The Automobile Industry Kristen Barnett, Alexa Davis, Skyler Dale, Gabriel Polsky April 28, 2015.
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Transcript of The Automobile Industry Kristen Barnett, Alexa Davis, Skyler Dale, Gabriel Polsky April 28, 2015.
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II IIII V VI VII
Auto companies’ strategies utilized in commercials
A big picture look at the automobile industry
Main takeaways from the raw data for automobiles
Deep-dives on social media and the effects of recalls
A deeper analysis of the commercials
Wrapping it up
Competitive Pressures
Advertising Strategies
Industry Overview
Raw Data Analysis
Case StudiesAdvertisement Analysis
Takeaways
Toyota and General Motors lead the automobile market
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I II III IV V VI VIICompetitive Pressures
Advertising Strategies
Industry Overview
Raw Data Analysis
Case StudiesAdvertisement Analysis
Takeaways
Why We Chose This Topic
‣ Personal interest in the industry
‣ Unique perspective on how advertising can change a company’s brand image in response to crisis
‣ Previously discussed topic in class
Industry at a GlanceCar & Automobile Manufacturing in 2015
Revenue
Profit
Annual Growth 10-15Exports
Annual Growth 15-20Businesses
$107bn
$4.5bn
5.4%$57.3bn
2.5%203
Key External DriversThe automobile industry is sensitive to macroeconomic pressures
World price of crude oil As gas prices decrease, consumers will be less sensitive to fuel-efficient vehicles, which are often from International brands.
World price of steel Steel prices can be a major cost pressure, which can’t be passed onto customers. Prices are expected to decrease.
Yield on 10-Year Treasury note
The 10-Year Treasury note is tied to interest rates. As interest rates rise, demand for cars rise due to lower financing costs.
Auto industry is international so appreciation of USD lowers export rates and industry revenues. Trade-weighted index
Consumer Confidence Index
Spending behavior on large purchases, like automobiles, have a positive relationship with consumer confidence.
Demand from new car dealers
Greater demand at the retail level, which is represented by car dealers, generates greater demand at the manufacturing level.
Supply ChainThe automobile industry is heavily dependent on its suppliers
Buying industries
Selling Industries
Cost StructureAuto manufacturers are cutting costs to bounce back from bankruptcy
‣ Largest percentage of costs are inputs, including engines, transmissions, etc.
‣ Wages falling, but still large due to labor contracts and inflated salaries‣ Manufacturers that work with
UAW Union will struggle to compete with mass-market, lower priced cars
‣ Renewed profitability due to:‣ Lower labor expenses‣ Improved retail sales‣ Greater credit access‣ Increasing consumer confidence
International TradeNAFTA inflated trade statistics between US, Mexico and Canada
Exports ($57.3bn)Exports ($57.3bn) Imports ($159.8bn)
HIGH and INCREASING
High rate of exports to Canada due to NAFTA restrictions and location of manufacturing plants near Great Lakes
China’s growth as export market due to rising affluence and standard of living
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2
HIGH and INCREASING
High rate of imports from Canada and Mexico due to NAFTA restrictions1
2International automakers moving assembly plants to Mexico to lower labor costs
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I II III IV V VI VIICompetitive Pressures
Advertising Strategies
Industry Overview
Raw Data Analysis
Case StudiesAdvertisement Analysis
Takeaways
Barriers to EntryThe automotive industry has high and steady barriers to entry
Regulation & PolicyMEDIUM
CompetitionMEDIUM
ConcentrationMEDIUM
Technology ChangeHIGH
Life Cycle StageMATURE
Capital IntensityHIGH
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4
6
5
3
1
Barriers To Entry
Internal Basis of CompetitionCompetition in automotive industry is medium and increasing
Price Fuel EconomyStyling Reliability
‣ Each car class (compact, mid-size, etc.) has range of prices
‣ Similar vehicles, which are marketed to different customers will be priced differently
‣ Price varies according to personalization and higher add-ons
‣ Automakers redesign vehicle’s styling every five years
‣ Recently redesigned cars sell in higher volumes than other cars
‣ Redesigning a vehicle is not always a profitable venture if customers prefer the outgoing model
‣ Reliability concerns are lesser since domestic auto makers caught up to international auto makers, like Toyota and Honda
‣ Quality control procedures and manufacturing equipment have improved among domestic companies
‣ Consumers have shifted away from cars with low fuel economy (SUVs & trucks) to compact and mid-size cars
‣ Manufacturers offer environmentally friendly options, like hybrid-electric, electric & clean diesel engines
‣ Shift from naturally aspirated engines to forced-induction engines
Automobile Industry Market LeadersGM and Toyota comprise greatest market share despite recent struggles
• Makes cars and trucks; brands include Buick, Cadillac, Chevrolet and GMC
• Concentrating efforts on energy-saving models, growth in china
• Split into General Motors & Motors Liquidation after mid-2009 bankruptcy
• Ad strategy focused on engaging with “passion points” and featuring real customers
• 2015 YTD unit sales = 684,039; annual change = -2.4% (March 2015 vs. March 2014)
• Headquartered in Japan with 50 manufacturing facilities worldwide
• Slowly attempting to repair sales and brand image after 8 million vehicle recall in 2010
• Competitive advantage from being first-mover in alternatively fueled vehicle research
• Ad strategy focused on targeting dads and sports fans through Facebook videos
• 2015 YTD unit sales = 575,620; annual change = 4.9% (March 2015 vs. March 2014)
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I II III IV V VI VIICompetitive Pressures
Advertising Strategies
Industry Overview
Raw Data Analysis
Case StudiesAdvertisement Analysis
Takeaways
Advertising strategiesPickup trucks
1
Dominant strategies● Complementary, not in prestige but in “tough
guy, outdoorsy” sense● Use of animals and nature, more than most
other types of ads, car driving off road● Few product attributes discussed ● Predominantly men in the ads● Music often highly involved
Key differences: GM versus Toyota
Overall no discernable difference in advertisements
Advertising strategiesSports cars
Dominant strategies● Signaling as information● Often feature long stretches of the camera
showing the car● Lots of displays of car driving, turning, drifting● Emphasize speed, boldness● Generally Male demographic ● Rarely involve a story● Sex appeal
Key differences: GM versus Toyota
Overall no discernable difference in advertisements
Advertising strategiesSedans
Dominant strategies
● Persuasive● Use humor and stories, featured families● Rarely comparative● Little focus on attributes
Key differences: GM versus Toyota
GM• More emphasis on family unit• Rarely used attributes
Toyota• More celebrity and complementary
advertising• Messaging is more fun
Advertising strategiesLuxury
Dominant strategies
● Complementary ads - Prestige● Usually not focused on attributes● Emphasis on music
Key differences: GM versus Toyota
GM (Cadillac)• Involve actual people• More celebrity advertising• Focus on story-telling
Toyota (Lexus)• Some comparative advertising• Rarely show people• Sometimes shows attributes
Advertising strategiesSUVs/CUVs
Dominant strategies
● 2 divergent strategies:o Focus on durability o Capabilities for family and space
● Humorous, light-hearted approach
Key differences: GM versus Toyota
GM (Chevrolet Equinox)• Use of humor
Toyota (4Runner)• Use of humor to tell the story• Emphasis on outdoors (targeting)• Focuses on durability and speed of car
Advertising strategiesCompact/Sub-Compact
Dominant strategies
• Focus on making car trendy• Raising awareness segment• Emphasizing on unique features such
as size, environmental benefits• City, affordability
Key differences: GM versus Toyota
GM (Chevrolet Cruze)• Focus on the changing world, culture
Toyota (Corolla)• Focus on innovative features (wifi)
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I II III IV V VI VIICompetitive Pressures
Advertising Strategies
Industry Overview
Raw Data Analysis
Case StudiesAdvertisement Analysis
Takeaways
Speed Attribute in Segment AdvertisingThe speed attribute is most emphasized in the sports car segment
Off-Road Driving in Segment AdvertisingShowing off-road capabilities is most common with pickup trucks
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I II III IV V VI VIICompetitive Pressures
Advertising Strategies
Industry Overview
Raw Data Analysis
Case StudiesAdvertisement Analysis
Takeaways
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I II III IV V VI VIICompetitive Pressures
Advertising Strategies
Industry Overview
Raw Data Analysis
Case StudiesAdvertisement Analysis
Takeaways
The recall effect: what actually happensEffect of recalls on reputation, brand loyalty, etc.
Recalls are essentially ubiquitous among manufacturers62M the number of cars recalled in
2014 alone1
1. Source: NYTimes.com2. According to Souiden, et al. in “Product Recall Crisis Management”
Problem identified
DENY
INVOLUNTARY RECALL
VOLUNTARY RECALL
SUPER-EFFORT
LIFETIME OF A RECALL2
FIRM REACTION EFFECTS OF REACTION
Strong negative effect on manufacturer’s image
No substantial effect
Significant positive effect of voluntary recall
Very large positive effect when actively improves
The recall effect cont.Reputational considerations
1. Source: “Liability of Good Reputation” by Organizational Science
Good reputation can be disadvantage during a recall as expectations for quality were higher, therefore the brand will have a significant, relatively lower position in a consumer’s mind following a recall
Expectancy-violation effect
2 Considerations Mitigating factorsGood reputation as a DISADVANTAGE because of the expectancy-violation effect• If firm is originally perceived to be of lower quality,
then expectations will not dip as low after recall
Good reputation as an ADVANTAGE due to effects of reputational inertia on ordering• Firm is able to continue with strong sales due to
durability of brand
FINDING: Reputation is an organizational liability and a firm with a better reputation will suffer a greater penalty as a result of recalls
SUBSTITUTABILITYIf there are few substitutes with equivalent reputation, the effects of a negative market reaction are lessened• Perceived risk of going to lesser quality brand and
finding alternatives is higher than chance of subsequent recall with higher quality brand
GENERALISM/SPECIALISMIf there is a focused product identity stemming from a specialization, quality is still perceived to be high• Larger, more mainstream firms will suffer more
Case Study – Social Media AnalysisToyota is more active on twitter though GM has had an account for longer
Brand
Followers 406K 486K
Tweets 11.4K 14.5K
Case Study – Social Media AnalysisToyota is more adaptive and creative on Twitter
● Toyota includes more videos and links
● GM included only pictures● Toyota had several instances of
humor, while GM had none● Toyota’s “women in the world
campaign” resulted in many likes and retweets
● GM’s posts were more disjointed● Overall, GM is a more traditional
brand, with less of a presence
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I II III IV V VI VIICompetitive Pressures
Advertising Strategies
Industry Overview
Raw Data Analysis
Case StudiesAdvertisement Analysis
Takeaways
Family Centric Ads in Segment AdvertisingFamily-centric ads are most common with SUVs and Sedans
Takeaways
We recommend car manufacturers adopt Toyota’s targeted approach to advertising by launching social media campaigns, which will promote customer engagement
Social-media focus
Mobile-friendly
Focus on product-specific attributes
Alternative-fuel and fuel-friendly
Younger demographics