Transcript Slide 1

Final Report
Industry 6; Team A
Brad Podraza, Anu Banerjee, Katie Cowan, Taro Nagao
December 5, 2006
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
2
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
3
Strategic Marketing Plan
Firm Strategy
Strategy
Target
• 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.
Alfa
Alec
Awesome
Arbor
Atonka
Family
Economy
Utility
Hybrid
Delivery
2F
2E
3U
5H
B2B
Implementation
Marketing Mix & Reports / Upgrades / New Customers
Results
Market Share / ROI / Awareness / Perceptions / Dealer Ratings
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Legacy Brand Overview
Alfa
Brand Positioning
Marketing Mix
Segment
Target
Target
Share
Family
2F
14%
Category leader in small family sedan segment offering
competitive attributes (Safety & Quality) at the lowest prices
• 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%)
Approach to Upgrades
• Direct mailings to ‘family ’ segment
• 1 major upgrade (P4) concentrated on improving size
• Subsequent upgrades to stay competitive (focus on safety)
• 2F focus group – to understand competitive landscape
Reports and Models
Utilized
• 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
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Legacy Brand Overview
alec
Brand Positioning
Segment
Target
Target
Share
Economy
2E
30%
Mid-sized, affordable economy car that meets basic family needs
and business customers’ requirements
• Initially high-volume, low-margin (18%) strategy. Shifted to
moderate-margin (25+%) strategy to maximize profit
Marketing Mix
• 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
Concept Test: Provide detailed price elasticity of demand
Reports and Models
Utilized
Product Contribution Estimation Model: Utilized to figure out
profit-maximizing price/quantity mix
B2B Contracts: To upgrade the vehicle in the most efficient way
to meet B2B requirements
Vehicle Sales by Customer: Utilized for production forecasting
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Legacy Brand Overview
AWESOME
Brand Positioning
Segment
Target
Target
Share
Utility
3U
33%
Small, low priced utility vehicle with the focus on styling and
performance attractive to the target
• Comparatively higher dealer discounts in order to provide
incentive for dealers
Marketing Mix
Approach to Upgrades
• Moderate industry advertising in all but upgrade periods in
order to maintain current awareness
• Direct mailings to ‘singles’ segment
2 major and 1 minor upgrade during simulation in order to
better tailor styling and performance to the needs of the target
Vehicle Sales by Customer: Utilized for production forecasting
Reports and Models
Utilized
Test Market: Multiple ran for pricing decision making
3U Customer Detail: Used to track consumer preferences,
market share, and awareness
Focus Groups: To determine ‘hot’ buttons & preferences
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New Brand Overview
Arbor
Brand Positioning
Marketing Mix
Segment
Target
Class
Share
Hybrid
5H
34%
Mid-priced hybrid that appeals to value seekers sense of
practicality (quality) and emotion (styling)
• 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
Reports and Models
Utilized
One major upgrade undertaken to properly size the vehicle and
make it more competitive with new entrant
Concept Test: Multiple ran to determine appropriate model to be
developed and market potential
Test Market: Multiple ran for pricing decision making
Perceptual Mapping: Multiple ran to determine placement in the
market and potential appeal to the 5H target
Focus Groups: To determine ‘hot’ buttons & preferences
Vehicle Sales by Customer: Utilized for production forecasting
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New Brand Overview
AtonkA
Brand Positioning
Marketing Mix
Approach to Upgrades
Reports and Models
Utilized
Segment
Target
Class
Share
Delivery
B2B
58%
Delivery vehicle which meets the requirements of the most
demanding package delivery B2B customers
• No advertising or promotional budget
• Direct Mailings to potential B2B customers
No upgrades following initial introduction
B2B Contracts: Purchased all four available Delivery contracts to
determine what specifications will allow for the maximization of
return on our investment
Concept Test: Ran to determine appropriate model to be
developed and market potential
9
Overall Firm Performance
Profit =
S Product Contribution – Corporate
Product Contribution
Expenses
Corporate Expenses
• +$5.5B in Period 10
• -$6.7B in Period 10
• Variance Analysis was performed for
each product to figure out the root
causes of variance between forecasted
and actual results.
• We did not pay attention to corporate
expenses as much as we should have.
• Share, Price, and Cost Variances are
paid close attention.
• 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 MM
ROA
4%
(OIBI,AT / Assets)
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Variance Analysis: Example
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2F Customer Overview
• Key Challenge: Intense competition
P1
P10
% Change
Units Purchased (000's):
867
1325
Industry Avg Spec
3/2/3/2
4/3/6/5
No of Players
5
9
Expected Price Range: $18,000-$26,000 $22,000-$34,000
Our Strategy:
• Alternative Strategies
Strengths
Weakness
53%
108%
80%
22%-30%
Category Leader
Diversify
Exit
Emerging market
spaces with less
competition
(Hybrid/Delivery)
Guaranteed Market
Share
Sizebable Market
opportunity
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
Risks
Growing
commodisation with
new entrants
Devalue of brand
Family car an
important/growing
market segment
Cost
Benefit
High
Med
Med
High
Low
Low
•
Diversify + Strong
Awareness of product+
strong dealer incentives
Rationale:
1. Had capacity to meet B2B
contracts
2. B2B contracts involved limited
upfront costs
3. 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
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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 Home
Alfa. Alec. Arbor. Awesome. Atonka
Thank you.
Questions?
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Additional Slides: Value Chain Analysis
350%
160%
28%
140%
120%
100%
22%
300%
250%
31%
27%
38%
25%
40%
8%
14%
20%
28%
17%
Firm C
Period 3
150%
49%
35%
60%
44%
49%
29%
35%
0%
30%
Firm D
Other
Manufacturing
G&A
R&D
Marketing
COGS
34%
43%
50%
19%
0%
Firm A
39%
200%
100%
19%
35%
83%
29%
19%
80%
60%
13%
28%
26%
22%
7%
11%
16%
-17%
35%
-50%
Firm A
Firm C
Firm D
Other
Manufacturing
G&A
R&D
Marketing
COGS
Period 10
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