SDSU MKT761 Product Innovation Management SMART Car Launch Plan in China Professor: Dr. Richard Brooks Presented by: Daisy Hsieh, Joe Wu Sandra Wu, Sean Yeh October 2007

SMART Car Launch Plan in China

Professor: Dr. Richard Brooks

Presented by: Daisy Hsieh, Joe Wu

Sandra Wu, Sean Yeh

October 2007

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

More than 100 vehicle producers in China

The world's Second-biggest market for automobiles – Overtook from Japan since year 2006

8 auto export manufacturing bases - to help automakers expand globally

China Government 11th Five-Year Plan (2006 ~ 2010) - the development 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 Analysis 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 Moderate Strong Weak Strong Strong Threat of Entry Capital requirement is high Company own distribution Economies scale is high Product differentiation are many Regulation supports

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

Threat of Entry

Capital

requirement is

high

Company own

distribution

Economies scale is high

Product differentiation are many

Regulation

supports

Automobile Industry Structure - China

BMW Mini GM HaFei BMW Engine Capacity (Liter) Market Price High 2.0 1.8 1.3 1.0 Low Low High Automobile Market Segmentation VW Bug Mercedes-Benz Ford Fiat Mazda Toyota Volvo Rolls-Royce Honda Cadillac Hyundai Renault Nissan Lexus Audi VW Infiniti Peugeot Saab Daihatsu Chang Cheng QQ Spark S6 Hwa Chen A1 Smart

Key Domestic Players 598,218 (2005) RMB $41.735 Billion (2005) Assembly, (DongFeng) Nissan, Honda, Peugeot, Kia DFAC 272,432 (2006) NA QQ (copy from Daewoo Matiz) Chrysler Chery 655,950 (2006) RMB $6.388 Billion (2005) Assembly, Chery (own 20%) VW, GM SAIC 870,068 (2006) RMB $148.6 Billion (2005) Own brand ( Hongqi), Assembly VW, Audi, Toyota, Mazda FAW Shipping Revenue Focus Partnership

Top 10 Global Brand in China

Small Car Competition Analysis Threats 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 Opportunities GDP keeps increasing every year Energy crisis, policy favor small car Imposing of fuel duty helps selling small cars

Threats

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

Opportunities

GDP keeps increasing every year

Energy crisis, policy favor small car

Imposing of fuel duty helps selling small cars

Market Size/ Dynamic Automobile 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%

Automobile 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/ Alternatives

Product Refinement/Alterations – Result of Research Findings Position Platform Target customer: Female young high-income urban elite Brand Name: Smart forfour Brand Personality: joyful Product /Competitive Frame: environmental conscious, energy-efficient, small luxury vehicle End-benefit: status, high quality, good performance and conservative Rational Support: high quality steel frame from its Germany Mercedes-Benz family and advanced environmental technology.

Position Platform

Target customer: Female young high-income urban elite

Brand Name: Smart forfour

Brand Personality: joyful

Product /Competitive Frame: environmental conscious, energy-efficient, small luxury vehicle

End-benefit: status, high quality, good performance and conservative

Rational Support: high quality steel frame from its Germany Mercedes-Benz family and advanced environmental technology.

Opportunities and Issues Analysis

SWOT Analysis (Smart) Strengths Environmental Design Compact Size Vibrant Outlook Opportunities Potential Growth due to low penetration rate High fuel tax shall encourage smaller vehicle Appealing to Mercedes-Benz Weaknesses High Cost Not Enough Differentiation Lack of Market Awareness Threats Competition from Local Chinese Manufacturer High tariff

Strengths

Environmental Design

Compact Size

Vibrant Outlook

Opportunities

Potential Growth due to low penetration rate

High fuel tax shall encourage smaller vehicle

Appealing to Mercedes-Benz

Weaknesses

High Cost

Not Enough Differentiation

Lack of Market Awareness

Threats

Competition from Local Chinese Manufacturer

High tariff

Key Issues/ Hurdles License Plate Fee (RMB30K ~ 50K) in Shanghai >> Favor to bigger size vehicle Local Government don’t support the policy of small car Chinese’s preference of bigger car since car is a kind of symbol of status

License Plate Fee (RMB30K ~ 50K) in Shanghai >> Favor to bigger size vehicle

Local Government don’t support the policy of small car

Chinese’s preference of bigger car since car is a kind of symbol of status

China Automobile Industry Highlights More than 100 vehicle producers in China The world's 2nd biggest automobile market – overtook from Japan since year 2006 The 11th Five-Year Plan (2006 ~ 2010) - the development 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

More than 100 vehicle producers in China

The world's 2nd biggest automobile market – overtook from Japan since year 2006

The 11th Five-Year Plan (2006 ~ 2010) - the development 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 - Sales

China Automobile Industry - Projected Demand

Competitor Analysis–Small Car in China Threats 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 Opportunities GDP keeps increasing every year Energy crisis, policy favor small car Imposing of fuel duty helps selling small cars

Threats

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

Opportunities

GDP keeps increasing every year

Energy crisis, policy favor small car

Imposing of fuel duty helps selling small cars

Daimler Chrysler Highlights Founded: 1998 (Daimler-Benz Germany acquired Chrysler Corp in U.S.) Headquarter: Stuttgart, Germany Industry: Automobile & Truck Manufacturer Products: Mercedes-Benz Maybach Smart Freightliner GEM Financial Status: Revenue: € 151.6 billion (2006) Net Income: € 3.227 billion (2006) World’s 8th largest car manufacturer Through most of its history, Chrysler has been the 3rd largest of the "Big 3" US auto makers until recently except Mercedes and Maybach lines

Founded: 1998 (Daimler-Benz Germany acquired Chrysler Corp in U.S.)

Headquarter: Stuttgart, Germany

Industry: Automobile & Truck Manufacturer

Products:

Mercedes-Benz

Maybach

Smart

Freightliner

GEM

Financial Status:

Revenue: € 151.6 billion (2006)

Net Income: € 3.227 billion (2006)

World’s 8th largest car manufacturer

Through most of its history, Chrysler has been the 3rd

largest of the "Big 3" US auto makers until

recently except Mercedes and Maybach lines

Product Overview Product Name: Smart forfour Market Place: China Class: Supermini Price: RMB350,000 Engine capacity:1468 cc Fuel consumption: 8.9 Km/L Distribution Channel: through China National Mercedes-Benz Channel

Product Name: Smart forfour

Market Place: China

Class: Supermini

Price: RMB350,000

Engine capacity:1468 cc

Fuel consumption: 8.9 Km/L

Distribution Channel: through China National Mercedes-Benz Channel

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

Concept Statement Smart forfour is the stylish, environmental conscious, energy-efficient small luxury vehicle. It offers you status, high quality and conservation. Features: Class: Supermini Engine capacity:1468 cc Fuel consumption: 8.9 Km/L Distribution Channel: through China National Mercedes-Benz Channel

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

Features:

Class: Supermini

Engine capacity:1468 cc

Fuel consumption: 8.9 Km/L

Distribution Channel: through China National Mercedes-Benz Channel

Qualitative Research 1. What do you like or dislike about your current car? 2. How do you solve the problem you encounter in Question 1? 3. What will you consider when you buy your next car? (Rank it, if there is more than one)

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

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

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

Concept Statement Reveal Smart forfour is the stylish, environmental conscious, energy-efficient small luxury vehicle. It offers you status, high quality and conservation. Features: Class: Supermini Engine capacity:1468 cc Fuel consumption: 8.9 Km/L Distribution Channel: through China National Mercedes-Benz Channel Qualitative Research (cont.)

Concept Statement Reveal

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

Features:

Class: Supermini

Engine capacity:1468 cc

Fuel consumption: 8.9 Km/L

Distribution Channel: through China National Mercedes-Benz Channel

Qualitative Research (cont.) 4. What attract you when you see Smart forfour? 5. What is your impression of Mercedes-Benz? Would it increase your interest in buying Smart forfour, if you know it is from the Mercedes-Benz family? 6. Do you think Smart forfour is a good value at RMB350,000? Highly likely Likely Neutral Unlikely Very likely

4. What attract you when you see Smart forfour?

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

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

Highly likely

Likely

Neutral

Unlikely

Very likely

Qualitative Result – Age Distribution

Qualitative Result – Annual Income Distribution in RMB Currency

Qualitative Result – Preference of Buying a Car

Qualitative Result - Feel about Smart

Qualitative Result - Feel about Smart with Positive Attitude

Qualitative Result - Feel about Smart with Negative Attitude

Qualitative Result - Interest Increase Because of Benz

Qualitative Result - Environmental Design Attractiveness

Qualitative Result – Likely to Buy with Price of RMB350,000

Directions Adjusted Based on Qualitative Result Price adjustment: from RMB350,000 to RMB188,000 Fuel efficiency: emphasis such feature more through catalogue Performance: emphasis such feature more through catalogue Appearance: customized appearance according to buy’s preference (20+ colors, Rear Spoiler, etc.) Trial: 0%, get as many people as possible to try Smart forfour

Price adjustment: from RMB350,000 to RMB188,000

Fuel efficiency: emphasis such feature more through catalogue

Performance: emphasis such feature more through catalogue

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

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

Objectives Financial (ATAR) Market Size: Shanghai & Shenzhen Total population:18+6.2M=24.2M Age: 25~35 years old Gender: Female Marketing Awareness: Get as many people as possible to try Image: Joy of Life Perception: Mercedes-Benz family

Financial (ATAR)

Market Size: Shanghai & Shenzhen

Total population:18+6.2M=24.2M

Age: 25~35 years old

Gender: Female

Marketing

Awareness: Get as many people as possible to try

Image: Joy of Life

Perception: Mercedes-Benz family

Market Situation

Target Market – China Macro Economy Source: 1. CIA; 2. TIME, March 19, 2007 798 million Labor Force 1 1.057 Male:Female Sex Ratio (15-64 years) 1 11.5 million (0.09%) Private Cars 2 US$2.7 trillion (US$2,054 per person) GDP 2 67.7% Population 1 Age 15 ~ 60 years 1.31 billion Population 1

First Year Launch – Location Shanghai & Shenzhen Shanghai Shenzhen China

Target Market – First Year Launch Shenzhen Shanghai 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 RMB20,668 (US$2,649) Disposable Income 1 (2006) 1.016 Male: Female Sex Ratio (15-64 years) 1 4.25% Private Cars 1 RMB58,422 (US$7,490) GDP 1 (2006) 79.1% Population 1 Age 15 ~ 60 years 17.8 Million Population 1 RMB27,406 (US$3,513) Disposable Income 4 (2004) 1.037 Male: Female Sex Ratio (15-64 years) 3 8.5% Private Cars 5 (2006) RMB69,450 (US$9,020) GDP 2 (2006) 90% Population 3 Age 15 ~ 60 years 8.3 Million Population 1

Shenzhen

Reasons to Choose Shanghai & Shenzhen as First Year Target Higher Average Income More High Income Young People Modern City Life More Open to Stylish, fashioned vehicle Sales Growth for Mercedes-Benz 6 : 110% (2 nd Largest Benz market in the world) Source: 6 http://magazine.sina.com.hk/winmoney/374/2007-10-24/204441561.shtml

Higher Average Income

More High Income Young People

Modern City Life

More Open to Stylish, fashioned vehicle

Sales Growth for Mercedes-Benz 6 : 110% (2 nd Largest Benz market in the world)

Competitive Analysis

Integrated Marketing Communications strategies Integrated Marketing Communications strategies Internet interactive direct market personal spellings Advertising publicity placement sales promotion

Placement Selling the Invisible used in movies, televisions and some other places more acceptable Movie (from overseas) corporate with Hollywood film companies TV ( 黃曉明 ) – local the Smart car appears in the local television dramas It is the same concept that we make the famous TV star, such as Huang Xiao-Ming Driving School rent Smart cars to the driving schools as their training cars. After the students get their licenses, they may first consider buying a Smart car.

Selling the Invisible

used in movies, televisions and some other places

more acceptable

Movie (from overseas)

corporate with Hollywood film companies

TV ( 黃曉明 ) – local

the Smart car appears in the local television dramas

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

Driving School

rent Smart cars to the driving schools as their training cars.

After the students get their licenses, they may first consider buying a Smart car.

Advertising awareness of the Smart car target audient: young people campaign: “joy of life”. driving a Smart car represents a joyful life style. Life short, just play more.

awareness of the Smart car

target audient: young people

campaign: “joy of life”.

driving a Smart car represents a joyful life style.

Life short, just play more.

Advertising Newspaper Magazine (car magazine, youth magazine, like GQ) Radio (Musical channels ) TV Commercial Print Ads Outdoor advertisement – T Bar Off-line Advertising Landmark in Shanghai ( Xintien Dy or Lu-gia-zue ) Landmark in Shenzhen( 深南大道中信廣場 , 蛇口 ) Banner on Bus

Newspaper

Magazine (car magazine, youth magazine, like GQ)

Radio (Musical channels )

TV Commercial

Print Ads

Outdoor advertisement – T Bar

Off-line Advertising

Landmark in Shanghai ( Xintien Dy or Lu-gia-zue )

Landmark in Shenzhen( 深南大道中信廣場 , 蛇口 )

Banner on Bus

Direct Marketing Auto-Leasing Souvenir: small Smart car model, Polo Shirt, Cap (if you come to try Smart Car) 0% interest loan

Auto-Leasing

Souvenir:

small Smart car model,

Polo Shirt,

Cap (if you come to try Smart Car)

0% interest loan

Internet Official web announce official information Internet Forum share their feeling with each other Web log (Blog) hire several internet writers share the positive feeling about how good it is to have a Smart car. You Tube a web site that people share their films and videos on it put broadcasted TV CF on You Tube (extend the effects)

Official web

announce official information

Internet Forum

share their feeling with each other

Web log (Blog)

hire several internet writers

share the positive feeling about how good it is to have a Smart car.

You Tube

a web site that people share their films and videos on it

put broadcasted TV CF on You Tube (extend the effects)

Interactive 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 Club for people who purchase a car for people who would purchase one in the future to service the Smart drivers and potential buyers

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 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 Personalized Options Offer Special Options for free in first year launch Warrantee extension for additional one year in first year launch

Personalized Options

Offer Special Options for free in first year launch

Warrantee extension for additional one year in first year launch

Promotion – PR/Publicity Press Release Smart Concert (Classic Rock) Running Charity (Conservation, etc) Scholarship Sponsor 2008 Olympic Gold Winner with new world record

Press Release

Smart Concert (Classic Rock)

Running

Charity (Conservation, etc)

Scholarship

Sponsor 2008 Olympic Gold Winner with new world record

Personal Selling Dedicated sales force in Mercedes Benz Differentiated style of Smart sales Sales force training

Dedicated sales force in Mercedes Benz

Differentiated style of Smart sales

Sales force training