CASE TWO: CHEVROLET

Case Two Chevrolet

Chevrolet: 100 Years of Product Innovation

Samantha Johnson

Florida Atlantic University

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CASE TWO: CHEVROLET

Abstract

General Motors Chevrolet brand is one of the most successful companies in the world. Since its

humble founding in 1911 by William Durant, Chevrolet has evolved into a global and well-

respected company. Chevrolet is known for their product quality and durability, which are the

two main key factors that have held the company’s success. When people hear the word

“Chevrolet”, instantly they think of a proud American brand. Chevrolets affordable vehicles

including large trucks, delivery vans, compact automobiles, sports cars, and racecars have all

went through product modifications each year. Although, Chevy is a leading brand in the

automobile industry the company also faces a number of marketing challenges. One of the

biggest is competition from other American automobile brands like Ford, Chrysler, Cadillac,

Buick, and GMC. In my analysis, I will identify Chevrolets main strategic issues, analyze and

evaluate the problems, and find an alternative recommendation regarding the fierce competition

that the company faces.

I. Strategic Issues and Problems

A. Defining the problem

Chevrolets biggest challenge among all other marketing problems is competition. The two

biggest rivals against Chevy in the industry are Ford and Chrysler. These two American

automobile brands have been competing with Chevy for about a century. When Chevrolets

parent company GM went into bankruptcy in 2008 and required a $50 billion government bailout

the brands reputation was hurt. Chrysler had also gone into bankruptcy at this time. During this

recession, Ford took the initiative to gain market share with bashing advertisement and

campaigns against GM. “Ford also picked up market share because Toyota Motor was fighting

off complaints of unintended acceleration and other quality recalls in 2010”(Muller, 2011).

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“Then, in 2011, came the devastating natural disaster that all but crippled the Japanese

automakers. Other than the Koreans, Ford was practically the only carmaker still standing”

(Muller, 2011). After GM recovered from bankruptcy they knew they had to push Chevrolet to

increase sales higher then Ford’s with their practical and affordable cars. Although, Chevy has

many loyal customers that have followed the brand for decades, there are an increasingly high

number of competitive products in the automobile industry being launched in attempt to compete

with Chevrolet. The main challenges that Chevrolet faces in its attempt to compete is the need to

innovate products while sticking to their affordable price strategy, focus on modifying products

for the environment, and customizing a stable global brand image to attract various market

segments. Even though, Chevrolet is well aware of these needs, there efforts to date are limited

by a number of intrinsic constraints.

B. Constraints

1. Chevrolet has great difficulty launching new models while maintaining the same price as the

previous year model. The company is the first carmaker to create the idea “Planned Product

Obsolescence” in which they introduce a new car model each year by using product

modification. With modifications including quality, design, and utility this idea helped Chevrolet

increase in sales over Ford. Loyal customers are excited and look forward to new models that

come out each year especially when a large amount of the customers lease Chevrolets cars. The

production of new cars coming out every year is beneficial for a large majority of the customers

the other half feels that the price of each vehicle keeps going up due to increasing product

modifications. “With global overproduction, soaring inventories, a credit crunch and downscaled

expectations, is the constant reworking of a proven vehicle worth the investment” (Niedermeyer,

2009)? Chevrolet’s popular tag line is “Quality at low cost”. With product modifications being

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more expensive then early years Chevrolet has no choice to up the price on their vehicles. Also

the value of an older vehicle goes down an extreme amount each year when these new products

are coming out at such a frequent rate. Since Ford doesn’t follow the “Planned Product

Obsolescence” idea they have kept their products at a steady price. This idea may or may not

force customers to switch to another brand if they cant keep up with Chevy’s yearly new car

model.

2. Chevy does not have a reliable, environmentally friendly product line, which these days

consumers look for when purchasing a vehicle. After Chevy produced the environmentally

friendly car the Volt, there were some major problems with vehicle that made consumers hesitant

to purchase. The lithium-ion battery caught on fire after multiple government crash tests. After

this the Volt’s competitor the battery charged Nissan Leaf gained a great amount of market

share. Also, even though Chevy has many hybrid cars that are environmentally friendly, their

SUV hybrid line is very limited. During the recession, since gas prices were very high and

SUV’s require a lot of fuel they went through a large decline in sales and the company had to

discontinue some of their vehicles. Now SUV’s are gaining more popularity due to the fact that

gas prices have dropped. Although, gas prices have dropped and more people are considering

purchasing an SUV the concern for the environment still affect customers buying behavior.

Chevrolets SUV’s include the Suburban, which is the oldest surviving vehicle model in the U.S.

and the Tahoe. The Tahoe is Chevy’s only SUV that is offered as a hybrid. The Tahoe gets 20

mpg in the city and approx. 23 mpg on the highway. Families in particular are very keen on

purchasing this vehicle because it has a lot of space and is efficient for those who travel in

terrain. Close to an SUV the company also produces a crossover vehicle called the Equinox,

which is powered by hydrogen fuel cells. The reason why Chevy does not produce more

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SUV/crossover hybrid vehicles is because they take a lot of time and money to make. Now that

gas prices have dropped and SUV sales are increasing the company feels that they do not need to

produce more hybrid vehicles. New government regulations are requiring automakers by 2025 to

produce vehicles that reach 54.5 miles per gallon. “The National Automobile Dealers

Association (NADA) said it used the government's own figures to calculate a price increase of

$3,000 per car, and noted that a vehicle's lifetime is more than 200,000 miles, meaning the fuel-

cost savings won't likely all go to the person who paid the higher sticker price for the new car or

truck” (Healey, 2012). Environmental conditions in the market are changing at a rapid pace and

due to the new regulations producing these types of vehicles are going to be very costly. Chevy

must come up with a marketing strategy to satisfy this change immediately or they are going to

run into some severe problems.

3. Since Chevy represents an American culture it does not know how to effectively customize its

branding and product strategy to other countries. Chevrolets taglines and advertising are very

weak in other countries. In America taglines are primarily focused on a patriotic theme and

American heritage. Famous car racers Jeff Gordon and Jimmie Johnson have been spokesmen

for Chevy, which attract a great deal of American consumers. Chevrolet employees are nervous

about transitioning the company into global markets. GM’s Vice Chairman Steve Girsky notes

that “each market will have its own distinct tastes and desires; the challenge for us is to meet

those needs while communizing as many parts and components as possible” (Eisenstein, 2011).

The brand has modified their taglines slightly in other countries. For example, in South America

they create taglines that focus on family values and excitement. Because Chevy is not a South

American brand the tag lines do not create as big of an impact on consumers like it would by a

brand that represents their country. Also, GM decided to do many joint ventures with Chinese

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companies so they could sell Chevrolet vehicles in their country. The Chinese governments

argue that in order to bring over an American automobile brand to China joint ventures must be

formed no matter what. This can lead to Chevy having to share their trade secrets, which can be a

disadvantage if business between Chevrolet and the Chinese does not work out in the long run.

Chevys sales are different in each country and products differ by market. For instance, even

though the Chevy Volt is a hit in the United States, China is not big for hybrid vehicles and

analyst predict the product will not succeed. David Chen VP of General Motors in China states

“To win in the world, you have to win in China, the challenge is to know the market and

continue to develop cars that the market wants”(Miller, 2011). If Chevy does not customize their

advertisements and vehicles so that they are accepted by multiple cultures then they wont be able

to maintain a firm global brand.

3. Options

1. For Chevy to keep their loyal customers by following their “Quality at a low cost” tagline they

must revise their planned product obsolescence idea or find a way to keep new models at a

reasonable cost.

Modify cars without introducing brand new models each year- Chevy’s design team

could be in charge of tweaking each of the previous year models enough to excite

customers but not overwhelm them with an extreme price difference. For instance, they

can make small changes to the interior cars by adding improved technology from the

previous year without completely redoing the display screen, seats, dash, etc. or

completely fixing top consumer complaints about each vehicle like the gas mileage or

safeness of the vehicle.

Only completely modify the more expensive Chevy vehicles- Since the consumers who

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purchase standard Chevy vehicles are more price sensitive, the company should only

modify their top of the line vehicles including the Corvette, Volt, Camaro, and Tahoe to

consumers who don’t mind paying more for luxury cars. Since these cars range from

$40,000 and up consumers who purchase them usually expect to trade them in for the

newest version yearly or at least every couple years.

Have options for new models each year- Every new model has brand new features.

Without completing turning consumers away because of the price being to high they can

reduce costs of each vehicle by eliminating the expensive features that some consumers

feel are unnecessary. For instance, consumers should have options for special features in

the new models like OnStar, Bluetooth, custom rims, etc.

2. For Apple to compete effectively and enforce government regulations they must come up

with a reliable product line that is safe for the environment and useable for the consumer.

Start focusing on how to produce better gas mileage cars instead of hybrids- Some

consumers get discouraged of the idea of purchasing a hybrid car because it is a life style

change. Even though gas prices are low, Chevy should put more money into the

production of low gas mileage cars, especially since by 2025 each vehicle is regulated to

get 54.5 miles per gallon.

Design more hybrid and electric cars that are for multiple target markets- Because

most of the electric and hybrid cars are relatively small, majority of consumers that

purchase the vehicles are single or married couples without families. Chevy could make

larger electric vehicles that have a longer battery for families. This would help the

environment greatly because families are the largest target markets that tend to travel the

most via automobile.

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3. Chevy can find better ways to have a strong communication system within each country the

company sells vehicles in.

Have a strong task force from the United States headquarters to

communicate and agree on product modifications, new vehicles, and

marketing- Chevy needs a strong task force from America to communicate

globally so at the end of the day the brand is properly sending the same message

to consumers. Since there are so many cultural differences it is important that the

Chevy accommodates each country. The brand is already so embedded into

American culture so the company must start showing awareness and creating a

brand image by presenting strong taglines that make a huge impact in each

country.

Must keep up with customization within each country- since customizing

products takes time, Chevy must come up with a standardized design for each of

their vehicles and make slight adaption for different target markets.

II. Analysis and Evaluation

D. SWOT Analysis

Assessment of Industry

1. Strengths- One of the biggest strengths of the automobile industry is that there are always

buyers. In today’s world having your own form of transportation is a necessity. The most

common form of transportation is a car. Since cars usually break down after a certain amount of

year’s buyers are always forced to buy them. “The threat of new entrants if very low in the

automobile industry” (Hingfill, 2004). Since the threat of new entrants is very low due to so

many government regulations it decreases the risk of an overload of competition.

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2. Weaknesses- It takes a lot of capital to manufacture products in the automobile industry and

keep up with the research and development to innovate effectively. A lot of money goes into this

industry and if you are not profitable it is easy to go into bankruptcy like GM did in 2008.

3. Opportunities- The continual development of research and better technology allows the

automobile industry to continue to innovate vehicles at a lower cost. More and more people are

not purchasing cars because they need them today but because how technology advanced they

are. For example, California passed a law letting driverless cars on the road. “The vehicle is

equipped with a hidden system of lasers, radars, and cameras that give the car a 360-degree view

of the road” (Brown, 2013).

4. Threats- Due to a large percentage of deaths due to car accidents in the future if this increases

consumers can be tempted to switch to bicycles, public transportation, street bikes, or planes.

Market

1. Strengths- Chevrolet has a strong research and development team that have successfully been

able to innovate products for almost a century. The company is present in six countries and is to

looking to expand more. They are involved in international racing and gains popularity through

the advertisements by NASCAR.

2. Weaknesses- The brands reputation was affected by the bankruptcy of General Motors. They

deal with intense competition against brands like Ford and Toyota who have similar products at

around the same price point. Due to the offensive tag lines that confused many consumers the

brand image has weakened within the past year.

3. Opportunities- Because of the increase in demand for environmentally friendly cars they the

tools to develop hybrid and fuel efficient vehicles for the future. With their new release of the

2015 Spark EV fully electric vehicle, Chevy has a chance to increase in sales dramatically if the

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vehicle presents durability, efficiency, and power.

4. Threats- Even though fuel prices are low right now there is a risk they can increase in the

future. Plus, while they are expanding globally they can come across intense competition from

other global automobile brands. Government policies for automobile sectors across the world

change constantly and can affect the company’s overall business strategy.

Buyer Behavior-

1. Strengths- Loyal customers value the high quality and affordable price of each Chevrolet

vehicle. Chevrolet values customer loyalty, therefore provides multiple specials and plans each

year to make sure they keep coming back. At every Chevy dealership the company offers top of

the line assistance and experienced salesmen to help make the decision of purchasing a Chevy

vehicle.

2. Weaknesses- Some customers are price sensitive and find that a section of Chevy’s sporty or

luxury cars are too expensive. They feel that the cars targeted for younger consumers who enjoy

image, speed, and advanced technology are beyond unaffordable.

3. Opportunities- Chevrolet will keep innovating vehicles and satisfying customer wants and

needs. With new models coming out in 2016 they will have customers wanting the new product

and trading in their older vehicle.

4. Threats- Competition like Ford and Toyota are producing similar vehicles that focus on low

gas mileage and safe cars for the environment at lower prices. Even though Chevy has a large

amount of loyal customers, price is one the biggest factors when making the decision to purchase

a new car.

III. Alternative Courses of Action

1. Instead of launching completely new models every year switch it to every three years. Revise

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the planned product obsolescence idea so every year there are few changes to models instead of

a brand new interior and exterior.

Pro: This would save a lot of production cost and time for Chevy so they can focus on other

aspects of the company like R&D and marketing so they can innovate products better then

competitors.

Con: Consumers that frequently trade in their car or have two -year leases, may feel that three

years is to long of a wait. This can drive customers to switch to another brand.

2. Start spending more money on producing fuel-efficient and hybrid cars that are safe for the

environment.

Pro: Chevy will be able to follow the government regulations regarding every vehicle getting

54.5 miles per gallon before 2025, which will result in having a competitive advantage over

other brands in the automobile industry.

Con: Since producing these vehicles are so costly, if the company starts decreasing in sales or

annual profits they have a chance of going into bankruptcy just like GM.

3. Keep Chevrolet the same and make no radial changes to their product development or

marketing strategy. Chevrolet is a stable company, and even though competitors have made way

in to their market share, they continue to maintain high profits and a popular reputation in the

industry. Their “Like a Rock” slogan really defines the company as one of the most reliable long

lasting brands (Johnson, 2011).

Pro: Since Chevy has many loyal customers by keeping the same products and marketing

strategy all confusion will be avoided in contrast if they were to make major changes to the

brand. Major changes could lead to loyal customers being hesitant to make their next purchase.

Also, following this strategy would not require any additional financial risk since they have

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already proven they are profitable without changes.

Con: If there is no change in the companies overall marketing strategy it could lead to a decline

in profit due to competitors becoming more innovative and gaining higher product knowledge.

IV. Recommendations

The set of alternatives I thought would be the most beneficial to Chevrolet include increasing the

time to produce brand new models, spend more money on environmentally safe cars like hybrids,

and keep Chevy the same by making no changes to the company. The best recommendation I

would have for Chevrolet is to spend more money on innovating vehicles so they are

environmentally safe and follow proper government regulations. Due to the fluctuation of gas

prices and environmental laws it is important that Chevy starts coming up with a new business

plan as soon as possible to produce alternative vehicles that satisfy these two factors. Even with

the risk of financial loss, it is important Chevy produces these types of vehicles to show

customers that they as well care about the environment as well. This will create a stronger brand

image since Chevrolet represents America and six other countries. In todays world consumers

want to protect the environment as much as they can at an affordable price. If Chevy can quickly

start producing many fuel-efficient vehicles they wont have a problem gaining market share over

other competitors.

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References

1). Ford Looks Hypocritical In New Anti-Bailout Commercial. (2011, September 19). Retrieved April 2, 2015, from http://www.forbes.com/sites/joannmuller/2011/09/19/ford-looks-hypocritical-in-new-anti-bailout-commercial/

2). General Motors Races Ahead in the China Market. (2011, April 1). Retrieved April 2, 2015, from http://www.chinabusinessreview.com/general-motors-races-ahead-in-the-china-market/

3). Government sets strict fuel-economy goal of 54.5 by 2025. (2012, August 28). Retrieved April 2, 2015, from http://usatoday30.usatoday.com/money/autos/story/2012-08-29/fuel-standards/57383050/1

4). Automotive Industry Analysis - GM, DaimlerChrysler, Toyota, Ford, Honda. (2004, November 3). Retrieved April 2, 2015, from http://www.academicmind.com/unpublishedpapers/business/management/2004-11-000aaa-automotive-industry-analysis.html

5). A car that drives itself. (2013, October 13). Retrieved April 2, 2015, from http://www.cbsnews.com/news/a-car-that-drives-itself/

6) From 'See the USA in your Chevrolet' to 'Like a Rock,' Chevy Ads Run Deep. (2011, October 31). Retrieved April 2, 2015, from http://adage.com/article/special-report-chevy-100/100-years-chevrolet-advertising-a-timeline/230636/#2000

7). GM, less reliant on U.S., focuses on global market. (2011, March 2). Retrieved April 2, 2015, from http://www.nbcnews.com/id/41369707/ns/business-the_driver_seat/t/gm-less-reliant-us-focuses-global-market/#.VR1duoubNUQ

8). Ask The Best And Brightest: Planned Obsolescence? (2009, March 2). Retrieved April 2, 2015, from http://www.thetruthaboutcars.com/2009/03/ask-the-best-and-brightest-planned-obsolescence/

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