer value strategy and positioning and finally strategic relationships and networks.
Value Proposition of smart
In taking their products to consumers, one of the key decisions managers have to make is its market choices. That is, who are the target groups in the overall market (market segmentation and targeting), the products competitive position (market positioning) and the market choices.
Within the mini car segment, the European market is intensely competitive. The sector is being dominated by numerous mass market players (undifferentiated mini car manufacturers) such as Renault, Volkswagen, Nissan, Ford, Toyota, Peugeot and some of the luxury brands, such as the BMW Mini, BMW 1 and Audi A2. We find that the Smart has a lot of competition within this segment. Figure 1 below shows the competitive box in which the Smart finds itself.
To maintain a competitive advantage, Porter suggests that there are three potentially successful generic strategic approaches to outperforming other firms in an industry:
- Overall cost leadership Strategy: Firms using this strategy look to gain competitive advantage by having a low cost position. This is achieved through aggressive construction of efficient-scale facilities, vigorous pursuit of cost reductions from experience, tight cost and overhead control, avoidance of marginal customer accounts, and cost minimisation in areas such as research and development, service, sales force etc. (Porter M. 2004). Having low cost processes become the competitive edge these firms have over their competitors and the whole business strategy is built around this.
- Differentiation Strategy: The second generic strategy is one of differentiating the product or service which the firm offers, creating something perceived as unique or different industry wide. This strategy provides marginal insulation from competition because of brand loyalty and the perception of uniqueness of the product.
- Focus Strategy: This strategy involves focusing on a particular buyer group, segment of the product line, or geographic market. While the cost leadership and segmentation strategies are aimed at achieving one industry wide objective, the focus strategy is built around being able to adequately meet the needs of the brands target market.
With increasing competition within the segment, the smart group based its business strategy on product differentiation. The company differentiated its products with its stylish design safety and eco-friendliness. The smart is associated with the Mercedes Benz brand, a brand known for its product quality, creative flair, innovation, and a long and unique tradition within the automobile industry. Hence, among customers, there is a sense of reliability in the brand name. The shape, size and design of the vehicle are totally eye catching and bring a totally new perspective to passenger vehicle construction. Its small size makes the car easy to fit into small parking spaces, and easy to manoeuvre through the small intra-city roads which are common in Europe.
With its small size, there were concerns over the cars stability and overall safety, but this was countered by the fact that the car is not a high speed vehicle. The car runs on a three cylinder engine which generates only seventy horse- power, enabling the car to hit top speeds of approximately 130Km/hr (http://www.dailymail.co.uk/sciencetech/article-1019650/Mini-smart-car-earns-marks-safety-crash-tests.html). The car incorporates conventional safety features such as the anti-lock braking system, driver and passenger and side impact air-bags. Also, with the design using the unique "tridon steel safety shell", passengers are fully protected in the case of a collision.
Perhaps the most important or unique selling point of this product is its image of eco-friendliness. With rapid increase in fuel prices globally, and growing concern among the consumers about the environmental impact of fuel consumption, Smart was able to generate interest among people with the low fuel consumption of its car. Buyers looking to save cost on keeping their vehicles on the road through reduced spending on fuel will often opt for the smart as it offers a viable choice with a fuel consumption rate of approximately 50 miles/gallon (3.3litres/100Km), with the manufacturers claiming that the vehicle can go on a journey from London to Edinburgh (404 miles apart) with a full tank of petrol (33liters).
From its target market of modern urban young people, usually middle class city dwellers, the cars clientele has increased to a wide range of users. This situation is not easily defined geographically or demographically but more by an ever changing attitude of consumers, who have found a new trend in greener cars and cars designed to use alternative fuels. Consumers are beginning to be more conscious of their image as contributors to global warming, with celebrities seen to drop their big, high petrol consuming vehicles for the smart, just in a bid to make a publicity statement.
Comparative Analysis; smart versus the Mini Cooper:
To be able to position a business appropriately to maximise the value of the capabilities that distinguish it from its competitors, it is important to carry out a perceptive competitor analysis. The objective of a competitor analysis is to develop a profile of the nature and success of the likely strategy changes a competitor might make, the competitors probable response to the range of feasible strategic moves other firms could initiate, and the competitors probable reaction to the array of industry changes and broader environmental shifts that might occur (Porter, M. 2005). Figure 3 below shows a competitive analysis of the chosen competitor to the smart, the BMW Mini.
- Future goals - With the smart looking to gain more market share with its low consumption and eco-friendly models, the BMW is looking to usurp their market share in this sector by developing more fuel efficient and eco-friendly cars. Already superior to the Smart with its powerful engines and aesthetics, the BMW group which has already developed a vehicle which runs entirely on hydrogen. Alternative fuel development is the new message coming out of the stables of this company, and a breakthrough in this endeavour will significantly affect market share of all mini car producers.
- Assumptions- This step identifies a competitors assumptions about itself and the industry at large. The BMW, the parent company of the Mini Cooper is assumed to see itself as a market leader in terms of quality and technological innovation. This is further consolidated by the fact that over the years, the brand has been identified by these attributes.
- Capabilities- BMW are known for their
- Current strategy- The Mini, produced by German auto makers, BMW also operates within the mini car segment. The competitive box shown in figure 1 above could be used to also show the prevailing market competition in which the product finds itself in, with the usual competitors (usual suspects) being the famous Japanese automakers such as Toyota and Honda, and the likes of Volkswagen, Fiat etc.
Using Porter's generic strategies, we find that like the smart, the manufacturers of the Cooper follow a competitive differentiation strategy, but preferring to focus on selected premium segments in the automobile market. Their cars are targeted at a particular group of consumers, mostly upper middle class earners. But unlike the smart, the
- Having a powerful brand image forms the foundation of the success of the BMW Company, being one of the few multi model carmakers in the world to concentrate exclusively on the premium segments of the automobile market. The authentic BMW and Mini brands with their clear profile, distinctive quality, superior Technology, high reliability and commitment to the products fully deserve their market positioning as "The ultimate driving machine."
DEVELOPING A NEW VALUE PROPOSITION FOR SMART
In developing a new value proposition for the smart, we follow a strategic planning process which flows from a mission and vision statement to a selection of target markets and the formation of a marketing mix and positioning objective for the product which we offer to consumers.
Market Mission and Values
Piercy argues that the difference between market sensing and market research is that market sensing describes the process in organisations that develop management understanding about the external environment while market research is only consent with trends of data collection and survey. The Mercedes brand has always been known to follow a differentiation strategy (using Porter's generic model of marketing strategies of focus, segmentation and differentiation). In producing and marketing its products, the Mercedes brand has always targeted the upper class of the population with its premium brands. But with a growing demand for greener and smaller vehicles the group went into partnership with the Swiss watch makers to develop Smart. The Smart is built to be appealing to customers with its fuel efficiency, elaborate designs and size, fitting into small parking lots found across Europe's small streets. In sensing the need for compact fuel efficient vehicles and the new trend of going green the Mercedes group merged its competence of engineering excellence with the Swatch core competence of design and low cost production.
The problem with the smart cars value proposition is there is no clear cut