KARBON Green Luxury Cars

The KARBON Green Luxury Car Table of Contents Executive Summary 1.0 Introduction 2.0 Segmentation
2.1 Current 2.2 Emerging Trends

2 3 4
4 6

3.0 Market Segment Identification 4.0 Market Strategy

4.1 The Company 4.2 Product 4.3 Promotion 4.4 Price 4.5 Place

7 9
10 10 11 13 13

5.0 Conclusion References

14 15

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Executive Summary Competitive advantage lies in variety in the product lines and product differentiati0n. Additionally, positioning of the product against an identified market segment is vital to differentiation. This report considers the British car market that marketers segment deploying several generic variables and factors and emerging trends in the market to identify a niche market, that appears unexplored and unexploited so far by the industry that of green luxury cars. Luxury car manufacturers continue to produce large cars with no discernible concern for ecological impact of their products. Orion will design, test, and market a new line of cars that will be light, fast, and have very low CO2 emissions well within the Euro-IV norms. It will also place emphasis on the use of composites, biodegradable, and materials that can be recycled in every conceivable and innovative area in the chassis, engine, and coachwork. The promotion of the cars will revolve around the brand name KARBON. The chosen name suggests CAR and BON (French for good). The model numbers (LO1; LO2) will further emphasise low emissions and low environmental impact. Promotion and marketing strategies will look to create an iconic image for the car and address the successful individual customers regardless of gender. The KARBON cars, priced at 20-25% higher than rival products, will rely on an image of exclusivity and responsible purchasing behaviour. We propose to launch the KARBON in the UK and in Western Europe and later spread distribution to some of the emerging economies like the BRIC nations and the Americas.

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The KARBON Green Luxury Car 1.0 Introduction An important basis for competitive advantage is the provision of a large variety in the product lines and differentiating these against those of the competitors. Inclusion of a large variety stimulates sales as more customers find a product within the basket offered that suits their requirement; however, this also has an underside as a large spectrum of products also brings the challenges of controlling inventory costs, maintaining quality, and meeting delivery performance expectations of customers (Hofer & Halman, 2005). High diversity of variety also increases the variety in the manufacturing processes that lead to inefficiencies (Child et al, 1991). Thevenot and Simpson (2006) find in their research that product varieties built around a common platform, some product variants find more favour with customers than others do despite both being equally sound technically. Therefore, it is necessary for companied to make a trade-off between the diversity of customer needs and the cost involved in attempting to meet these needs. The second strategy in product differentiation is positioning. Realising that it is difficult for any company to provide a marketing mix that satisfies all potential customers, companies use market segmentation as a part of their strategic planning. A large volume of marketing literature discusses the benefits of market segmentation. For Beane and Ennis (1987), the underlying logic is that segmentation improves marketing efficiencies and enhances the companys ability to capitalise on marketing opportunities; and improve organisational performance (Kotler, 2000). The theory, according to these writers, is that dividing the entire customer population into groups with similar needs and purchasing behaviour results in homogeneous groups that display similar response
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to products and marketing efforts that target these specific groups. McDonald and Dunbar (1995) caution against too narrow a division particularly where the business success relies on economies of scale. In this report, we examine the automobile (car) industry in Britain, its present segmentation from different aspects, and emerging trends that have the likelihood to influence future segmentation of this very important market. 2.0 Segmentation 2.1 Current Considering the present segmentation of the British car market, we see that these deploy a whole range of generic variables and factors. In this section of the report, we examine the factors that apparently inform the segmentation choices. Appendix 1 provides a graphical view of the market and its different segments. The first segmentation that occurs is whether the car marketed sold is new, or it is a used one. Because this report specifically looks at manufacturing business, we do no further exploration of the used car market and its structures. For the sake of maintaining focus, we also ignore the fact that some car dealers may offer both new and used cars to their customers because we make a primary distinction between the customers looking for used and new cars. For new cars alone, it is possible that independent dealers offering a variety of car models from the stables of different manufacturers or company owned or franchised businesses that offer the products of a single company and perhaps its strategic partners will offer the cars to

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customers. Therefore, we can see that the type and size of dealer offering the car becomes important to marketing strategy. The next division in the market segments is whether the car is produced within Britain, or imported from another country. Consumer preferences and perceptions differ quite widely on the source of the car. However, with reducing competitiveness of British manufacture in this industry the shift towards imports has made a perceptible difference in how cars are manufactured and serviced here. In addition, some imported cars have built considerable reputation for quality and some have acquired an almost iconic status. Consider the examples of the Toyota car or the special status attached to owning a Mercedes, a BMW, or some of the Italian cars like the Ferrari. Segmentation of the market also depends on the type of customer such as fleet owners, business and government departmental buyers, and private individuals who purchase the cars. Finally, we can divide the market demographic along the size and final use of the car. In Appendix 1, we have listed the broadly recognised categories such as the mini, super-mini, executive, luxury, etc. Within these categories, further bifurcation based on fuel consumed (petrol or diesel), mileage delivery per litre, accessories fitted as part of the package, etc may also exist as different car manufacturers attempt to find niches in the market that they can exploit. Appendix 2 provides examples of car types in terms of the manufacturers and their models.
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Traditionally, marketers have also used various other indicators to segment their markets. Those relevant to the British car market would include demographic divides along levels of income, marital status, gender, size of family, and employment status (self employed/ employee) etc. A critical issue in determining market segments is the selection of the variable. As seen above, a large number of variables can attend the segmentation of the car market and can include demographic, geographic, and psychographic

characteristics of the customer. While it is relatively easy to segment markets on these variables and easy to use (Hammond et al, 1996), there are a several downsides to such segmentation. Within each group, customer tastes may vary depending on their personality. Even more important is the reliance on personal and private information that is at once: Difficult to obtain with any acceptable level of certainty, and Can change rapidly over time For example, the marital status, income, occupation etc may change rapidly and data collected now may be completely invalid a couple of years later (Drozdenko & Drake, 2002). 2.2 Emerging Trends The proliferation of information technology that allows the customers to access and appraise information from a host of sources before making a purchase decision has also raised the need for a further segmentation of the market along access and use of the internet for making purchase decisions.

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Manufacture of cars contributes significantly to the regional economies through creation of jobs and creation of opportunities in infrastructure provision. In addition, the companies contribute significantly to value creation for the country through exports (SMMT, 2009). However, there exists a strong association between manufacture, distribution, use, and end-of-life disposal of cars and negative environmental impacts (Vergrat & Brown, 2007). The concerns for the environment, need to conserve non-renewable sources of energy, and global climate are making rapid changes in how customers view cars, how their travel habits are changing more towards public transport and pooling to reduce their carbon footprint. These have already affected the car markets and will continue to do so increasingly in the near future.

3.0 Market Segment Identification The existing scenario and the emerging trends help us identify a niche market, that appears unexplored and unexploited so far by the industry that of green luxury cars. Indeed, the term green luxury car appears to be somewhat of an oxymoron in the current British car market. We proceed to develop a marketing plan on this basis. Cars, in addition to the contribution to the economy discussed above, provide several other benefits for the consumer, such as convenience in access to necessities and employment, pleasure and social status. Nevertheless, they also add to air pollution, traffic congestion, noise, life-threatening accidents, and urban sprawl (Vergat & Brown, 2007). Several researchers have addressed the environmental burden and the sustainability of the car industry in recent years. Examples are, Vergrat and Brown

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(2007); Rothenberg, Schenck, and Maxwell (2005); Zhu, Sarkis, and Lai (2007). However, extensive research using Google Scholar and different combinations of key words such as Cars, Manufacturing, Sustainability, Luxury, Environment, etc do not yield any results that show research focused on the sustainability of luxury car manufacture. Similar searches on EBSCO, Science Direct, and Academic Search Premier yielded the same negative result. This leads us to the conviction that research has indeed ignored this important (to us) area. The next stage of our research was to explore the websites of luxury car manufacturers such as BMW, Mercedes, Toyota Lexus, Jaguar, Aston Martin etc. All these companies make positive statements about their attention to corporate social responsibility and concerns for the environment. However, none of the promotional materials for cars costing above 40,000 contained any mention of what existing and new features of the cars specifically address issues of environment conservation in the choice of materials used, production processes, distribution networks, and use of the car during its useful life. It appears that the common perception of the companies that manufacturers of such cars, and here we make an assumption based on practical observations that the segment Luxury Cars are those priced at above 40,000, do not consider concern for the environment as an important factor in the purchasing behaviour of their potential customer. Lack of significant research in this area leads us to make certain assumptions in our study, which may be vulnerable to lack of informed support. However, we make these assumptions after careful consideration of the alternatives. Search of literature on other manufacturing strategies reveal an emerging strong focus on environmental issues. For example, Van Hoek (2002) carries forward Hills (1993)

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exhortation to industry to integrate green issues with corporate objectives, marketing, and operations strategies. This thinking has also affected the car market in Britain as increasing numbers of small car manufacturers use environment concerns as a vital part of their marketing strategy to benefit from the populist movement away from the big cars. We believe that a market exists, and will continue to exist, for luxury cars and that in this sector, a major gain towards product differentiation lies in taking advantage of the concerns for the environment.

4.0 Market Strategy Luxury cars, by their very nature are low volume, high value products. Traditionally, these have also been the nurseries for innovative technologies later passed on to the smaller cars (Catry, 2003). Examples of such innovation, which are now standard features of all cars, are airbags, ABS braking systems, GPS device integration etc. This is because the high cost of cars allows testing out new technologies. Therefore, it follows that luxury car manufacturers also take the lead in production and product innovations that aim to reduce the environmental impact of their cars. Indeed some evidence exists that some companies have taken up work along these lines in recent years. For example, Axon produces a car using Formula 1 technology to produce lighter, safer, and more fuel-efficient cars (Axon, 2009). Tesla Motors in the US have developed electric powered roadsters (Newman, 2009 (a)). The Toyota Prius Hybrid is another example. However, none of these examples applies to the luxury car segment. An article in the Financial Times (2009) quotes research that shows that an average Bentley emits twice as much

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CO2 as a medium sized saloon, and such characteristics have made the luxury car manufacturers to lobby for an exemption from the EU legislation on CO2 emissions. 4.1 The Company Looking at the high cost and the legal barriers to entry we chose to use an existing company located in the Midlands already into manufacture of high-end cars. This company, Orion Limited (name changed) produces cars in the executive and luxury segments and is currently facing financial problems due to poor sales resulting from competition and loss of brand value because of its inability to introduce innovative cars into the market. However, it has a strong manufacturing infrastructure and a highly skilled workforce with near complete facilities to manufacture the proposed product. 4.2 Product Orion will design, test, and market a new line of cars that will be light, fast, and have very low CO2 emissions well within the Euro-IV norms. It will also place emphasis on the use of composites, biodegradable, and materials that can be recycled in every conceivable and innovative area in the chassis, engine, and coachwork. While the stress will lie on making the cars state of the art in terms of being environment friendly, there will be no compromise on luxury features. Electronic mobile connectivity, GPS, on-board entertainment for the passengers and advanced safety features will be standard features. Special attention on driver comfort, ease of handling, and sports car like performance will add to the cars appeal.

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Additionally, the company will place high importance on deploying greener technologies at the workplace to reduce environment damage during the manufacturing process. The most exciting cars with the green appeal that appeared in 2009 are the Honda Insight, Toyota Prius, Ford Fusion Hybrid, Chevrolet Equinox, Mazda5, Ford Taurus, Mercedes GLK, Honda Fit, Ford Flex, Hyundai Genesis, and the Volkswagen Jetta TDI (Newman, 2009 (b)). Of these, only the Mercedes GLK and the Hyundai Genesis can qualify as entry-level luxury cars, the others ranging prices of $15,000 to $27,000 in the US markets can only qualify as executive saloons. Essentially, these do not classify as competition for the KARBON yet it would be necessary to keep an eye on the marketing strategies and product features to ensure high degree of differentiation and focus on the luxury aspects of our cars. None of the luxury car manufacturers has come up with a product comparable to the KARBON. 4.3 Promotion The promotion of the cars will revolve around the brand name KARBON. The chosen name suggests CAR and BON (French for good). With no such word in the dictionary, we see little difficulty in the registration of this name as a trademark. The series will be assigned specific model numbers with the designation LO. For example, KARBON-LO1; KARBON-LO2 etc to connote an impression of low carbon emissions, which will be the central theme of the promotion campaigns. The luxury theme will only support the central drive to promote the eco-friendly nature of the product.
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The overall strategy for promotion of the cars will seek to expand the total market for premium luxury cars through a flank attack (Kotler, 2000) that will seek to challenge market leaders by addressing a segment that remains unattended by them. While the cars will not compete heavily on cost, they will benefit from differentiation and focus, two vital elements of marketing strategy according to Michael Porter (1980). The KARBON line of cars will operate outside the ambit of current operations of Orion as a separate strategic business unit and profit centre and aim to be technology leaders in the field of green premium luxury cars so that the threat of substitution (Porter, 1980) is kept at very low levels. In terms of the gender demographic of the target audience, the promotion will not distinguish between the sexes through images projected by words like macho , male, rough. Instead, it will favour use of word like svelte responsible performance and luxury. The aim of the promotion exercise is to create an iconic status for the KARBON with a strong emphasis on the social status imparted to the owner of this car as a person who has arrived but shares the concern for responsible and sustainable consumption. Promotion strategy will consist of advertisements in the elite media such as inflight magazines, leisure promotion magazines, and hoardings along important routes and at airports. In addition, all promotional events will centre on a personality, a brand ambassador, associated with environmental consciousness, perhaps someone like Angelina Jolie. It is important not to follow the traditional promotion avenues and not to overdo advertisement. This will be essential to retain the aura of exclusiveness and mystery that draws the target customer to
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explore further. Direct mailers, accompanied by a choice gift, could be explored as a promotional strategy.

4.4 Price Before discussing the price of the car on the dealers floor, we need to highlight that production of the KARBON will require substantial investment in research, retooling, and establishment of new facilities to produce cars that are radically different from the all-steel body and power-train production facilities that exist at the works of Orion. This investment, despite being amortised over a period, will add a substantial amount to the price of the car. Therefore, as a natural corollary, the KARBON will cost much higher than the offerings of competitors who compete in the same segment. However, it is the differentiation of the car, along lines of responsible consumption combined with luxury, which will allow a higher price. In addition, the target customer is a rich individual unmindful of extra expense as long as the product holds a special appeal and confers a special status. In view of the foregoing, we propose to price the KARBON cars 20-25% higher than the rival products that offer similar power delivery and luxury elements depending on the cost of development and production start-up. 4.5 Place Luxury car manufacturers have a clear commitment to status beyond personal mobility, which is the same for other products sold in premium markets such as watches, food, clothes etc. We propose to launch the KARBON in the UK and in
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Western Europe. Our decision to do so relies on the important factors of logistical convenience and the tradition of luxury cars that exists in this area. With consolidation of market and manufacturing, we propose to launch the cars in the BRIC (Brazil, Russia, India, and China) and the middle-eastern countries. These countries are the fast emerging economies of the world and contain some of the richest people. In addition, these countries have jointly been at the forefront of discussions on environmental issues, especially at the last summit in Copenhagen where they undertook voluntary cuts in CO2 emissions, while the western world balked. The next stage would obviously come from taking the product to the North American markets, which will probably supply the largest volumes once the present economic crisis is over.

5.0 Conclusion This report has looked at the British car market, present competition, and market segmentation to conclude that Orion should design, test, and market a green luxury car. We have also outlined strategies for marketing these cars, including a launch and promotion activity beyond Britains borders. However, this report has not considered the market dynamics that exist there and this represents the major drawback of this study. In addition, we have made a major assumption in assuming that Orion has the capacity and the ability to design and innovate to produce a car that combines the features of eco-friendly manufacture and products with all luxury features.

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References Axon (2009): http://www.axonautomotive.com/press.html . Accessed on 22nd February 2010. Beane, T.P. and Ennis, D.M. (1987): Market Segmentation a review, European Journal of Marketing, Vol. 21(5): 20-42. Catry, B (2003): The great pretenders: the magic of luxury goods. Business Strategy Review, Vol. 14(3). Child, P.; Diederichs, R.; Sanders, F.H.; and Wisniowski, S. (1991): SMR forum The management of complexity, Sloan Management Review, Vol. 33(1): 73-80. Drozdenko, R.G. and Drake, P.D. (2002): Optimal database marketing: strategy, development, and data mining, Sage Publications, London. Financial Times (2009) Aston Martin chief attacks EU emissions law. Financial Times, 2nd May 2008. http://search.ft.com/search?queryText=%22Ulrich+Bez%22 . Accessed on 20th March 2010. Hammond, K.; Enrenberg, A.S.; and Goodhardt, G.J. (1996): Market Segmentation for competitive brand, European Journal of Marketing, Vol. 30(12): 39-49. Hill, T. (1993), Manufacturing Strategy : Text and Cases, Second Edition, MacMillan Press, London. Hofer, A.P. and Halman, J.I.M. (2005): The potential of layout platforms for modular complex products and systems, Journal of Engineering Design, Vol. 16(2): 237255. Kotler, P. (2000): Marketing Management, Prentice Hall, New Jersey. McDonald, M. and Dunbar, I. (1995): Market Segmentation, Macmillan Press, Basingstoke. Newman, R. (2009) (a): Road-Testing Cars of the Future. http://www.usnews.com/money/business-economy/articles/2009/03/20/roadtesting-cars-of-the-future.html Accessed March 15, 2010. Newman, R. (2009) (b): The 12 Most Important Cars of 2009, http://www.usnews.com/money/blogs/flowchart/2009/1/8/the-12-mostimportant-cars-of-2009.html accessed on March 15, 2010. Porter, M. (1980): Competitive Strategy, Free Press, New York. Rothenberg, S., Schenck, B. and Maxwell, J. (2005): Lessons from benchmarking environmental performance at automobile assembly plants. Benchmarking: An International Journal, Vol. 12 (1): 5-15.
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SMMT (2009): Motor Industry Fact Sheet 2009. www.smmt.co.uk accessed March 5, 2010. Thevenot, H.J. and Simpson, T.W. (2006): Commonality indices for product family design a detailed comparison, Journal of Engineering Design, Vol. 17(2): 99-119. Van Hoek, R. I. (2002): Case Studies of greening the automotive supply chain through technology and operations, International Journal of Technology Management, Vol. 23, (1/2/3): 89-112. Vergragt, P. J., and Brown, H. S. (2007). Sustainable mobility: from technological innovation to societal learning. Journal of Cleaner Production, Vol. 15(11-12):11041115. Zhu, Q., Sarkis, J. and Lai, K.-H, (2007). Green supply chain management: pressures, practices and performance within the Chinese automobile industry. Journal of Cleaner Production, Vol. 15(11-12): 1041-1052.

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KARBON Green Luxury Cars Appendix 1

Existing Segmentation of the British Car Market

Independent Seller New New or Used Used Home Manufacture Source Import Franchisee Medium Large

Fleet British Car Market Target Market

Business

Private

Mini

Supermini

Executive Car Type Luxury

Sports

Other

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Appendix 2 Classification Examples Manufacturers/Models Mini Supermini lower medium upper medium Executive Luxury Sports utility & other Rover Mini, Fiat Cinquencento Ford Fiesta, VW Polo Alfa 33, Renault 19 Peugeot 405, Nissan Primera Mercedes 190, Honda Legend BMW 7 Series, Lexus LS400 Porsche 911, GM Calibra Renault Espace, Mitsubishi Shogun

Source: http://duncanwil.co.uk/segment.htm

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