Implantation of a premium automotive brand in the saturated German market

Analysis of the German market and the non-national premium brands


Master's Thesis, 2016
102 Pages, Grade: 1,7

Excerpt

Table of Content

List of figures

List of abbreviations

1 Introduction
1.1 Initial position and problem statement
1.2 Object of the investigation
1.3 Structure of the work

2 Definition and delimitation ofthe investigation’s topic
2.1 Delimitation of the investigation’s frame
2.1.1 Spatiotemporal frame
2.1.2 Thematic frame
2.2 Definition of the investigation’s terms
2.2.1 Product portfolio
2.2.2 Price positioning
2.2.3 Premium automotive brand
2.2.4 Market entry and penetration

3 Theoretical foundations
3.1 Market entry and penetration of a saturated market
3.1.1 Market entry strategies
3.1.2 Factors for market entry
3.1.3 Growth strategies
3.2 The Product as central part of companies’ strategies
3.2.1 Product policy
3.2.2 Product Portfolio
3.3 The Price as distinction between competitors
3.3.1 Price policy
3.3.2 Strategic price policies

4 Concept
4.1 Concept development
4.2 Hypotheses

5 Analysis
5.1 Methodology
5.2 Results
5.2.1 Product Portfolio
5.2.1.1 Product portfolio analysis’ results
5.2.1.2 Discussion of the results
5.2.2 Price positioning
5.2.2.1 Price positioning analysis’ results
5.2.2.2 Discussion of the results
5.3 Recommendations
5.3.1 Product
5.3.2 Price

6 Conclusion
6.1 Summary
6.2 Limits
6.3 Perspectives

References

Appendices

List of figures

FIGURE 1: PREMIUM CAR PRODUCTION BY COUNTRY

FIGURE 2: MARKET SHARE IN GERMANY ACCORDING TO CONSTRUCTOR'S NATIONALITY

FIGURE 3: PROFITS OF PREMIUM CONSTRUCTORS FOR 1ST HALF 2016

FIGURE 4: GLOBALIZATION STRATEGIES

FIGURE 5: EBIT PER CAR FOR GERMAN PREMIUM BRANDS

FIGURE 6: FACTORS AFFECTING THE FOREIGN MARKET ENTRY MODE DECISION

FIGURE 7: GROWTH STRATEGIES

FIGURE 8: RESEARCH CONCEPT

FIGURE 9: PRODUCT PORTFOLIO TEMPLATE

FIGURE 10: PREMIUM BRANDS PERCEPTION IN GERMANY

FIGURE 11: SALESAND MARKET SHARES PER SEGMENT, 2010&2015

FIGURE 12: SALES PER BRAND BETWEEN 2010AND 2015

FIGURE 13: ALFA ROMEO’S PRODUCT PORTFOLIO 2010&2015

FIGURE 14: ALFA ROMEO’S BCG ANALYSIS

FIGURE 15: CADILLAC’S PRODUCT PORTFOLIO 2010 & 2015

FIGURE 16: CADILLAC’S BCG ANALYSIS

FIGURE 17: DS AUTOMOBILES’ PRODUCT PORTFOLIO 2010 & 2015

FIGURE 18: DS AUTOMOBILES’ BCG ANALYSIS

FIGURE 19: INFINITI’S PRODUCT PORTFOLIO 2010 & 2015

FIGURE 20: INFINITI’S BCG ANALYSIS

FIGURE 21: JAGUAR’S PRODUCT PORTFOLIO 2010&2015

FIGURE 22: JAGUAR’S BCG ANALYSIS

FIGURE 23: LAND ROVER’S PRODUCT PORTFOLIO 2010&2015

FIGURE 24: LAND ROVER’S BCG ANALYSIS

FIGURE 25: LEXUS’ PRODUCT PORTFOLIO 2010& 2015

FIGURE 26: LEXUS’ BCG ANALYSIS

FIGURE 27: VOLVO’S PRODUCT PORTFOLIO 2010&2015

FIGURE 28: VOLVO’S BCG ANALYSIS

FIGURE 29: GERMAN BRANDS’ PRODUCT PORTFOLIO

FIGURE 30: OVERVIEW PRICES AND SALES IN B-SEGMENT

FIGURE 31: REGRESSION ANALYSIS B-SEGMENT

FIGURE 32: OVERVIEW PRICES AND SALES IN C-SEGMENT

FIGURE 33: REGRESSION ANALYSIS C-SEGMENT

FIGURE 34: OVERVIEW PRICES AND SALES IN D-SEGMENT

FIGURE 35: REGRESSION ANALYSIS D-SEGMENT

FIGURE 36: OVERVIEW PRICES AND SALES E-SEGMENT

FIGURE 37: REGRESSION ANALYSIS E-SEGMENT

FIGURE 38: OVERVIEW PRICES AND SALES IN F-SEGMENT

FIGURE 39: REGRESSION ANALYSIS F-SEGMENT

FIGURE 40: OVERVIEW PRICES AND SALES IN J-SEGMENT

FIGURE 41: REGRESSION ANALYSIS J-SEGMENT

FIGURE 42: OVERVIEW PRICES AND SALES IN S-SEGMENT

FIGURE 43: REGRESSION ANALYSIS S-SEGMENT

FIGURE 44: MODEL OF RESTRICTED PRODUCT PORTFOLIO

FIGURE 45: MODEL OF EXTENDED PRODUCT PORTFOLIO

List of abbreviations

Abbildung in dieser Leseprobe nicht enthalten

Acknowledgements

Firstly, I would like to express my sincere gratitude to my supervisor Prof. Dr. rer. pol. Wolfram Sopha for the support of my Master thesis. His guidance helped me at the beginning of my research and while writing this thesis.

Besides my supervisor, I would like to thank Nikolaj Lunze, which accepted to be the second examiner of this Thesis. I also would like to thank Mrs. Binder and Mrs. Pendi for the support in the process and the fast communication.

I thank my friends, Jonathan, Quentin, Nicolas, Clément, François, Rodolphe, Niklas, Alexandr, Kerim and Jana, as well as the French crew from Cologne for the psychologically support.

Last but not the least; I would like to thank my parents for their patience and supporting me spiritually throughout writing this thesis far away from home.

1 Introduction

1.1 Initial position and problem statement

The German premium automotive market belongs to one of the most saturated market in Europe due to its large population and its strong economy, the most powerful within the European Union, which results a high standard of living. Added with the presence of local premium manufacturers, these factors assure a very strong competition for foreign automotive manufacturer which want to increase their market shares and moreover to establish their brands in this market.

Nowadays are established premium automotive brands the most rentable within their companies and bring high profits assuring a financial support. The biggest automotive groups are concentrating at least one or several premium brands in order to have access to their own share of the segment. Occidental premium brands are historically well implanted in the Ger­man market but with the increase of cooperation and acquisition within the automotive industry, new players also want to bring new premium brands on the market to establish their worldwide reputation. In 1989 Toyota created its premium brand Lexus and vehicles were directly available in Germany the next year. On the contrary, Nissan’s premium brand Infiniti, founded the same year, only began on the German market in 2008. Recent brands from Asia or other emerging countries also could soon come to Germany to complete their ambitions for rapid growth.

On the German market is it possible to differentiate two kinds of premium brands: brands locally manufactured like Audi, BMW, Mercedes-Benz and Porsche, and the imported brands like Lexus, Infiniti, Jaguar, Land Rover and Volvo. Each has its advantages and disad­vantages in term of production and distribution but doesn’t especially enable the same strategies.

Nevertheless the foreign brands struggle to win market shares on the German premium market. Since 1958 in Germany is Volvo now well known and established but still stay far behind its German competitors. For a few years Lexus reduced its dealer’s network to focus the in vestments on main dealers. New player arrived in Germany in 2008; Infiniti is actually expanding quickly its dealer network and hopes that the sales will follow. Today is it difficult to say if the strategy of these brands were or are not enough appropriated to fit the market or if the market and customers have a kind of reluctance regarding the imported brands products. According that market opinion is really hard to influence, the first thing to do is to look at the manufacturer side. They can in fact play a role on several factors in order to bring the cus­tomers in their showrooms.

Indeed each car manufacturer has a specific approach and dedicated strategy to reach its targets. But some of the most relevant factors from the customer point of view are the prod­ucts themselves and their price. They are the most tangible main factors which have a leading role in the purchase decision process. That is why it is relevant to know how important these two factors are for a new premium brand wishing to penetrate the German premium market. In what way can a manufacturer operate an adjustment of its product portfolio and pricing policy in order to fit to the German market would bring an answer to a part of their actual problem.

As mentioned above the present importers brands on the German market struggle to in­crease their market shares and win visibility. Regardless of the history and age of a premium brand, the German premium segment still is a hard competitive market despite the efforts of new players coming into it. Despite the heavy supremacy of the national premium brands, customers and market needs are continuously changing and there still are opportunities for competitors to take place. Until today no one have reached the sales volumes of German brands so this research will study if the price policy and product portfolio of importers pre­mium brands. That is why it is relevant to study if these two factors can bring a significant value to the companies’ strategies to analyse if they are adapted to the German market. Moreover new players going into this market don’t necessarily have a good overview of Germany’s premium segment and its specificities and could meet strong difficulties without an adequate founded strategy. Most of contemporary studies are oriented towards emerging markets entry and development possibilities for established automotive manufacturer but few are considering the opposite way of brands from emerging countries wishing penetrate an European premium market.

1.2 Object of the investigation

This research is based on the importance of the product portfolio and price policy for premium brands who want to penetrate the German automotive premium market. Aim is to find how important these two factors are and how far the foreign manufacturers should adjust them to have a competitive advantage over its historically established German competitors. This research is also aimed to show to the readers the potential similarities or discrepancies between importers and local manufacturers and in what way these have a positive or nega­tive impact on the company sales in Germany.

The following work will be dedicated to the premium brands, from developed countries as well as from emerging markets, coming to Germany. In a first place, brands from developed countries because manufacturers based in these countries also have created premium brands. Generalist manufacturers have launched premium brands to compete with historical brands. The brands from emerging countries (BRICS, Four Asian Tigers, Tiger Cub Economies) because these states are part of the most dynamical regions in the world with a strong demographic and economic growth. Secondly we will focus on premium brand because to­day they are the most profitable segment in the automotive sector and represent a significant part of the sales in developed countries. Finally we will zoom in on the German market owing to its strong competitiveness and a high percentage of premium cars sold. Due to its population and economy it is one of the most developed automotive markets in Europe and its na­tional manufacturers make it even more complicated for foreign brands to establish them­selves.

To enter a new market every brand has to have a proper entry strategy. In our case we will focus on entry strategies based on two specific factors: product and price. The research about the implantation of a premium automotive brand in the saturated German market will be done taken into consideration the product portfolio’s strategy as well as the price position­ing and policy. Indeed the study should bring answer’s elements to the following problematic: “How far could a rationalized product portfolio of a non-German premium automotive brand, characterized by a differentiated pricing policy, facilitate the penetration in the saturated German market?"

The research should show if a rationalized product portfolio is adequate enough to compete against the German vehicles rich in variants and versions as well as showing how an advantageous price for non-German premium vehicles is important for the customers to considerate the buying of their products and in this way secure the manufacturers’ sales volumes. On a larger view, the aim is to find out how the actual strategies can be improved to win more market shares due to the two factors price and product.

Interesting findings could be some similarities or strong discrepancies in term of product port­folio and pricing between foreign brands, which could conduct to the observation of the fail­ure of a strategy or the success of another one.

1.3 Structure of the work

First of all this research will begin with the definition of the theoretical fundamentals relevant for our topic as well as the delimitation of the problematic.

In a second part this work will deal with the theoretical foundations of the research, to bring the theoretical basis of the studied and analyzed fields. Once the most important theories and concepts will be settled, we will develop the research’s concept and the derived hypotheses, which will be answered after.

Then the data related to price and product strategies will be collected. Regarding the product portfolio of brands in Germany a segmentation overview of premium brands will be conducted in order to have a universal basis to compare and analyze. The information will be collected directly on the manufacturer’s German corporate website to have the market relevant sources as well as other sources to have the product portfolio corresponding to the studied period, taken into consideration the lifecycle of the products. Same procedure for the prices with collection of standard entry level vehicles prices for each segment. The manufacturer website enables to have a national price overview without any discount or special actions, online are only the most actual prices available. On the same time the information will be cross-check with historical prices to have the relevant prices for the studied period.

Then in the third part the collected data will be analyzed and evaluated. The established segmentation of the brands and their product portfolios will be evaluated through a BCG Ma­trix analysis. It will highlight the strengths and weakness of each product portfolio and its environment. The prices will be evaluated due to a price analysis including the price positioning and regression analysis, to create a comparison between the brands as well as possible correlations between prices and the amount of units sold. At this stage we will be able to say if the product portfolio combined with the price strategy has an impact on the brands and how strong this impact is.

Finally the information resulting from the analysis will lead to recommendations for the actual non-German premium brands.

2 Definition and delimitation of the investigation’s topic

The following part will be focused on the delimitation and definition of the research’s frame, from a spatial, geographic, temporal and thematic view. The aim is to delimitate the contours of the topic and define precisely what the terms and vocabulary refers to. The spatiotemporal and thematic frame will delimit the place and timeline the study will be based on and then the different terms and expression will be explained. In this way the research global frame will be established as well as the specific terms and topic delimited.

2.1 Delimitation of the investigation’s frame

2.1.1 Spatiotemporal frame

Firstly we define in this first section the spatiotemporal frame of the study, explaining what geographical room will be covered by this study cover and why wills this area especially analyzed.

This research will be exclusively based on one of the most important automotive market with­in the European Union: Germany. There are many reasons to focus on this country because despite its appurtenance to the western European countries, Germany has few in common with its neighbors.

First market in terms of volumes, Germany alone caught 20,2% of the European Union cars sales for the first half of 2016 (791.424 units sold in Germany for a global EU market of 3.931.903 units)[1]. Moreover the two others big markets, which are Italy with 13,2% (519.123[2] units sold) and France with 13,1% (516.382[3] units sold during the first six months of 2016), are still representing approximately 35% less than the German market. Germany is with no doubt the most important market in the European Union despite the last complicated years for the automotive industry, resulting from the financial and economical crisis of the last decade. But the markets are recovering so do the constructors. The good cars sales in Germany can be explained though several factors, transforming this market in an indicator for brand wishing to perform within the EU market.

Indeed Germany disposes of some advantages making its internal market especially dynamic. The country is geographically well placed, in the heart of Europe, disposes of a good transport’s infrastructure and is near big ports hubs. Its dense infrastructure enables the population to easily use cars to connect the different cities, mostly located in large urban areas. With more than 80 million inhabitants spread all over the territory, its decentralized governance’s system enabled the creation of vast cities in each federal region, in opposition to other European countries where most of people and activities are centralized in the capital city.

Moreover the German population is aging quicker than the European neighbors due to its low birth rate. Despite the high population, the age of this one is higher than France, Italy or oth­ers. The age’s classes in Germany containing the most people are located between 40 and 60 years[4]. The result of this evolution is that the average new car customer’s age is increasing and is now situated around 52 years (CAR-Center Automotive Research)[5]. In this age’s class we also find people in stable situation, who have already a long work experience and automatically getting higher salary than the new generation coming in activity. The purchasing power is higher and this class can afford more expensive cars, which is boosting the premium segment of the German internal automotive market. The age and purchase power of Germany’s inhabitants builds a specific and attractive market for constructors, where they can sale models with higher equipments and prices.

But some of behavioral attitudes still dominate in Germany. As in other occidental countries, the inhabitants’ car buying process indirectly follows purchase chauvinism that privileges the purchase of national brand, in fact of premium brands. Germans are proud of their national brands and show it buying their products. Furthermore the national brands are well known for innovation and technologies, supported by decades of development and have a long history. The “Made in Germany” label is worldwide famous and stands for quality, engineering, consensual design. The brand image is strong and was built up over years. The loyalty is pretty high mainly by the older generation (51% for new cars and 36% for used cars (DAT Report 2016)), which means the buyer age’s class who can afford such models. Younger people will compare the features and are attentive to others criteria, like onboard technology. Because if cars represent a status symbol for the older generation, its signification is involving for the younger, who want to integrate the cars into a lifestyle and not simply as something you have the property for.

All these factors make Germany seen as an opportunity for many constructors, in terms of volumes for generalists and especially in terms of benefits for those with premium offers. But the German market is tough and is a sort of “private” territory for national constructors. In 2015, the 5 brands who sold the most where German VW, Mercedes, Audi, BMW, Opel and the premium national brands were well ahead with the second, third and fourth places[6]. These 5 brands alone made 54% of the 2015 sales volume in Germany and the three premium brand 25%[7].

The premium segment represent 60% of all produced cars built in Europe and 40% of them are manufactured in Germany (see figure 1). The “made in Germany” is an export label as 70% of the worldwide premium car production is done by German manufacturers (national and subsidiaries’ production).

Abbildung in dieser Leseprobe nicht enthalten

Figure 1: Premium Car production by Country8

This production’s domination in the premium segment can also be noticed in the internal German market. The national brands had 72% of market share in 2014, dominating the European (11%) and Asian (14%) competitors (see Figure 2[9] below). The national brands presence is very high and the market is for every non-German competitor hard to penetrate, even more for premium manufacturers.

That is why this research will be geo­graphically based on Germany and its internal market with focus on the premium segment. To study the German premium segment, we will analyze the differences and similarities between German and non-German premium constructors. In order to have a defined

Abbildung in dieser Leseprobe nicht enthalten

Figure 2: Market share in Germany according to constructor's nationality

temporal frame, the research will be axed on the period from the last years until end of 2015. Indeed the availability of price’s history for all premium brands and their models is limited and we want to focus our research on basis of actual strategies, in order to see if these can be adjusted for future market entry.

Moreover it is important to study the actual premium segment, which has evolved since the 90s with more brands and an international competition. The competitor’s brands increase is in the same time defined by a decrease of the amount of constructor companies due to the rationalization (Reichhuber 2010) within the automotive sector. Indeed with the acceleration of globalization and several crises, the industry has experienced a lot of acquisitions.

2.1.2 Thematic frame

As mentioned before, the study take place on the German new cars market with focus on the premium segment. As the most competitive segment in this market with worldwide known local brands, the market is even more difficult for new players wanting to penetrate it and win some market shares. Indeed several factors make a market entry in Germany hard and due to local constructors even harder than other markets, where the premium brands are all im­ported and don’t have the benefit of a national origin. First of all, the “old traditional” premium brands are confronted since the last decades of an increase of competition inside the segment. Brands created by general manufacturers like Infiniti for Nissan, Lexus for Toyota in the late 90s, DS by Citroën since a couple of years and recently Genesis by Hyundai, are now pretending to have their own place within the premium segment. Moreover manufacturers considered outside of the premium segment are today trying to come closer of it. Indeed generalists OEM try to have a readjustment of their positioning and present top end vehicles with the ambition to compete in the same class as the big traditional premium brands (Challenges facing new entrants, BMI Research 2013). Renault with the latest Sedan and the GT line want to offer similar performances as the premium brands. PSA Group is a good example, offering a DS Line with more quality and performance before this one was separated and built as an own brand with premium positioning.

Despite good technology and performances, the brand recognition is also an important factor. It could be difficult to new players to come into the market and establish them quickly as premium for the customers. To counteract the strong brand awareness of competitors, the challengers can use other tools to position themselves in the market.

The latest DAT Report has made a ranking for the most important car buying criteria in Germany and reliability, design and price (DAT Report 2016) are landing on the podium. The both first items are inherent to the product and the third named is the price. Of course the products features are important and could be the decision maker for a purchase. If reliability is a more engineering topic, design is more specific because it can change from a country to another. Not that the same model will have another design in a different country but the overall design answer to market specificities. And the design will have an importance in the product models and variants. Indeed some overall designs have more chances to please some market due to its local predilections. But before judging the design of the car, a constructor should at first offer the right products to the market and customers. Indeed if old brand have now a large offer of models and variants, the young brands don’t necessarily have this amount of choice. That is what makes it relevant to investigate on the product port­folio evolution and actual situation to better understand the strategies of non-German premi­um manufacturers. The product portfolio of brands selling in Germany should be theoretically depend of the local demand and be adapted for the European market, especially the German market. This research will be in part focused on the product portfolio proposed in Germany by premium importers and another part will be dedicated to the price positioning of these products.

As seen before, price is the third purchase’s criteria in the decision of a new car buyer. In­deed a coherent pricing policy with realistic price positioning is a central topic for all premium brands. Price should reflect the brand, its products and values. In the automotive sector, there are plenty of manufacturers, models and variants that customers can buy. The relevance is to find out if the price positioning has an influence on the purchase between several premium brands and how the price positioning of a model or variant could have an impact of the market’s penetration of the premium brands entering the market. The research will analyze the different price positioning of premium brands regarding their different models and variants. The focus will be put on the end customer price and the capacity of this price positioning to influence and accelerate a market entry of a new coming brand and vehicles.

Finally the product and price factors will be used to determinate how a market entry could be optimize for new players who want to penetrate the German market and increase their market shares. Today’s challenges are for most premium constructors to unlock new markets in order to increase their sales. China was the latest country to offer a boom of new cars registration and mostly in the premium and luxury segment. But if “old traditional” premium brands, mostly European, Japanese and American, want to penetrate new market in emerging markets, the role is quite the opposite for new players. Indeed young and new premium brands want to penetrate the markets of developed countries because they are the core territories of this segment. And it also will be an occasion to build the brand and product reputation. The second reason is also for the profit such a brand could bring. Premium is known for having better margins than generalist.

Within this segment in Germany, the luxury is doing well but premium also brings a good share of the company’s profits (see Figure 3). Because most of premium brands aren’t inde­pendent but are owned by a big corporation composed of several brands.

Abbildung in dieser Leseprobe nicht enthalten

Figure 3: Profits of premium constructors for 1st half 2016[10]

The reason why this topic will focus on these elements is to try to figure out and find explanation’s factors to see how the brands are responding to the demand through their product portfolio and an adapted price positioning compared to their competitors. If those have something in common between new markets enter and German manufacturers, and how these factors could have an impact on sales.

Now we have defined the spatiotemporal and thematic frame in which the research will take place. The focus on Germany within the last two decades until today will be the foundation to study the influence and importance of product portfolios and price positioning of premium brands to have the best market entry in Germany. In the following section, the terms will be also defined to understand what is really meant. Aim is to build the overall topic frame before going through the theoretical foundations needed for the research.

2.2 Definition of the investigation’s terms

2.2.1 Product portfolio

The product is one of the four P’s of McCarthy (Borden 1964) Marketing Mix, which was later completed in 7P’s (Donnelly, William 1981). As one of the most important part of the Marketing Mix, the product is connecting the customer to the brand. A “product” is something we can propose on a market, to be consumed or used and to fulfill a wish or need (Kotler, Keller, Bliemel 2007). A product is supposed to create customer value for a specific target group and should be adapted to the market he is sold on (Runia, Wahl 2015). If a product can be seen as something material, a service or even more a person, our study will only use the term product in reference to the vehicles, it means from a material sight.

Firstly used by Markowitz in 1952 in The Journal of Finance, the term “portfolio” designates in a larger way an ensemble of products. Within the automotive industry, we can differentiate a constructor brands portfolio and product portfolio. The brand portfolio refers to all the brands which belong to a manufacturer or company. The Volkswagen Group has for example several brands in its portfolio like Audi, Bentley, Porsche, Volkswagen and others. For this study the term portfolio will be focused on the products and moreover on the product portfolio of different brands. That means we will look into the product’s offers that the constructors have. For Audi the product portfolio is composed of several models (A1, A3, Q7, R8, etc.[11] ) and each model disposes of different variants (Limousine, Avant, Allroad, Coupé, Cabrio). All these vehicles constitute the product portfolio of a brand; portfolio which has knew a lot of development in the last decades with an important product proliferation (Diez 2006).

2.2.2 Price positioning

Price also is a component of the four P’s (Runia, Wahl 2015) and is defined by Kotler (1996) as “the amount of money charged for a product or service” by a company. On a more global sight it also defines “the sum of all values that consumers exchange for the benefits of having or using the product or service” (Kotler, Wong, Saunder, Amstrong 1996). The prices are fixed on a corporate level and often adapted to fit to a specific market. Indeed the constructor can use different pricing strategies (which will be further explained in part 3.) to fix the adequate price of a vehicle in a market. For our study the end customer price will be analyzed, it means the final price a customer pays to buy a new car. If the price can be adjusted, it is mostly because of the local market’s situation and the competitors. Indeed the product need to be correctly positioned vis-à-vis the competition. A wrong price positioning could bring brand depreciation or sales decreases to a constructor.

A definition of The Economic Times says “positioning defines where your product stands in relation to others offering similar products and services in the marketplace as well as the mind of the consumer.” Relevant for us is not only the product positioning within the frame­work of the brand’s products portfolios but also the price positioning. Indeed an adequate positioning can make your product outstanding in comparison to the many competitors’ of­fers. The research will analyze the price positioning of premium brands competitors within the German market.

2.2.3 Premium automotive brand

The term “premium” is often defined as “an additional amount of money, above a standard rate or amount”. That means “if something is at a premium, people need it or want it, but there is little of it available or it is difficult to get” (Longman Dictionary). It mostly defines a product which has a high quality and finds itself in a higher price segment than other average products (Marketing Lexikon). Kapferer speaks about a rationalized mass production with higher prices justified by a better qualitative completion (Kapferer 2000). For Prof. Diez the premium brands announce a higher price than other with the same tangible functions. He deals with a premium price, which results of a positive price difference with the average price within the overall market or specific segment (Diez 2001). The premium price is a result of both higher quality and prices and have an influence of the brand’s identity. There is no universal definition for an automotive premium brand and the sector is perpetually in evolution. Moreover it often appears to be a personal conception and perception of the products and prices, affecting our idea of the term’s meaning. Most premium manufacturers are also in the luxury segment due to supercars or luxurious limousines.

But for our study we will clearly define which brands are seen as premium in order to clarify the brands being analyzed. The selection contains premium brands available on the German market between 2008 and end of 2015. For the purpose of the research, we will focus on two main types of premium brands: the national brand and the non-national (to understand as imported brands). The national brands bring Audi, BMW and Mercedes-Benz together. The non-national brands relevant for our research are:

-Alfa Romeo
-Cadillac
-DS Automobiles
-Infiniti
-Jaguar
-Land Rover
-Lexus
-Volvo

Within these imported brands, Volvo, Jaguar, Land Rover and Alfa Romeo are since a few decades already available on the German Market. Volvo was one of the first since 1958 in Germany. Lexus came later in 1999 and the others are the newest on the market. While Infiniti made its entry in Germany in 2008. DS Automobiles as a brand was created in 2014 despite DS models were already available from 2009 under Citroën badging; Cadillac is older but has penetrated the market only since a few years.

Non available brands on the German Market like Acura will not be taken into account. Lotus, Morgan, Wiesmann are in the premium segment but due to their niche market and anecdotal sales they will stay out of our research field. Bugatti, Porsche, Aston Martin, Maserati, Bentley, Lamborghini, Rolls-Royce and Ferrari belong to the luxury segment and don’t necessarily have the models offers to be taken in consideration as a premium competitor. Moreover most of these brands are actually effecting or presenting a product portfolio development which consequences can today not be analyzed in comparison to the other relevant brands.

2.2.4 Market entry and penetration

A market entry is defined with all the “activities associated with bringing a product or service to a targeted market” (Business Dictionary). For our topic, a market entry of a premium brand will be the actions needed to bring a new vehicle to the German market. As the market entry just the beginning is to conquer a new market, companies also have to penetrate it after been entered. A market penetration is “the activity of increasing the market share of an exist­ing product [...] through strategies such as bundling, advertising, lower prices or volume discounts” (Business Dictionary). The different strategies of market entry and penetration will be more detailed in the third part of this study.

Regarding the brands we will use as basis for the research, the market entry and penetration of premium brands into the German market can have different importance. For old brands since a few decades or years in Germany like Volvo or Jaguar, the term will be more seen as a penetration. It means how far the constructors can increase its market coverage and sales.

Market coverage can refer to a geographical coverage of regions but will mostly be related to the products offers on the market, that is to say the capability for a brand to cover the large product portfolio. A market penetration means an increase of sales all vehicles included on the German Market. For young and new brands, this is more market entry approach, as they were not present before and come on a new market with products which were never available before. But often these two terms, market entry and market penetration, are to understand as a unique process. Indeed manufacturers want to entry new markets but also directly penetrate it, in order to sell as soon as possible and reduce potential costs related to its process.

Now that the topic’s frame is set up and all the terms defined, we will begin to review the the­oretical foundations of the research. The following part will describe and analyze the relevant theories concerning the topic and show how these could be relevant to analyze and rate the results of the research.

3 Theoretical foundations

3.1 Market entry and penetration of a saturated market

In this section we will deal with the different market entry strategies and why companies need these to expend their activities. We will also see which factors can motivate or force premium constructors to develop and diversify their geographical presence. Finally an overview of the actions and strategies will be given, in order to outline how the company can pass from a market entry to an effective market penetration and increase their presence and sales.

The increasing globalization and quick development of technologies has connected people, goods, services and economies so that the worldwide market has knew a significant growth over the last decades. Companies can better and quicker communicate and work. This new worldwide market is a good opportunity for companies to develop their business. Potential of synergies and gains of productivity, customers or market shares make a market entry especially desirable. But for any company the entry of a new market means a lot of investments: time, efforts, costs, resources, etc. Of course it is seen as an opportunity but also contains some risks which have to be first analyzed and measured. A market entry strategy firstly depends on the type of market you want to enter, of the company’s resources. It is recom­mended to make a good analysis before taking the risk/opportunity. It is even more relevant if you want to enter a market already saturated of the type of products you want to sell there.

Saturated markets often have restraining rules, limitations or barriers which make an entry more difficult. A characteristic of a saturated market is its divided market shares and when demand is fully served due to plenty of choices possibilities. In a market where the demand is served, it will be difficult to create a supplementary demand for the good and this additional market demand could be satisfied by more supply (Koschnick 1995). Good indicators of satu­rated markets are also the amount and evolution of the fleet of vehicles in a country as well as the level and density of motorization (Diez, Reindl 2012). Indeed in Germany in 2011, there were 518 cars for 1.000 inhabitants, still far behind the USA but over the European average and 10% more than in Japan (ACEA, VDA). In a saturated market it is difficult to increase the sales volumes just through a new demand. That is why it is important for companies to win market shares from other competitors and preciously protect their customers to keep them of infidelity purchase to the concurrence. This main goal, targeting competitor’s customers and market share, can partially be reached due to an adapted price positioning and a market-tailored product portfolio (Kotler, Keller 2007).

3.1.1 Market entry strategies

As said before, the actual globalization pushes the automotive constructors to conquer new markets and diversify their customer’s pool. Tobe successful on different markets it is essential adapt the strategy and positioning regarding the company’s specificities an objectives. Indeed most market entries are done on an international level, based on the entry of a foreign market which is different from the homeland market. A good definition for it is that a market entry strategy is an “institutional form of international business activity which allows a company to implement its business strategy in a foreign market’ (Junglen 2005). Hollensen (2011) describe it as “an institutional arrangement necessary for the entry of a company’s products, technology and human capital into a foreign country or market’’.

In order to prepare a market entry, each company has to answer the following questions before investing any money in a project (Lymbersky 2008):

- “How and where will the company produce the products?
- What products does the company want to sell?
- Where does the company want to sell the products?
- How and where does the company want to get the necessary resources for the production process?
- How does the company want to compete with its competitors?
- What are the key success factors for the company and for the product?" (Lymbersky 2008)

The building of a global strategy is an elaborate process which requires several steps (Lynch 2014).

The first step before choosing a strategy consists to do a large analysis, intern and extern. Indeed she needs to know when she want to enter a new market and for how long before deciding to use a strategy or another. An extern PESTEL or Porter 5’s Forces (Carpenter, Dunung 2011) analysis is a good way to have an overview of all relevant themes regarding the market. It enables to see the risks and constraints of the wanted market, like restrictive local laws, the geopolitical situation of the country and others. Moreover it depends of the company itself, if she can afford to do it and to have the choice between several strategies. A market entry is a long process and means a big amount of investment. Identify the company’s competitive advantages and his resources are parts of the intern analysis.

Then the company should express the objectives of this entrance in a foreign country. Indeed the firm should know if there are opportunities in this new market and have clear goals settied. The objectives are mainly focuses on the four 4’s (Root 1994). It also is obvious for companies to think long term so that the company can have a bigger approach. From this point, the management will choose his geographical choice and define the reasons as well as the preferred method of entry.

Once the strategy is found, the dedicated product or offering can be developed and adapted due to criteria like pricing, promotion, features, etc.

Finally, as it is a decision with huge impacts for the company, the top management also should be reactive and not define a strategy forever. Undeniably markets are in constant evolution and development so the companies also should actualize their actions and adapt them to fit as good as possible the local customers’ needs and demand. It means internal changes too, from organizational, financial, human view.

Figure 4: Globalization strategies[12]

Abbildung in dieser Leseprobe nicht enthalten

A company will have the choice between four main globalization strategies (see Figure 4), which should be adapted for the selected market regarding the firm’s organization and resources.

The first strategy, the international standardization (Diez, Reindl 2005), also called ethnocentric strategy (Perlmutter 1969), is based on a production site located is the homeland country of a company and is centered on the domestic market. The expansion of sales will be done in foreign countries through export businesses. Most of the firm’s support activities will be internationally unified and prevail for all markets, so do the marketing vision.

The aim of an international standardization is to secure the national market due to foreign or overseas activities. Indeed when the homeland market is saturated, doesn’t offer the possibility to a further growth or is in risk due to low activity, then the other markets can support and balance the results.

As it deals with a classic export business model, using this strategy only enables to be active on open markets or markets with no/low import legislation and taxes. Beside this negative aspect, it is a great opportunity especially for premium automotive brand, because the premium customers are homogeneous and the constructor doesn’t need to do many adjustments. Indeed the country of origin for automotive goods is a proof of the premium status. Moreover if the premium segment has a high market share in Germany, it is not the case for every country and that is why a local production isn’t a viable solution. To secure the profit margin it also is better to produce the most vehicles in a same manufactory to take advantage from economies of scales. The international standardization also is reflected in the prices and products of the company (Reindl 2012).

In a strategy of international differentiation (Diez, Reindl 2005) with a polycentric approach (Perlmutter 1969) the production is also based on a national level but quite a few foreign markets are penetrated. All requirements and needs of others national or regional markets will be studied in order to adapt the offer and the marketing activities to these locations and their customers. Indeed the main target is to have an offer which satisfies as good as possible the local demand. To create and provide such an offer, it is recommended to formerly split the different target groups and correctly position the products. But to success with this strategy the company has to choose countries with open markets which can be deserved through exportations from the homeland facilities. Then prices will be locally adapted as well as the products will have a national differentiation in opposition to international standardization (Reindl 2012).

The second strategy, the multinational globalization (or geocentric strategy, Perlmutter 1969) (Diez, Reindl 2005) is using a global concept, which is effective as international and standard. The company will produce a uniform product directly locally and sell it directly on the local targeted markets. The inland production depth can be different from a constructor to another however they are using the same strategy. For a local production, a manufacturer can either having a complete production unit with all stages of the manufacturing and supply itself with local suppliers, or use a semi- or completely knocked down production, shipping respectively aggregates or separate parts to its local manufactory in order to assemble them (Schmidt 2009).

The multinational strategy is used by many automotive companies. Indeed big corporate groups have international customers and are present in many markets. It is a good way to avoid business barriers too, due to a local production. Indeed some countries like China only local business through joint ventures with national companies. Moreover the fact having a facility on a market could make possible the entry of other border nations. If the country, where the production is located, belongs to an economic area with his neighbors, it could be easier to sell the goods directly from this position instead of trying to penetrate the border country with only export or investing a lot to also produce locally. The chosen type of production will depend of the potential market size. Similar to the international standardization, this strategy also have standardized prices and a considerable product’s homogeny (Reindl 2012).

The fourth strategy is called the multidomestic strategy (Diez, Reindl 2005) with a synergetic strategy (Perlmutter 1969). This strategy provides a complete division of production and sales on a geographical level. Indeed the manufacturing is done locally on the targeted markets and all products are developed adapted for their own markets’ specificities. This strategy applies the slogan “Think global, act local”. But to do this the production depth should be high, with local suppliers and heavy production’s facilities. The main target is to avoid local regulations, which don’t allow another type of strategy but also having a local product, for customer groups which have more different needs and taste than traditional markets. To go further in this way, products and prices will be highly differentiated in comparison to universal markets (Reindl 2012).

The four globalization’s strategies can be implemented through different realization processes. In fact several types of market entry can be used to fulfill one strategy. Schmid und Grosche (2008) define a classification of these entry’s types differentiated through two fac­tors: the management’s achievement in the foreign market and the commitment to the foreign market. It means the capacity of the management to be involved in the project and what kind of responsibilities would be especially transferred to a management unit in the overseas markets as well as its depth degree. On the other side, the commitment designates the local market opportunities, if the potential is high or not, and if the company has a long term strategy planed on strong sales growth. This classification contains several entry types, which are the following (from the lowest management achievement and commitment to the foreign market until the highest level of both factors): traditional export, licensing, franchising, semi­or completely knocked down production (SKD/CKD), national sales companies (NSC), importers, strategic alliances, Merger and Acquisitions (M&A), Joint Ventures (JV) and sub companies, also called wholly owned subsidiaries (WOSs).

Hollensen (2011) categorizes these entry solutions into three different types:

- Export, where the activities are homeland based and business is from home operated
- Contractual modes, which mean having foreign business activities with a host partner
- Investment modes, when the company herself is investing abroad and operating alone the business

The two main factors for companies to take in consideration before enter a new market should be to know, which level of flexibility they want to have as well as the level of control over the overseas business (Hollensen 2011).

For Pan and Tse (2000) the entry solutions are divided into two categories:

- On the first side, market entry types
- based on equity, where a company is doing business either alone or cooperation with an host associate
- On the other side the non-equity type, when a company operates from home or sell the right to a local firm to distributes their products

The idea of equity and non-equity market entry’s types of Pan and Tse (2000) corroborates with Hollensen’s classification (2011). Equity based entry’s types, regrouping several types of investments and joint ventures need many resources. Despite the resources needed it allows the company to have a good control of their business in the foreign country but with higher risks. Non-equity models need fewer resources and are less risky but also offer less control.

Export modes are in this way the less risky (Hollensen 2011) and also need a low commitment and management performance in the foreign country (Schmid, Grosche 2008). The company will have little control over the activities but benefits of high flexibility, which allow adjusting rapidly the strategy if anything goes wrong. Contractual entry types, due to their local partnership, see their control and risks split on both sides (Hollensen 2011). These shared responsibilities reduce however the flexibility of both sides. Finally the investment entry types bring to the company the full benefit of its profits, as it is the only investor. But therefore the company needs to invest a lot and take all the risks.

The different entry modes categorized by Schmid and Grosche (2008) can be ordered in the three categories from Hollensen (2011) which are export, contractual and investments entry modes. We will now define the most important types of market entry strategy which a company can use to establish its business abroad.

Regarding an export business on international markets, companies don’t need a lot of investments because of their homeland activities’ location and just ship goods to the targeted market; we call it direct exporting (Hollensen 2011). It is a good strategy when a firm didn’t had until now another market as its homeland, so with few global experience of business.

Another view is a company wanting to increase its sales volume but not especially interested in market shares gain. In this case it is more to make some profit but without really competi­tion in the foreign country. Indirect exporting involves a third party in the activities abroad, where the company isn’t 100% involved in the targeted market’s operations.

The contractual market entry modes regroup several types of business operations.

With the licensing, a company sells the rights to another, against financial retribution, to use a particular product or service. The licensee doesn’t have many relations with licensor, because license just allows making use of some parts of the business and not the overall business area (Tradestart). This is a performing strategy for companies wanting expend abroad, to have licensee which already is good implanted in the targeted market and has a good market share and existing customer’s basis.

Franchising also is a sale of rights from the franchisor to franchisee, against financial retri­bution, but in this form both are working in a close collaboration. Indeed the rights are valid for all the business activities of the company. It is a good way to expand quickly if the business model is outstanding and benefits ofa good brand image.

A Joint Venture is a “partnership between two or more parties” (Hollensen 2011) and the result is the creation of a third unit, depending on both companies. This type of partnership split the responsibilities between the two parties. A joint venture is often used to create a strategic partnership in one particular sector, market or region, when two companies add their competences to create something new. This entry mode also is required in some coun­tries, where companies cannot enter the market without having a partnership with a local one (Tradestart).

A company can also work with an importer or do a strategic alliance with a local partner, which roles are to sales the products on the market. If an importer only will retail the products, a strategic alliance would use support functions from both sides to improve the product’s sales on the market.

If a company need more control over its abroad activities, it is possible to buy an existing firm or merge its activities with a local one. Merger and acquisitions are a good way to growth rapidly due to an existing basis to build on.

The latest entry mode needs much more investments. Indeed the creation of wholly owned subsidiaries is a big project because of the financial input and the management responsibilities. This type of entry mode is perfect for companies wanting to operate alone and independently on the international market. There are two solutions to create a WOS: you can buy a local company or create a new one, also called Greenfield (Hollensen 2011). Buying a company is interesting because this one could already have a good market share and if you create a new one, you will have competitors. Buying an existing business reduce the competition and make you a local company, with local benefits of customer pool, company already respecting local laws and restrictions as well as the knowledge developed there. The creation of a new company requires heavy investment and a total commitment into the international activities (Tradestart). The specificity is that you buy the land and create buildings or facilities on it, you have to respect all the local legislations and bring with you knowledge and workforce (or train workforce locally).

As mentioned there are different of globalization strategies and each one can be done through various market entry modes. Now that we have seen how a company can enter a new market and expend it business abroad, we will see why such an expansion is an opportunity and sometimes a necessity with the factors of internationalization and the coverage of new markets.

3.1.2 Factors for market entry

The motivations for enter a new market are varied, but as a company involved in a worldwide competition on capitalists markets, any entry choice “should be based on the expected contribution to profit" (Hollensen 2007). Indeed profit is one of the most important factors for a company and it is moreover true for automotive companies. As seen in the second part, the premium manufacturers have satisfying margins. The figure 5 shows the benefits of the three big German premium manufacturers in terms of earnings before interests and taxes (EBIT). As we can see on the figure 5, the EBIT was quite various between the three brands before the financial crisis. Since a couple of years the tendency has stabilized and all are now in a range with more or less 800€ than the other competitors.

[...]


1 Figures from European Automobile Manufacturers Association, http://www.acea.be/

2 Ibid.

3 Ibid.

4 Figures from http://www.worldlifeexpectancy.com/germany-population-pyramid

5 CAR-Center Automotive Research - University Duisburg-Essen 2014

6 Figures from European Automobile Manufacturers Association, http://www.acea.be/

7 Ibid.

8 Germany Trade and Invest Report 2015

9 KBA, VDA

10 Center Automotive Research 2016

11 www.audi.de

12 Diez, Reindl, 2005, p.114

Excerpt out of 102 pages

Details

Title
Implantation of a premium automotive brand in the saturated German market
Subtitle
Analysis of the German market and the non-national premium brands
College
Nürtingen University; Geislingen
Course
Preis und Produkt Politik
Grade
1,7
Author
Year
2016
Pages
102
Catalog Number
V353983
ISBN (eBook)
9783668401419
ISBN (Book)
9783668401426
File size
1311 KB
Language
English
Tags
premium, market entry, entry strategy, german market, premium automotive brand, pricing, product portfolio, positioning, automotive, price strategy
Quote paper
Cédric Ehrmann (Author), 2016, Implantation of a premium automotive brand in the saturated German market, Munich, GRIN Verlag, https://www.grin.com/document/353983

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