SDSUSDSUMKT761 Product Innovation MKT761 Product Innovation

ManagementManagement

SMART Car Launch Plan SMART Car Launch Plan in Chinain China

Professor: Dr. Richard BrooksProfessor: Dr. Richard Brooks

Presented by: Daisy Hsieh, Joe WuPresented by: Daisy Hsieh, Joe Wu

Sandra Wu, Sean YehSandra Wu, Sean Yeh

October 2007October 2007

China Automobile Industry China Automobile Industry HighlightsHighlights

More than 100 vehicle producers in ChinaMore than 100 vehicle producers in ChinaThe world's Second-biggest market for automobiles – Overtook The world's Second-biggest market for automobiles – Overtook from Japan since year 2006from Japan since year 20068 auto export manufacturing bases - to help automakers expand 8 auto export manufacturing bases - to help automakers expand globally globally China Government 11th Five-Year Plan (2006 ~ 2010) - the China Government 11th Five-Year Plan (2006 ~ 2010) - the development of the national economydevelopment of the national economy

Development of Owned Brand Marketing (OBM) Development of energy-efficient auto technology Improvement of the independent development and innovation ability of

China’s auto industry and its international competitiveness Goals: be one of world main auto manufacturers (Top 3); OBM &

technology; exploit energy-efficient and environment protection auto; export vehicles and auto components to big countries; and be one of world main auto competitive countries

China Automobile Industry Five Forces China Automobile Industry Five Forces AnalysisAnalysis

Supplier Power

• Hundred of players

• Market price drops

Buyer Power • Too many choices of brands & models• Buyers have no brand loyalty

Threat of Substitute

• Mass transportation still dominate

• Bikes

Industry Rivalry

• Brands all over the world are here• Hundreds of domestic players• Tariff is high

• Product differentiation are many

• Cooperate merge is on going

Moderat

e Strong

Weak

Strong

Strong

Threat of Entry• Capital requirement is high• Company own distribution

• Economies scale is high

• Product differentiation are many• Regulation supports

Automobile Industry Structure - Automobile Industry Structure - ChinaChina

BMW Mini

GM

HaFei

BMW

En

gin

e C

apac

ity

(Lit

er)

Market Price

High

2.0

1.8

1.3

1.0

Low

Low High

Automobile Market SegmentationAutomobile Market Segmentation

VWBug

Mercedes-Benz

Ford

Fiat Mazda

Toyota

VolvoRolls-Roy

ceHonda Cadillac

Hyundai

Renault

Nissan

LexusAudi

VW

Infiniti

Peugeot Saab

Daihatsu

Chang Cheng

QQ SparkS6

Hwa Chen A1

Smart

Key Domestic PlayersKey Domestic Players

PartnershipPartnership FocusFocus RevenueRevenue ShippingShipping

FAWFAW VW, Audi, VW, Audi, Toyota, MazdaToyota, Mazda

Own brand Own brand ( Hongqi), ( Hongqi), AssemblyAssembly

RMB $148.6 RMB $148.6 Billion (2005)Billion (2005)

870,068870,068

(2006)(2006)

SAICSAIC VW, GMVW, GM Assembly,Assembly,

Chery (own Chery (own 20%)20%)

RMB $6.388 RMB $6.388 Billion (2005)Billion (2005)

655,950655,950

(2006)(2006)

DFACDFAC Nissan, Honda, Nissan, Honda, Peugeot, KiaPeugeot, Kia

Assembly,Assembly,

(DongFeng)(DongFeng)RMB $41.735 RMB $41.735 Billion (2005)Billion (2005)

598,218598,218

(2005)(2005)

CheryChery ChryslerChrysler QQ (copy from QQ (copy from Daewoo Matiz)Daewoo Matiz)

NANA 272,432272,432

(2006)(2006)

Top 10 Global Brand in ChinaTop 10 Global Brand in China

431

308

255

167147 140

108 102

6033

0

100

200

300

400

500

VW GM Honda Nissan Toyota Suzuki Mazda PSA Ford Fiat

Automobile Shipment of JV in China in 2005

Small Car Competition AnalysisSmall Car Competition Analysis

ThreatsThreats Top 4 domestic

brands share 79% market

War zone of price, new model, and firm merging

Margin profit cause firms go for premium car

A tough course to promote idea of “national car” like VW Bug

OpportunitiesOpportunities GDP keeps

increasing every year

Energy crisis, policy favor small car

Imposing of fuel duty helps selling small cars

Market Size/ DynamicMarket Size/ Dynamic

Automobile Market SizeAutomobile Market Size Shanghai

Private Car: 4.25% Growth Rate: 10% Target market:17.9Million population x 79% /2= 7 M

Shenzhen Private Car: 8.5% Growth Rate: 17% annual Target market: 8.3Million population x 90%/2=3.7 M

Total market for Shanghai & Shenzhen: 10.7 M Potential market is 5 M when penetration rate reach

50%

Product Refinement/ Product Refinement/ AlternativesAlternatives

Product Refinement/Alterations Product Refinement/Alterations – Result of Research Findings – Result of Research Findings

Position PlatformPosition PlatformTarget customer: Female young high-income urban elite Target customer: Female young high-income urban elite Brand Name: Smart forfourBrand Name: Smart forfourBrand Personality: joyfulBrand Personality: joyfulProduct /Competitive Frame: environmental conscious, eneProduct /Competitive Frame: environmental conscious, energy-efficient, small luxury vehicle rgy-efficient, small luxury vehicle End-benefit: status, high quality, good performance and coEnd-benefit: status, high quality, good performance and conservative nservative Rational Support: high quality steel frame from its Germany Rational Support: high quality steel frame from its Germany Mercedes-Benz family and advanced environmental technoMercedes-Benz family and advanced environmental technology. logy.

Opportunities and Issues Opportunities and Issues AnalysisAnalysis

SWOT Analysis (Smart)SWOT Analysis (Smart)

StrengthsStrengthsEnvironmental DesignEnvironmental DesignCompact SizeCompact SizeVibrant OutlookVibrant Outlook

OpportunitiesOpportunitiesPotential Growth due to low Potential Growth due to low

penetration ratepenetration rateHigh fuel tax shall High fuel tax shall

encourage smaller vehicleencourage smaller vehicleAppealing to Mercedes-BenzAppealing to Mercedes-Benz

WeaknessesWeaknessesHigh CostHigh CostNot Enough DifferentiationNot Enough DifferentiationLack of Market AwarenessLack of Market Awareness

ThreatsThreatsCompetition from Local Competition from Local

Chinese ManufacturerChinese ManufacturerHigh tariffHigh tariff

Key Issues/ HurdlesKey Issues/ Hurdles

License Plate Fee (RMB30K ~ 50K) License Plate Fee (RMB30K ~ 50K) in Shanghai >> Favor to bigger in Shanghai >> Favor to bigger size vehiclesize vehicleLocal Government don’t support Local Government don’t support the policy of small car the policy of small car Chinese’s preference of bigger car Chinese’s preference of bigger car since car is a kind of symbol of since car is a kind of symbol of statusstatus

China Automobile Industry China Automobile Industry HighlightsHighlights

More than 100 vehicle producers in ChinaMore than 100 vehicle producers in ChinaThe world's 2nd biggest automobile market – The world's 2nd biggest automobile market – overtook from Japan since year 2006overtook from Japan since year 2006The 11th Five-Year Plan (2006 ~ 2010) - the The 11th Five-Year Plan (2006 ~ 2010) - the development of the national economydevelopment of the national economy Development of Owned Brand Mark (OBM) Development of energy-efficient auto technology Improvement of the independent development and

innovation ability of China’s auto industry and its international competitiveness

Goals:• to own OBM & technology;• to exploit energy-efficient and environmental protection auto;• to export vehicles and auto components to big countries;• to be one of world main auto manufacturers (Top 3); and• to be one of world main auto competitive countries

China Automobile Industry - China Automobile Industry - SalesSales

1.57 1.61.83

2.082.34

3.29

4.44

5.07

5.7

7.22

9.0%

1.9%

14.4% 13.7%12.5%

40.6%

35.0%

14.2%12.4%

26.7%

0

1

2

3

4

5

6

7

8

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

Sale Growth Rate

China Automobile Industry - China Automobile Industry - Projected DemandProjected Demand

4.565.07

5.76

7.228.23

99.88

10.9411.88

12.9913.93

14.9616.04

17.235.0%

11.2%

13.6%

25.3%

14.0%

9.4% 9.8%10.7%

8.6% 8.4% 8.1% 7.4% 7.3% 7.2%

0

2

4

6

8

10

12

14

16

18

20

2003 2004 2005 2006 2007F 2008F 2009F 2010F 2011F 2012F 2013F 2014F 2015F 2016F

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

Demand Growth Rate

Million

Competitor Analysis–Small Car in Competitor Analysis–Small Car in ChinaChina

ThreatsThreats Top 4 domestic

brands share 79% market

War zone of price, new model, and firm merging

Margin profit cause firms go for premium car

A tough course to promote idea of “national car” like VW Bug

OpportunitiesOpportunities GDP keeps increasing

every year Energy crisis, policy

favor small car Imposing of fuel duty

helps selling small cars

Daimler Chrysler HighlightsDaimler Chrysler HighlightsFounded: 1998 (Daimler-Benz Germany acquired Chrysler Corp in Founded: 1998 (Daimler-Benz Germany acquired Chrysler Corp in U.S.)U.S.)Headquarter: Stuttgart, GermanyHeadquarter: Stuttgart, GermanyIndustry: Automobile & Truck ManufacturerIndustry: Automobile & Truck ManufacturerProducts:Products: Mercedes-Benz Maybach Smart Freightliner GEM

Financial Status:Financial Status: Revenue: €151.6 billion (2006) Net Income: €3.227 billion (2006)

World’s 8th largest car manufacturerWorld’s 8th largest car manufacturerThrough most of its history, Chrysler has been the 3rdThrough most of its history, Chrysler has been the 3rdlargest of the "Big 3" US auto makers untillargest of the "Big 3" US auto makers untilrecently except Mercedes and Maybach linesrecently except Mercedes and Maybach lines

Product OverviewProduct Overview

Product Name: Smart forfourProduct Name: Smart forfour

Market Place: ChinaMarket Place: China

Class: SuperminiClass: Supermini

Price: RMB350,000Price: RMB350,000

Engine capacity:1468 ccEngine capacity:1468 cc

Fuel consumption: 8.9 Km/LFuel consumption: 8.9 Km/L

Distribution Channel: through China Distribution Channel: through China National Mercedes-Benz ChannelNational Mercedes-Benz Channel

Brand PositioningBrand Positioning

For young high-income urban elite, the For young high-income urban elite, the Smart forfour is the stylish, Smart forfour is the stylish, environmental conscious, energy-environmental conscious, energy-efficient small luxury vehicle, offers efficient small luxury vehicle, offers status, high quality and conservation, status, high quality and conservation, because of its high quality steel frame because of its high quality steel frame from its Germany Mercedes-Benz from its Germany Mercedes-Benz family and advanced environmental family and advanced environmental technology. technology.

Concept StatementConcept Statement

Smart forfour is the Smart forfour is the stylish, environmental stylish, environmental conscious, energy-conscious, energy-efficient small luxury efficient small luxury vehicle. It offers you vehicle. It offers you status, high quality and status, high quality and conservation.conservation.

Features:Features: Class: Supermini Engine capacity:1468 cc Fuel consumption: 8.9 Km/L Distribution Channel: through China

National Mercedes-Benz Channel

Qualitative ResearchQualitative Research

1. What do you like or dislike about 1. What do you like or dislike about your current car? your current car?

2. How do you solve the problem 2. How do you solve the problem you encounter in Question 1? you encounter in Question 1?

3. What will you consider when you 3. What will you consider when you buy your next car? (Rank it, if buy your next car? (Rank it, if there is more than one)there is more than one)

Microsoft Word ¤å¥ó

Concept Statement RevealConcept Statement Reveal

Smart forfourSmart forfour is the stylish, is the stylish, environmental conscious, environmental conscious, energy-efficient small luxury energy-efficient small luxury vehicle. It offers you status, vehicle. It offers you status, high quality and conservation.high quality and conservation.

Features:Features: Class: Supermini Engine capacity:1468 cc Fuel consumption: 8.9 Km/L Distribution Channel: through

China National Mercedes-Benz Channel

Qualitative Research (cont.)Qualitative Research (cont.)

Qualitative Research (cont.)Qualitative Research (cont.)

4. What attract you when you see Smart forfour? 4. What attract you when you see Smart forfour? 5. What is your impression of Mercedes-Benz? 5. What is your impression of Mercedes-Benz?

Would it increase your interest in buying Would it increase your interest in buying Smart forfour, if you know it is from the Smart forfour, if you know it is from the Mercedes-Benz family?Mercedes-Benz family?

6. Do you think Smart forfour is a good value at 6. Do you think Smart forfour is a good value at RMB350,000? RMB350,000?

Highly likely Likely Neutral Unlikely Very likely

Qualitative Result – Age Qualitative Result – Age Distribution Distribution

0%26%

46%

13%

15%20-25

26-30

31-35

36-40

41-45

Qualitative Result – Annual Qualitative Result – Annual Income Distribution in RMB Income Distribution in RMB

CurrencyCurrency

59%15%

15%

8% 0%3% Below .24M

.24 to .35M

.35 to .45M

.45 to .55M

.55 to .65M

Above .65M

Qualitative Result – Qualitative Result – Preference of Buying a CarPreference of Buying a Car

17%

16%

14%16%

11%

7%

9%4% 5% 1%

Fuel Efficiency

Appearance

Safety

Price

Performance

Quality

Confortable

Brand

Features

Conservative

Qualitative Result - Feel Qualitative Result - Feel about Smartabout Smart

46%

49%

5%

Positive

Negative

neutral

Qualitative Result - Feel Qualitative Result - Feel about Smart with Positive about Smart with Positive

AttitudeAttitude

83%

6%

11%

Positive attitudetoward appearance

Positive attitudetoward brand

Positive attitudetoward tech

Qualitative Result - Feel Qualitative Result - Feel about Smart with Negative about Smart with Negative

AttitudeAttitude

21%

63%

16%Negative attitudetoward price

Negative attitudetoward appearance

Negative attitudetowardperformance

Qualitative Result - Qualitative Result - Interest Increase Because of Interest Increase Because of

BenzBenz

13%10%

77%

YesNot ReallyNO

Qualitative Result - Qualitative Result - Environmental Design Environmental Design

AttractivenessAttractiveness

64%10%

26%

Yes

No

Not Really

Qualitative Result – Qualitative Result – Likely to Buy with Price Likely to Buy with Price

of RMB350,000of RMB350,000

0%0% 10%

44%

46%

Highly likely

Likely

Netural

Unlikely

Very unlikely

Microsoft Excel ¤u§@ªí

Directions Adjusted Directions Adjusted Based on Qualitative Based on Qualitative

ResultResult Price adjustment: from RMB350,000 to Price adjustment: from RMB350,000 to RMB188,000RMB188,000

Fuel efficiency: emphasis such feature Fuel efficiency: emphasis such feature more through catalogue more through catalogue

Performance: emphasis such feature Performance: emphasis such feature more through cataloguemore through catalogue

Appearance: customized appearance Appearance: customized appearance according to buy’s preference (20+ according to buy’s preference (20+ colors, Rear Spoiler, etc.)colors, Rear Spoiler, etc.)

Trial: 0%, get as many people as Trial: 0%, get as many people as possible to try Smart forfourpossible to try Smart forfour

ObjectivesObjectives

Financial (ATAR)Financial (ATAR) Market Size: Shanghai & Shenzhen Total population:18+6.2M=24.2M Age: 25~35 years old Gender: Female

MarketingMarketing Awareness: Get as many people as possible

to try Image: Joy of Life Perception: Mercedes-Benz family

Market SituationMarket Situation

Target Market – ChinaTarget Market – ChinaMacro EconomyMacro Economy

Population Population 11 1.31 billion1.31 billion

Population Population 1 1

Age 15 ~ 60 yearsAge 15 ~ 60 years67.7%67.7%

Labor Force Labor Force 11 798 million798 million

GDP GDP 22 US$2.7 trillion (US$2,054 US$2.7 trillion (US$2,054 per person)per person)

Private Cars Private Cars 22 11.5 million (0.09%)11.5 million (0.09%)

Sex Ratio (15-64 years) Sex Ratio (15-64 years) 11

1.057 Male:Female1.057 Male:Female

Source: 1. CIA; 2. TIME, March 19, 2007

First Year Launch – Location First Year Launch – Location Shanghai & ShenzhenShanghai & Shenzhen

ShanghaiShanghai

ShenzhenShenzhen

China

Target Market – Target Market – First Year LaunchFirst Year Launch

ShenzhenShenzhenPopulation Population 11 17.8 Million17.8 Million

Population Population 1 1

Age 15 ~ 60 Age 15 ~ 60 yearsyears

79.1%79.1%

Disposable Disposable Income Income 11

(2006)(2006)

RMB20,668RMB20,668

(US$2,649)(US$2,649)

GDP GDP 1 1 (2006)(2006) RMB58,422 RMB58,422 (US$7,490)(US$7,490)

Private Cars Private Cars 11 4.25%4.25%

Sex Ratio (15-64 Sex Ratio (15-64 years)years)11

1.016 Male: 1.016 Male: FemaleFemale

ShanghaiPopulation Population 11 8.3 Million8.3 Million

Population Population 3 3

Age 15 ~ 60 yearsAge 15 ~ 60 years90%90%

Disposable Income Disposable Income 4 4

(2004)(2004)RMB27,406 RMB27,406 (US$3,513)(US$3,513)

GDP GDP 2 2 (2006)(2006) RMB69,450 RMB69,450 (US$9,020)(US$9,020)

Private Cars Private Cars 55(2006)(2006) 8.5%8.5%

Sex Ratio (15-64 Sex Ratio (15-64 years) years) 33

1.037 1.037 Male: Male: FemaleFemale

Source: 1. www.shanghai.gov.cn; 2. Shenzhen Statistics 3. MPI News http://www.mpinews.com/htm/INews/20060427/ca41646a.htm 4. http://my.pchome.net/~a785279 5.. http://61.144.227.8:81/gate/big5/www.sz.gov.cn/szyw/200710/t20071006_254052.htm

Reasons to Choose Shanghai & Reasons to Choose Shanghai & Shenzhen as First Year TargetShenzhen as First Year Target

Higher Average Income Higher Average Income

More High Income Young PeopleMore High Income Young People

Modern City LifeModern City Life

More Open to Stylish, fashioned More Open to Stylish, fashioned vehiclevehicle

Sales Growth for Mercedes-BenzSales Growth for Mercedes-Benz66: : 110% (2110% (2ndnd Largest Benz market in the Largest Benz market in the world)world)

Source: 6 http://magazine.sina.com.hk/winmoney/374/2007-10-24/204441561.shtml

Competitive AnalysisCompetitive Analysis

Integrated Marketing Integrated Marketing Communications Communications strategiesstrategies

Integrated Integrated Marketing Marketing

Communications Communications strategiesstrategies

InternetInternet

interactiveinteractive

direct direct marketmarket

personal personal spellingsspellingsAdvertisingAdvertising

publicitypublicity

placementplacementsales sales

promotionpromotion

PlacementPlacementSelling the InvisibleSelling the Invisibleused in movies, televisions and some other placesused in movies, televisions and some other placesmore acceptablemore acceptableMovie (from overseas)Movie (from overseas)

corporate with Hollywood film companiescorporate with Hollywood film companiesTV (TV ( 黃曉明黃曉明 ) – local) – local

the Smart car appears in the local television the Smart car appears in the local television dramasdramas

It is the same concept that we make the famIt is the same concept that we make the famous TV star, such as Huang Xiao-Mingous TV star, such as Huang Xiao-Ming

Driving SchoolDriving Schoolrent Smart cars to the driving schools as their rent Smart cars to the driving schools as their training cars. training cars. After the students get their licenses, they maAfter the students get their licenses, they may first consider buying a Smart car. y first consider buying a Smart car.

AdvertisingAdvertising

awareness of the Smart carawareness of the Smart cartarget audient: young peopletarget audient: young peoplecampaign: “joy of life”. campaign: “joy of life”. driving a Smart car represents a joyful life

style. Life short, just play more.

AdvertisingAdvertisingNewspaperNewspaperMagazine (car magazine, youth magaziMagazine (car magazine, youth magazine, like GQ)ne, like GQ)Radio (Musical channelsRadio (Musical channels ))TV CommercialTV CommercialPrint AdsPrint AdsOutdoor advertisement Outdoor advertisement – T Bar – T BarOff-line AdvertisingOff-line Advertising Landmark in Shanghai ( Xintien Dy or Lu-gi

a-zue ) Landmark in Shenzhen( 深南大道中信廣場 ,

蛇口 )Banner on Bus Banner on Bus

Direct MarketingDirect Marketing

Auto-LeasingAuto-Leasing

Souvenir: Souvenir: small Smart car model, Polo Shirt, Cap (if you come to try Smart Car)

0% interest loan0% interest loan

InternetInternetOfficial webOfficial web announce official information

Internet ForumInternet Forum share their feeling with each other

Web log (Blog)Web log (Blog) hire several internet writers share the positive feeling about how good it is to

have a Smart car.

You TubeYou Tube a web site that people share their films and videos

on it put broadcasted TV CF on You Tube (extend the

effects)

InteractiveInteractiveInteractive demonstration: Interactive demonstration: provide interested people

test-driving book online 10 pre-qualified consumers

driving 10 Smart together in Shanghai & Shenzhen once a week for consecutive 10 weeks.

Smart Car ClubSmart Car Club for people who purchase a

car for people who would

purchase one in the future to service the Smart drivers

and potential buyers

Promotion – Sales Promotion – Sales PromotionPromotion

Personalized OptionsPersonalized OptionsOffer Special Options for free in first

year launch

Warrantee extension for additional Warrantee extension for additional one year in first year launchone year in first year launch

Promotion – PR/PublicityPromotion – PR/Publicity

Press ReleasePress ReleaseSmart Concert (Classic Rock)Smart Concert (Classic Rock)RunningRunningCharity (Conservation, etc)Charity (Conservation, etc)ScholarshipScholarshipSponsor 2008 Olympic Gold Sponsor 2008 Olympic Gold Winner with new world recordWinner with new world record

Personal SellingPersonal Selling

Dedicated sales force in Mercedes BenzDedicated sales force in Mercedes Benz

Differentiated style of Smart salesDifferentiated style of Smart sales

Sales force trainingSales force training