Car Market in UK-Situation Based Analysis - Case Study Example

Marketing Planning Table of Contents Car market in UK-Situation Based Analysis 3 PESTL Analysis 4 Political Factors 4 Economic Factors 4 Social Factors 5 Technological Factors 5 Legal Factors 5 SWOT Analysis 6 Strengths 6 Weakness 6 Opportunities 7 Threats 7 Competition in the UK car market 7 Segmentation Strategies 7 Conclusion 10 Car market in UK-Situation Based Analysis The UK car market is the 12th largest car market in the world. The UK car market is mostly export oriented in nature. The UK car manufacturing industry employs about 8.5 million people. The country lags behind Germany and France with regards to its market attractiveness. The car market in UK comprises both used as well as new cars. Car markets are heavily dependent on the macroeconomic conditions of a particular geographical area, a growing economy always implies a good market for automobiles. The recent economic downturn has put the car market of the country behind emerging countries like India, Brazil and China. The country has seen some of the largest takeover deals in the car market with the takeover of Jaguar and Land Rover leading the pack. A large number of automobile manufacturing firms have also closed their shutters during the past few years. The total number of vehicle registrations fell by about 11%. Most of the market players reported negative growth figures. (Carmagazine, UK, 2008). Figure 1. Car Production in UK (2008). Source- SMMT ltd. The total automobile industry in UK is worth about 21, 896 million dollars. The total market size is assumed to be 14,350 million dollars as of 2007. The country produces 14350 million dollars worth of cars and imports cars worth about 12,977 million dollars. UK also exports about 5431 million dollars worth of cars. PESTL Analysis Political Factors UK consists of United Kingdom, Great Britain and Northern Ireland. UK has a democratically elected government with a constitutional monarchy. The government is headed by the prime minister who work under the Queen of the country who is the chief of the state.(CIA World Factbook, 2009). Economic Factors United Kingdom is the sixth largest economy the world with an estimated GDP worth $2.8 trillion. The UK market is considered to be highly developed and diversified in nature. The GDP in terms of purchasing power power parity is about US$ 2226 trillion dollars as of 2008. The real growth rate is about 0.7% as of 2008. (CIA World Factbook, 2009). The major challenges in the UK market are the global economic recession which has taken its toll on the economy of the country. The global recession has led to a sharp drop in the credit supply to the country. The reduction in credit supply has hurt sales across all the sectors especially automobiles as credit financing was one of the popular ways of purchasing cars in UK. The global recession has also reduced the customer confidence which has led the companies to introduce few newer product lines. New product launches have also taken a beating. (US Department of Commerce, 2008). In spite of the above stated challenges the UK market continues to show considerable opportunities in the automobile sector. The London Olympics slated to be held in 2012 would generate huge demand for automobiles especially in the heavy vehicles segment. Moreover, the used car market is also showing favorable growth rates especially when the buying power of the customer is declining due to the ongoing economic recession and the credit crunch. The car market is characterized by intense competition in UK. The major players in the market are MG, Hummer, Smart, Dodge, Volvo, Jaguar, Volkswagen, Land rover, Ford, GM etc. Social Factors UK has a total population of about 61.113,205 people as of 2009 with a population growth rate of 0.27%. Ninety percent of the total population is urbanized. The ethnic groups in the country mainly consist of English, Scottish, Welsh, Irish and other communities. The median age of the population is about 40.2 years. (CIA World Factbook, 2009). Technological Factors UK is one of the most technologically advanced nation of the world. It has some of the worlds greatest academic institutions which produce great talents every year. The country is also situated in a region which is known for its technological strides. Legal Factors The legal system in UK is based on the traditions of the common law. The laws of the country are also influenced from Roman and other continental laws. These can be reviewed by the parliament. The country also has an effective judicial system. The Volkswagen group was established in Germany in 1937. The company had a vision of making cars for the common people. Volkswagen is the largest car manufacturer in Europe. It has three main divisions which are as follows, The Volkswagen Group The Audi Group The Commercial Vehicles Group The Volkswagen group includes brands like Skoda, Bugatti and Bentley. The Audi group includes brands like Lamborghini, SEAT and Audi. The commercial vehicles division manufactures commercial vehicles. (Bradley, et al, 2005). The Volkswagen group presently operates in both the new cars and the used car segment in UK. The company mainly caters to the premium segments through brands like Audi, Lamborghini. It also caters to the sports segment of the UK market. The recent economic slowdown has taken a toll in the companys revenues. TATA motors is amongst the largest car market player in India. It is the fourth largest manufacturer of trucks and the second largest manufacturer of buses in the world. The product portfolio of TATA motors is composed of Land Rover, Jaguar and TATA brands. SWOT Analysis Strengths The major strength of Volkswagen is its effective brand image apart from customer satisfaction. The company has been operating for many years. The company also has many good brands under its ownership like Audi, Lamborghini etc. TATA motors operates in UK with brands like Jaguar and Land rover which have a huge brand appeal. These two brands have been associated with many years and have a huge brand appeal especially among the premium segments. Weakness The company has a large number of brands such as Skoda, Audi etc. Some of these do not have a good positioning. For example Skoda which has its roots in East Europe is pursued by many customers as a vehicle with a poor design, materials etc. (The Times 100, n.d.). TATA motors targets only the premium class segments as its brands caters mostly to the influential customers. This implies that the company has a limited customer base which can serve as a weakness in the long run. Opportunities The Olympic games that are slated to be held in London in 2012 presents huge opportunities for both Volkswagen and TATA Motors as the demand for vehicles is expected to rise by leaps and bounds during the event. Volkswagen also has a commercial vehicles division which would have the highest demand across all the vehicles segment. Threats The ongoing financial crisis exhibits the biggest threat to both the companies. The financial crisis has led to a reduction in the availability of credit which has drastically affected the sale of cars across all segments. The problem is more profound for TATA Motors as it caters to the luxury segment whose sales have dropped drastically. Competition in the UK car market The main competitors for Volkswagen and TATA motors are Alexandra Dennis, Toyota, Ford, GM, Bentley, Ascari Cars, Honda Leyland, Lotus,Rolls Royce, Vauxall etc. Segmentation Strategies Segmentation involves segregating the customer base of a companys product into groups exhibiting similar customer behavior. The groups formed should be homogeneous in nature. Segmentation can be done on the basis of factors like price, quality etc. In case of the automobile industry segmentation can be done on the basis of price, quality. The customer behavior and the demographic patterns also play an important part in deciding on the customer segments. The car market can be divided into old/user car market and new car segments. The car market can be segmented by dividing the cars into three segments namely, 1. Economy Segment 2. Premium Segment 3. Ultra-premium Segment The above segmentation has been done on the basis of price ranges. The economy segment would contain products that would have the lowest prices and would cater to the customers having average income. The premium segment would comprise of products that are in the middle range with regards to pricing. The ultra-premium segment would consist of high end luxury cars that would have the highest price tag and which would have the premium customers in its segment. Economy segment This segment may also be called the value for money segment. This segment would consist of people in the average income group. Used cars can serve as a good product for this market. In case of Volkswagen car models like Fox and Polo would serve as a good model for this segment. The price range for this particular customer segment would be below 12000 pounds. TATA motors does not cater to the value for money segment as it owns and markets brands like Jaguar, land rover etc which have a high price range. The recent economic downturn has made this segment the most lucrative as the purchasing power of the people has reduced considerably. The Premium segments The premium segment would comprise the customers who are above the average income group. In case of Volkswagen brands like Golf, Beetle, Jetta, Scirocco, Tiguan, Touran, Eos which fall in the price range of 12000-14000 pounds would cater to this segment. In case of TATA motors few models of jaguar brands may serve as competitors in this segment. The Ultra-premium segment The ultra premium segment would cater to the high profile premium customers for whom quality, brand name and prestige are more important rather than price. In case of Volkswagen brands like Touareg, Lamborghini, Audi would serve as products for this segment. The price band would be higher than 30000 pounds. TATA motors would have all the variants of the land rover and most of the variants of the Jaguar to serve as competitors to Volkswagen. Positioning Positioning involves creating an image of the company in the minds of the customer. Positioning assumes importance in case of the automobile industry as brand name plays an important part in influencing customer decisions. This factor also assumes greater importance for the premium and ultra premium customer segments as brand value and prestige is the most important factor that influence the customer buying decisions. Positioning can be done on the basis of product attributes, product benefits, user occasions, users, against a major competitor, away from a major competitor and on the basis of product classes. Volkswagen has acquired a good brand image over the years. The company must built upon its existing brand image by running active promotional content, improving quality, providing good after sales support to the customers. It can also focus on the attractive product features of its brands. It can use the internet as a suitable platform for brand building. Brand building also greater importance in the premium segments as it has to compete with brands like Jaguar and Land Rover which have a huge brand appeal. After sales service is one of the prime areas that can help in building brand value for a company. This is more important in the value for money segments as the customers in that segment would try to generate maximum possible service from the company. The effect of this factor becomes magnified due to the large number of competitors vying for the market share in this segment. In case of the value for money segments the company can highlight the cost advantage of its products as compared to its competitors. The company must ensure that confused positioning does not take place among the customers of the premium segments. Conclusion The automobile industry in UK is presently in a state of crisis due to the effects of the ongoing economic recession and the credit crunch. In spite of the problems the UK market also presents numerous opportunities to the companies as it is the sixth largest economy of the world. Apart from this UK also has a high per-capita income which represents huge opportunities for the automobile companies across the globe. Volkswagen has a large number of well known brands which must be utilized by the company to gain an edge over its competitors. The used cars division of the company presents a good opportunity for the company during the recessionary periods when the purchasing power of the customers is running low. The London Olympics also presents opportunity for the company so as to enhance its market share and brand appeal. References Bradley et.al. 2005. Automotive Industry Analysis. [Online] Available at http://www.srl.gatech.edu/Members/bbradley/me6753.industryanalysis.teamA.pdf.[Accessed on October 19, 2009]. CIA World Factbook. 2009. [Online] Available at https://www.cia.gov/library/publications/the-world-factbook/geos/uk.html. [Accessed on October 19, 2009]. Competition Commission of UK. No Date. The UK Car Market. [Online] Available at http://www.competition-commission.org.uk/rep_pub/reports/2000/fulltext/439c5.pdf. [Accessed on October 19, 2009]. Doraszelski U, Draganska M. 2006. Market Segmentation Strategies of Multiproduct Firms. [Online] Available at http://www.economics.harvard.edu/faculty/doraszelski/files/jie-54-2006.pdf. [Accessed on October 19, 2009]. The Society of Motor Manufacturers and Traders Limited. No Date. UK vehicle production rises in July. [Online] Available at http://www.smmt.co.uk/articles/article.cfm?articleid=17939. [Accessed on October 19, 2009]. The Times 100. No Date. SWOT analysis in action at Skoda.[Online] Available at . http://www.cubastudiesjournal.org/.../MK3014N%20Strategic%20Management%20Case%20skoda.pdf. [Accessed on October 19, 2009]. University of Delaware. No Date. Chapter 9 Class Notes.[Online] Available at http://www.udel.edu/alex/chapt9.html. [Accessed on October 19, 2009]. Read More