Marketing Channels and Logistics by Saturn Company - Case Study Example

Marketing Channels and Logistics Marketing Channels and Logistics aturn wa created a an independent ubidiary of General Motor in order to face the riing competition in the American mall car market from the Japanee companie. It wa GM' firt new car diviion ince Chevrolet. Thi "clean heet" approach wa intended to match the Japanee car manufacture in term of efficient manufacturing practice and employee involvement in the proce. In addition to thi, aturn alo aimed to develop better relationhip with the dealer and the United Auto Worker Union (UAW). Thi new principle of management and UAW partnerhip would enable tranparency and effective deciion making. (Barabba, 2004, 55-109) Roger mith and the aturn team focued on providing a lot more than jut functional value with aturn. Apart from being technologically uperior to the exiting American car in the egment and on par with the Japanee verion, it wa deigned to offer the amenitie and tyling of an expenive car at a lower price. The built-in value propoition would be value a perceived by it buyer. The timing of aturn' launch alo gave it a fillip, a the economy wa coming out of a receion, when 'value' wa conidered to be everything by the American conumer and the need for an all-American car to be pitted againt foreign make, epecially the Japanee wa widely felt. (Barabba, 2004, 55-109) Key Challenge Cutomer aturn laid the mot tre on cutomer atifaction. They focued on the cutomer a an individual and their relationhip with their car. The retailer were aked to let the cutomer pend time alone with their car. They made ure that their franchiee were excluive aturn dealer and the howroom were built to pecification provided by the company. Thi enabled the cutomer enjoy the "experience" of buying a car and trike an immediate rapport with the dealer. Their pot-ale ervice experience wa alo a key factor. They developed a feeling of "family" between owner, dealer, and the company. (Barabba, 2004, 55-109) Competitor ince the early 1980', General Motor' ale hare in the U.. automobile market had been decreaing while Japanee auto company hare had been growing baed on their reputation for quality. aturn wa targeted at thoe conumer who would buy import. pecifically, they were targeting Honda Civic, Ford Ecort, Dodge hadow and Toyota Corolla. A part of their partnerhip approach GM drew the entire company together - management, worker, dealer and union- and created a 'college' tyle, flat working environment forming the Group of 99 which wa reponible for developing the manufacturing proce and the product of the aturn Corporation. Thi approach gave the labor union a better ay at aturn than they had previouly at General Motor. Thi tructure, rather the lack of it helped build a unique brand identity becaue all the key player became engineer of the brand and thi involvement and enthuiam wa tranferred to the cutomer. (Barabba, 2004, 55-109) The GM Company made ue of the new partnerhip agreement to reet union guideline and reduce the price of the final product, a the additional labor cot were not tranferred to the conumer a with the old guideline. The aturn worker' profit haring wa tied to performance of the aturn Company only. Thi increaed the ownerhip and ene of belonging greatly. Initially GM ued an organizational tructure with independent department. Each department worked independently and toed the idea 'over the wall' to the next department. Thi lowed down the entire proce and extended the time needed to develop new product. tringent time contraint for aturn meant that uch a tructure would be diatrou. (Barabba, 2004, 55-109) To over come thi, concurrent engineering wa ued in the development of aturn. Thi involved multifunctional team which meant there wa greater undertanding of the problem and alo problem olving wa fater. A upply chain i a network of facilitie and ditribution option that perform the function of procurement of material, tranformation of thee material into intermediate and finihed product, and the ditribution of thee finihed product to cutomer. upply chain exit in both ervice and manufacturing organization, although the complexity of the chain may vary greatly from indutry to indutry and firm to firm. (Barabba, 2004, 55-109) Traditionally, marketing, ditribution, planning, manufacturing, and the purchaing organization along the upply chain operated independently. Thee organization have their own objective and thee are often conflicting. Marketing' objective of high cutomer ervice and maximum ale dollar conflict with manufacturing and ditribution goal. Many manufacturing operation are deigned to maximize throughput and lower cot with little conideration for the impact on inventory level and ditribution capabilitie. Purchaing contract are often negotiated with very little information beyond hitorical buying pattern. The reult of thee factor i that there i not a ingle, integrated plan for the organization---there were a many plan a buinee. Clearly, there i a need for a mechanim through which thee different function can be integrated together. upply chain management i a trategy through which uch an integration can be achieved. (Chandler, 1964, 65-99) Macro environment From an Economic perpective both the indutry and the economy were recurring from a lump. The market wa expected to grow at around 3% annually. In 1994, Japan ended it commitment to VER which could mean a higher influx in term of import into the U market. Thi influx we believe would be in mall car egment with added variety coming in. Thi would adverely affect aturn hare. Deciion for a upply chain management are broken into two broad categorie -- trategic and operational. A the term implie, trategic deciion are made typically over a longer time horizon. Thee are cloely linked to the corporate trategy and guide upply chain policie from a deign perpective. On the other hand, operational deciion are hort term, and focu on activitie over a day-to-day bai. The effort in thee type of deciion i to effectively and efficiently manage the product flow in the "trategically" planned upply chain. (Chandler, 1964, 65-99) Micro Environment The aturn dealer were called 'retailer' and thi wa jut a tart in re-defining company-dealer relationhip. aturn wa intent on avoiding any animoity in thi relationhip a wa the problem faced by GM and the other 2 biggie. (Chandler, 1964, 65-99) Thee retailer were conidered a partner and key enabler of the aturn concept. The aturn retail experience wa uppoed to be a hale-free, haggle free mooth experience and the retailer were trained not to hard-ell. aturn alo gave a free hand to the retailer in the ene that they appointed few dealer per region but then left it to the retailer to expand if required. Problem and Opportunitie The problem facing aturn would be * They are not able to play the volume game a their production capacity i low * Retailer concern: Retailer deire fat, frequent replenihment of popular model and the lack of product availability and variety are a major problem for aturn. * The ability to utain the concept of a unique car and an unique company with a different method of ale and ervice ( the ability to maintain the ame level of enthuiam in maintaining the company culture and the ervice level after a period of time) * Competitor model outdating the current model on variou parameter including Quality * Competitor like Chryler and Ford alo trying to bring about variation in their ale outlet to match the ervice offered by aturn franchiee * Lack of reource or high competition for the ame reource from the parent company by other diviion like Chevrolet. (Cray, 1980, 65) * Inability to have the conumer hift to higher end product offered by GM * The viual connect with the brand i very low for it tature and thi could be detrimental in the later tage a the excitement of the new launch fade. (Farber, 2002, 66-333) * There i a market and product level mifit. aturn i perceived to be higher on luxury and price, which allow it to charge a price premium which it in't capitalizing on. Poible olution * The mall car egment i growing at an annualized rate of 5.7% which i higher than the over all growth rate for peronal car .It command very high brand equity almot on the ame level of Harley Davidon and the VW' beetle. Thi i alo viible a a very high intent of repurchae by exiting cutomer. * aturn wa able to connect with the cutomer at a philoophical level and not jut at the functional level. Thi broad connect enable aturn to extend it brand to variou categorie/ car egment. We feel that thi brand equity ha to be tranferred to GM, and more car under the GM umbrella could be old under the aturn brand * It can leverage it exiting equity to hift cutomer to a higher egment of car. Mot of it exiting cutomer would repurchae a aturn brand of car (i.e. expand the product variety under the aturn brand) Thi would reult in increae in aturn' market hare if it i able to maintain the ame growth rate. Thi increaed capacity will not only increae the market preence of aturn but alo aide the retailer in the entire elling proce. The availability of model to howcae and deliver immediately will be important a ervice quality offered by each competitor become alike. In a market cenario where the average platform life i around 8 year and aturn i at the half-way tage in thi regard; even if it manage to ell 500,000 car it would take approx. 7 year for it to break-even. From GM' perpective thi doen't eem like a viable option. Option 2: Cloe down the current aturn plant and bring aturn under the GM umbrella, pecifically under the Chevrolet brand. The aturn name will till be ued but will now repreent the model type more than anything ele. The fact that aturn operate only a ingle platform thi tranition hould happen moothly. Thi alternative will lead to no additional invetment on GM' part. Economie of cale due to GM' expertie would be leveraged which could reult in an increaed ROI. The U. . auto indutry' hare of the market ha experienced fluctuation over the pat 50 year. Thee fluctuation have been caued by many reaon, but ome of the main reaon include quality, price, and foreign competition. The Ford Motor Company, General Motor Company, and the Chryler Corporation, a.k.a. 'The Big Three', are the three larget manufacturer of automobile in the world. ' The Big Three' hold nearly 75% of the market and produce over 8 million automobile per year. The larget competitor of ' The Big Three' are Japanee auto producer that include Toyota, Nian, and Honda. Thee three foreign manufacturer hold 20% of the market and produce about 2.7 million automobile per year. General Motor Company, the world' larget automobile producer, originally wa compoed of four major vehicle manufacturer- Buick, Cadillac, Oldmobile, and Oakland which became Pontiac. Preently, General Motor i made up of Buick, Cadillac, Oldmobile, Chevrolet, Pontiac, and aturn. During the firt thirty year of operation GM' only major competition wa from U. . manufacturer. However, ince the firt foreign truck wa imported from Japan in 1956, GM' hare of the market began to decline. Foreign car were maller, more fuel efficient, le expenive, and often more reliable than their American counterpart. General Motor' market hare dipped from nearly 44% in 1973 to below 30% in 1985. In repone to thi udden drop in it hare of the market GM founded the aturn Company. aturn produce compact car very imilar to Japanee import at competitive price. Thi repone halted GM' declining hare of the market. Today, General Motor maintain about 30% of the market. General Motor wa the firt large auto company to begin reearch on alternative fuel ource and continue to lead the way. ome development of thi reearch include the firt production natural ga engine, and the firt car powered completely by electricity. Many idea are till in the proce of being developed, uch a affordable olar powered vehicle and ultralight platic body part. aturn can alo leverage on the higher capacity that Chevrolet ha and thu the volume can be increaed. Thi will improve aturn preence in the market and alo reduce the retailer concern of falling hort of product to howcae and deliver. The downide of thi i that the perceived Brand Equity GM which i lower than that of aturn will hamper aturn image and ale e.g. aturn ale will go down if it i brought under the GM/Chevrolet than if it wa independent On hindight, the fact that aturn had a high brand equity and the cutomer derive a high ene of value from the product aturn could have charged a premium from the tart. A premium would be in-line with the value-baed benefit that the cutomer i receiving from the product while alo reducing the product level mifit. Both Honda and Toyota charge about $1500 more than aturn' bae model , even if aturn charge a premium of about $ 500 per car , it would reult in an increaed profit of about $109 million after dicounting dealer margin. Thi could alo help them to provide a tronger cae for expanion to GM. The downide will be that increaing the price without any product improvement might not go down well in the market epecially when aturn tree on a no-haggle policy which highlight the price more o. Option 4: Extending aturn Equity and brand to the GM product line. Bring Oldmobile and Buick mid-car egment model under the aturn umbrella. Thi would not only increae aturn' product range but alo provide them entry into the higher product egment. Thi would have a two-fold advantage; firtly the aturn loyalit will have aturn car in the higher egment to upgrade to. Thi will add to the brand equity of aturn a loyalty i maintained and loyalty i a key parameter in the equity meaurement of a brand. Along the ame line, aturn' cutomer are young and o in a few year down the line they would want to upgrade to the next level and by the extenion uggeted thi cutomer bae would be locked-in. around 18.5% of it cutomer are under the age of 30, In mot cae thi i uually the firt car, and about 70% of the cutomer intend to buy the ame model again. Thi kind of loyalty i not uually tranferred to GM, an added upper egment could improve the Return on invetment a the profit are uually higher in thi egment and they can alo charge a price premium econdly, aturn having a higher brand equity could tranfer it' equity to GM which i uually perceived a one having a higher no of defect per car , there might be a negative to thi , thi could end up aturn loing out on it' brand trength The option we would recommend to aturn would be Option 4, that i to extend aturn equity for product under the GM umbrella, i.e. bring platform from Buick and Oldmobile , companie which don't' enjoy a high a brand equity a aturn. They could be old under the aturn name, a aturn derive it' uniquene in the form of ervice, and company , thee brand can alo be old under the ame retailer a conumer perceive the ervice level to be one of the defining character of thi brand. Another apect would be that a aturn connect on a philoophical level, it would be eaier for it to encourage it' cutomer to move to a higher egment under the ame brand. The potential for growth in the mid tier egment i alo high a aturn ha the highet number of under 30 cutomer among all mall car brand. To develop a new platform would cot about $1.5 billion to $2.5 billion. In the current cenario when GM i reluctant to invet around $900 million for capacity increment, it i highly unlikely that they would be ready to invet a huge amount for new product development, a far a the quetion of capacity increment i conidered we believe that GM hould not invet in capacity increment a of now , a there i a built in capacity of about 320000 car and at the ame rate of growth projected onto next year aturn would be increaing it ale by another 50000 car, auming the ame amount of profit the additional profit would be in the line of around 22 million which i quite unacceptable conidering the amount of invetment. Even if they manage to achieve ale of about 0.5 million car (thi include export alo) it would reult in an additional profit of about 120 million. It would take approximately 7 year for them to break even. Thi i on the aumption that the ame model would be old and people are willing to but thi entire demand, additional model would require further invetment which they have to compete for with other diviion, we believe that a aturn' core competency would be it' brand image, it would be able to ell the other model on it' brand name. aturn hope to come out with a 4x4 by the year 2000. Unlike the Blazer and Jimmy' currently marketed in 4x4', the aturn will be more affordable. (A-5, 56) aturn exterior will go a erie body change in the production year of 1996. (A-5, 56) aturn will continue to grow into a huge company, capable of blowing the foreign competition out of the water. Many expert in the indutry predict that aturn ale will exceed thoe of Honda. aturn i alo thinking of poibly marketing a minivan, capable of competing with Ford and Dodge. aturn may omeday break away from it parent company, General Motor. aturn ale are predicted to do nothing but increae in the year to come. aturn' are predicted to oon be available with a V-6 engine layout. Thi engine would replace aturn' current performance engine. oon aturn' will be available with leather interior. Thi option i due out in 1996. aturn will do nothing but continue to proper, with the poibility of becoming it own company. (Maxton and John, 2004, 5) aturn' hare of the compact car market ha no place to go but upward. A car of thi level of quality and cutomer atifaction will urely carry GM into the 21t century. aturn will oon introduce new line of car, and new way of building thoe car, making it truly a different kind of Car Company, and a different kind of car. Reference Barabba, Vincent P. urviving Tranformation: Leon from GM' urpriing Turnaround (2004) Chandler, Alfred D., Jr., ed. Giant Enterprie: Ford, General Motor, and the Automobile Indutry 1964. Cray, Ed. Chrome Colou: General Motor and It Time. 1980. Farber, David. loan Rule: Alfred P. loan and the Triumph of General Motor U of Chicago Pre 2002 Gutin, Lawrence R. Billy Durant: Creator of General Motor, 1973. Halbertam, David. The Reckoning (1986) detailed reporting on the crie of 1973-mid 1980 Keller, Maryann. Rude Awakening: The Rie, Fall, and truggle for Recovery of General Motor, 1989. Lelie, tuart W. Bo Kettering: Wizard of General Motor Columbia Univerity Pre, 1983. Maxton, Graeme P. and John Wormald, Time for a Model Change: Re-engineering the Global Automotive Indutry (2004) Maynard, Micheline. The End of Detroit: How the Big Three Lot Their Grip on the American Car Market (2003) Rae, John B. The American Automobile: A Brief Hitory. Univerity of Chicago Pre, 1965. loan, Alfred P., Jr. My Year with General Motor, 1963. Weiberger, Bernard A. The Dream Maker: William C. Durant, Founder of General Motor, 1979 Read More