Marketing Strategy: Tesla Motors and Russian Market - Case Study Example

Tesla Motors and Russian Market of the of the No Contents Tesla Motors 3 Case Analysis 3 Strategic MarketingPlan: MAOSTIC Framework 4 Mission 4 Audit 4 Objectives 11 Strategies 12 Tactics 16 Implementation 18 Control 18 Tesla Motors Tesla Motors Inc. is a popular multinational automobile company of the United States (U.S.). The company manufactures, designs and sells electric cars as well as powertrain components of electric vehicles (Tesla Motors, 2014). It is a public limited company that was founded in 2003. The primary business hubs of Tesla Motors are located in the U.S., Western Europe, Canada, China, Japan, Middle East, Australia and New Zealand (Tesla Motors, 2014). The headquarters of the organization is located in Palo Alto, California, USA (Tesla Motors, 2014). As of January 2014, aggregate skilled workforce of the company is 6000 (Tesla Motors, 2014). Tesla Motors shares high brand value in the market and excels is manufacturing unique luxury electric cars and automobile components. Elon Musk is the current chairman and CEO of the organization (Tesla Motors, 2014). A small proportion of the aggregate stake of Tesla is owned by the Toyota Group. The company has gained significant goodwill and popularity in the market after launching an electric sports car, Tesla Roadster (Tesla Motors, 2014). The second most popular luxury electric sedan marketed by Tesla is Model S. The company products are priced at premium ranges and targeted at a small section of high profile rich customers in the market. However, Elon Musk, the CEO of Tesla, has recently declared that the company is implementing new measures in order to offer more number of affordable electric cars to a wider base of customers (Tesla Motors, 2014). In order to park more revenue and profit in business, Tesla Motors is making strategic attempts so as to expand the scale and scope of its business internationalization process. Case Analysis The researcher is in the team of strategic marketing consultants of Tesla Motors. On behalf of the company, the team will frame a MAOSTIC plan through which Tesla will be able to expand into the emerging market of Russia. The rationality of expanding business in Russia will be explained within the MAOSTIC plan. Strategic Marketing Plan: MAOSTIC Framework Mission Tesla Motors conducts its business operations through definitive goals. The business mission of the company remains standardized in its new and conventional markets. Tesla desires to promote sustainable transportation means across all countries. In order to achieve the desired objective, the organization implements numerous measures to maximize the sales of its electric vehicles (Baaij & Slangen, 2013). Enhancement in welfare of the individuals and minimization of environmental depletion are the two primary business missions of Tesla Motors. Audit The external business environment of Russia can be analyzed with the help of a PESTLE and Porter’s Five Forces model. PESTLE Model Analysis Political The Russian economy was primarily socialistic in nature. The major economic activities of the country were undertaken solely by its public sector authorities. In 1991, the country was decentralized and liberalized through “shock therapy” (Kum, 2012). The government of Russia liberalized and decentralized its economy for enhancing the level of its economic productivity and social welfare. The 500 days reform was introduced by Russian Prime Minister, Yegor Gaidar, in 1991 (Kum, 2012). After implementation of the privatization policy, the Russian government lowered the number of its price controlling programs and implemented numerous policies in order to encourage foreign direct investments. The Russian government had introduced the economic stability program in 2000 (Kum, 2012). In this program, the political authorities of Russia have implemented expansionary fiscal and monetary policies, which have enhanced its Consumer Price Index Value. The Russian government is continuously increasing its aggregate spending and lowering the volume of tax burden on the foreign as well as domestic corporate organizations (Kotler, 2008). All such measures are undertaken by the political authorities of Russia for enhancing the level of employability and well being. Such regulations introduced by the government will facilitate Tesla’s business internationalization process in the country. The government authorities of Russia will tend to encourage Tesla’s Greenfield investments therein because the same will contribute towards augmenting job opportunities, consumption spending and welfare of the country (Kum, 2012). Tesla’s business operational cost will be low if the office is established in the Special Economic Zones of Russia (Boyle, 2007). Economical After the collapse of Soviet Union, Russia has transformed itself from a centrally-planned to a market based economic system. The degree of integration between Russian economy and rest of the world is increasing at a steady rate. Apart from energy and defense, all the industrial segments of Russia were privatized in 1990 (Kum, 2012). The country is one of the leading producers of crude oil. The annual growth rate of the Russian economy is above 1.5% since 2000. Since 1990, mixed economic principals have helped to trigger the gross domestic productivity of Russia. The per capita income level and discretionary spending power of the individuals residing in the country is steadily improving with rise in the aggregate domestic income level (Boyle, 2007). The per capita income level of Russia was $17,100 in 2011, which had increased to a level of $18,100 in 2013 (Kum, 2012). Russia is an emerging nation and exhibits high growth capabilities for long run. The exchange rate and currency value of the country is lower than that of many developed economies (Kitchen, 1999). Thus, the present economic scenario in Russia will facilitate Tesla’s business expansion therein. The company’s operational costs in Russia will be lower than that in several developed countries. Moreover, the organization will face high demand for its products in the Russian market because disposable income thresholds of the individuals therein are gradually increasing (Kum, 2012). Social Russia is the largest country in the world in terms of land area and covers almost one-eighth of the global land area. It is 60% larger than the second biggest country, Canada (Kum, 2012). The population density in Russia has significantly increased over time. As of 2014, the estimated population strength of Russia is 142,470,272. Above 73.8% individuals residing in Russia live in urban localities (Kum, 2012). The individuals of the country are highly orthodox and traditional in nature. The ethnic group composition of the country shows that only 23% of the individuals are non-Russians. However, 99% of individuals consider Russian as their common official language (Kum, 2012). The literacy rate of the country is almost 100% and new technological innovation projects are greatly encouraged in the research centers. The living standards of the middle income group of customers are also gradually improving. Tesla’s eco-friendly electric cars will be appreciated by the literate Russian individuals. The demand for the company’s products in Russia will increase over time because of its growing population and increasing per capita income levels (Boyle, 2007). Then again, the company’s new business branch in Russia should appoint few native officials, who are familiar with the local Russian language. Technological The government of Russia has made large investments in order to improve the technological sector. The extraction and mining segment of the country has considerably improved with the essence of its superior technological inventions. Coal, gas, chemical, oil and metal industries of Russia are highly developed and productive (Kum, 2012). Electric power generation and construction equipment production is largely practiced in Russia. Petroleum, natural gas, metals, wooden products and chemicals are the primary exporting items of Russia. The aggregate domestic income of Russia is chiefly obtained from its hi-technology sector (Kum, 2012). The Russian government encourages innovation related investments. If Tesla Motors extends its business branches in Russia, then it would be able to incorporate the new innovations made therein in business. Legal Domestic and foreign companies of Russia need to abide by all legal regulations prevalent therein. The degree of government intervention in the business affairs of a company increases in situations of inadequate intellectual property rights procession and lack of operational transparency. Foreign investments made in Russia are regulated on regional and federal levels. The investments made by the foreign automobile companies in Russia are subjected to the regulations of Decrees 166 and 566 (Kum, 2012). While expanding business operations in Russia, Tesla Motors must strictly abide by the legal norms imposed in the automobile industry. Environmental The emerging country of Russia is rich in terms of natural resources. The country has massive crude oil, natural gas, precious metal and other productive natural resource reserves. Environmental management in the country takes place in numerous phases. After the Rio Summit, the Russian government has implemented new regulations for encouraging sustainable economic growth (Kum, 2012). The environmental impact of all business practices in Russia is closely scrutinized by the political and non-governmental authorities. The literate individuals of the country are highly conscious about protecting and preserving the environment. Under such circumstances, the eco-friendly electric vehicles of Tesla are likely to become popular in the Russian market. The company can also use the productive natural resources of Russia. Figure 1: Russia’s Lucrative Market for Automobile Business (Source: Boutenko, et al., 2013) The above figure shows that the automobile business of Russia is anticipated to improve in long run by 2020. The political, economical, environmental and technological aspects of Russia will support Tesla Motors’ business expansion. Porter’s Five Forces Model Bargaining Power of Buyers (high) The conventional and hybrid automobile industry of Russia is competitive in nature. Each company operating within the industry manufactures differentiated products in ways that can maximize utility of the consumers. The automobile companies of Russia experiences relatively elastic demand for the products offered. The switching costs of consumers in the market are low, which is why a slight rise in the price of a product traded by a single firm significantly declines its market demand (Butje, 2005). As a result, bargaining power of the consumers of Tesla will be high in the Russian automobile market. Bargaining Power of Suppliers (moderate) The intermediate parts used to manufacture electric cars are expensive and rare. Suppliers of such semi-finished automobile parts are dominant business players in the automobile market. Tesla needs to establish strong business relationships with new suppliers in the Russian market. If the company outsources the semi-finished parts from its conventional suppliers belonging to other countries, then the aggregate cost of production process would greatly rise. Nonetheless, Tesla is a popular automobile company and will eventually acquire a large market share of the Russian automobile industry (Boutenko, et al., 2013). Hence, bargaining power experienced by the suppliers in the Russian market will be moderate. Threat of New Entrants (Low) The fixed and explicit cost involved in establishing a new automobile company is high. The threat of new entrants in a conventional auto industry is low. A new automobile firm needs to make massive financial, technological, legal and marketing investments to initiate business. The cost involved in setting up a hybrid car business is even higher. Hybrid car manufacturing requires superior technological innovations (Boutenko, et al., 2013). Hence, the threat of new entrants within the electric car market of Russia is low. Threat of Substitutes (High) Tesla Motors will sell electric cars in the marketplaces of Russia. The threat of substitutes for the company therein will be high. Two products are regarded as substitutes of each other if they have the abilities to satisfy a single type of demand in the market. The potential substitutes of Tesla’s electronic cars are the general fuel-run vehicles in the country (Boutenko, et al., 2013). The conventional automobile industry of Russia is monopolistically competitive in nature. Figure 2: Dominant Business Players of Russia Automobile Industry (Source: Boutenko, et al., 2013) As shown in the above figure, companies such as, Hyundai, Renault-Nissan, General Motors and Volkswagen, are the dominant automobile companies in Russia. These firms manufacture differentiated products while experiencing cut-throat market competition. Consequently, Tesla will experience high threat of substitutes from the existing companies in the conventional automobile industry of Russia. Threat of Existing Rivalry (High) Tesla Motors will conduct business in the hybrid car industry of Russia. Eco-friendly electric cars are yet to gain high popularity in Russia because of the high prices associated. Even so, the numbers of electric car charging stations in the country are limited. Few companies such as, Renault-Nissan and General Motors, are prominent sellers of hybrid cars in Russia (Boutenko, et al., 2013). Tesla Motors will encounter Oligopolistic competition in the Russian electric car market. Under such market conditions, the number of rival firms will be low, but the proportion of market share owned by each firm will be high. Thus, the company should conduct business operations in Russia, on grounds of strategic behavior, as a typical Oligopolistic organization. From the above external environment analysis, it is proved that Tesla Motors will conduct business operations in a highly competitive environment in Russia. The demand for electric cars is gradually increasing in the booming economy. If Tesla aims to park greater number of potential customers, then an effective marketing plan must be formulated before commencing business operations in the Russian market. Objectives The primary objectives pertaining to the marketing plan of Tesla Motors in Russia can be framed according to the SMART objectives framework. Under this framework, marketing goals of the plan should be specific, measurable, achievable, realistic and time bound. SMART Objectives Implication Specific Tesla should aim to enhance business profitability and revenue in Russia through the marketing plan. Measurable Tesla can attempt to enhance the revenue by 10% (annually) and profit by 5% (annually). Achievable The quantitative targets of Tesla Motors in terms of business revenue and profit should be achievable in reality. If the established targets are not achievable, then the organization will fail to adequately evaluate its business performance in Russia. Realistic The targets of Tesla in terms of revenue and profit earned should be realistic. If the company establishes unrealistic goals, then employees will be de-motivated at work. Time Bound The objective of increasing revenue by 10% and profit by 5% should be time bound in nature. Tesla Motors should aim to enhance revenue and profit as per the desired levels at the end of first year of operation. Strategies Corporate Level Strategies Corporate level strategies of a company are determined by its senior management officials. These strategies resolve major issues arising in business. Matters relating to finance, mergers and acquisitions, human resource management and allocation of resources are managed by applying the corporate level strategies (Kotler & Keller, 2006). These strategies contribute towards enhancing the core competencies of a profit making concern. Tesla Motors will follow three primary corporate level strategies in Russia. Value Creation Strategy By implementing this strategy, Tesla Motors will improve core competencies in business as well as expand its market share in the Russia. The perceived and real value of the company will increase with the help of this strategy. Under this strategy, the company will be able to enhance its revenue and profitability by providing customized utility maximizing services to the consumers (Kotler & Keller, 2006). The operational cost will be reduced by way of achieving economies of scale and scope. Through the value creation strategy, Tesla will develop business efficiency and productivity in the Russian marketplaces. The satisfaction level of the potential customers of Tesla will also improve with the help of this strategy. Business Expansion Strategy A company decides upon an appropriate business internationalization process with the help of its business expansion strategy. In the contemporary era, most multinational companies expand business according to transaction cost economies resource based view (Kotler & Keller, 2006). The firms exploit the productive resources in new marketplaces after saturation of the domestic markets. Tesla Motors has adequate amount of tangible and intangible resources. The gross value of assets owned by the company was US$2,417 million in 2013. The company can extend business operations in Russia by making fresh Greenfield investments across the different marketplaces. Hence, Tesla will own manufacturing, distributing and marketing divisions in the Russian market. E-business strategy Internet media is widely used for both business-to-business and business-to-consumer trading in the modern era. The penetration rate of internet in the emerging countries such as, Russia, is greatly improving over time (Weber, 2007). Tesla can apply e-business strategy while expanding its trading branch in Russia. The company can conduct its marketing activities over internet before introducing the produces in the country (Kotler & Keller, 2006). Through e-business strategy, Tesla will be able to promote products offered and brand name to a large number of customers. The cost involved in conducting promotional activities over internet will be relatively lower. Business Level Strategies These strategies are formulated by a company for ensuring greater competencies in business. An organization augments the utility level of its loyal customers by effectively applying business level strategies (Kotler & Keller, 2006). These strategies determine the relative position of a company in a particular industry. Tesla Motors will make implement three primary business level strategies in Russia. Cost Leadership Strategy Tesla will face high threats of competition from the traditional and hybrid automobile companies in Russia. The competition will largely depend on the product prices established by each company. Through enactment of cost leadership strategy, Tesla can manufacture the products with minimum cost, thereby selling the same at low cost (Stryker, 1998). As a result, by way of utilizing cost leadership strategy, Tesla will be able to experience highest market demand in the Russian hybrid car industry. Cost leadership can be experienced with the help of adequate control of overhead costs, new expenditure minimizing innovations and establishment of efficient facilities (Kotler & Keller, 2006). Differentiation Strategy Under the differentiation strategy, Tesla can sell high quality, rare and non-imitable products in the Russian market at the minimum possible cost. Differentiation strategy will allow improvement in the brand value of Tesla in Russia. Increased differentiation can be practiced by Tesla through production of cars with rare features, appropriate customers services, innovations and brand management (Kotler & Keller, 2006). Focused Low Cost By implementing focused low cost strategy in business, Tesla can not only compete with its rivals on grounds of cost, but also sell the products offered to a definite segment of customers (Bunse, et al., 2011). The most potential customer segment for Tesla’s electric car in Russia will be the upper middle and rich income group of individuals. This is because most of the products traded by the company are priced high in the market. In order to effectively implement the corporate and business level strategies, Tesla Motors must be efficient and productive. McKinsey’s 7 S will itemize the 7 primary elements, on the basis of which Tesla can perform well in Russia. McKinsey’s 7 S Model Structure Tesla Motors can form a functional organizational structure in Russia by segregating the business operations into several divisions. Each division will conduct some specific business function. Functional organizational structure will help to enhance the company’s productivity and specialization. However, the level of communication between each functional department must be adequate. Strategy Value creation, business expansion and e-business development will be the three corporate level strategies for Tesla Motors in Russia, while differentiation, cost leadership and focused low cost will be the three business level strategies. In this manner, Tesla Motors will be able to enhance its brand image and net profitability in Russia. Shared Values The company’s business values will help to meet the corporate mission and marketing objectives in Russia. The organization will promote sustainable transportation system. It will also abide by all ethical and moral norms of business therein. Systems Tesla Motors manufactures high quality electric vehicles with superior technologies. The company had received $ 465 million from the U.S. energy department, under the program of Advanced Technology Vehicle Manufacturing Program (Hartung, 2013). The organization can use these finances for making new innovations and product categories in Russia. Staff Tesla Motors recruits approximately 6000 employees around the world. The company will recruit additional skilled and semi-skilled workers in Russia. The organization will maintain adequate workforce diversity and equality in the country. The new workers will be hired from different social and academic communities. Style The primary markets of Tesla Motors are located in the developed countries. However, the company is presently attempting to extend business in the emerging countries, subjected to rise in the discretionary spending thresholds therein. Thus, business expansion in the booming market of Russia will comply with the business internationalization process followed by Tesla. Skills The productive resource base of Tesla Motors will help to improve business skills and capabilities in Russia. The company will sell high quality electric vehicles in the country. The marketing and retailing activities will be conducted efficiently by the skilled workforce. Tactics The appropriate marketing tactics of Tesla Motors in Russia can be analyzed through the 4 P analysis model. 4 P Analysis Model Product Tesla Motors manufactures differentiated products with the help of rare, non-imitable and expensive technologies. The electric cars of the organization are manufactured with infinite lithium-ion (18650) commodity cells (Tesla Motors, 2014). These small batteries are cylindrical in shape and are primarily used in consumer electronic devices. Tesla Roadster, Model X, Model S and Model 3 are the primary electric models produced (Tesla Motors, 2014). The company can launch its newly planned models for the rich customers in the Russian market, such as, electric minivans, electric fleet vans and crossover SUVs (Tesla Motors, 2014). Even so, Russia’s automobile market is highly competitive in nature. Hence, the company should introduce new product lines at lower price values in Russia so as to capture greater number of loyal customers therein. As a result, Tesla will apply the differentiation strategy in the product manufacturing process. Price Tesla Motors primarily sets the product prices based on the premium pricing strategy. Tesla Roadsters price is US$109,000 and the base price of Model S is US$57,400 (Tesla Motors, 2014). The price of the most popular product lines of Tesla is higher than that of the competitors’ products (Peng, 2008). Nonetheless in Russia, Tesla Motors should implement competitive pricing strategy in business. It should sell the new product lines at relatively lower prices in the Russian marketplaces. Place Tesla Motors sells the products from its original retailing showrooms. The sales executives in Tesla’s retailing outlets are aptly skilled and well-trained. The consumers are provided with adequate information pertaining to each product at the time of purchase (Tesla Motors, 2014). Tesla should establish its showrooms in the busy urban locations of Russia such as, Moscow, Saint Petersburg and Novosibirsk, where the most potential customers will tend to reside. Promotion Tesla Motors can promote its brand name and products through digital and traditional communication means in Russia. The company can advertise the products over social media as well. It can introduce commercials in television and popular newspapers of the country. Special price discount offers can be provided during festive seasons in the country (Amin, Razmi & Zhang, 2011). Implementation The marketing plan of Tesla Motors can be implemented only after establishment of an appropriate marketing budget. Marketing Budget Components Q1 Q2 Q3 Q4 Totals Production 10 billion 20 billion 15billion 5 billion 50 billion Logistics 2 billion 1 billion 0.5 billion 1.23 billion 4.73 billion Distribution and Promotion 0.12 billion 0.9billion 1.23 billion 2.1 billion 4.35 billion Retail 0.11 billion 0.32 billion 0.45 billion 1.2 billion 2.08 billion Implementation Plan Actions | Months 1 2 3 4 5 6 7 8 9 10 11 12 Conducting Marketing Research                         Analyzing Marketing Objectives                         Evaluating Marketing Budget                         Introducing New or Existing Products                         Establishing New Pricing, Distribution and Promotional Strategies                         Conducting Advertisements                         Evaluating the Revenue and Profit Rise                         Reviewing the Marketing Plans Success                         The above tables present the primary steps to be followed by Tesla Motors in Russia while implementing its marketing plan. Control Tesla Motors can evaluate success and efficiency of its marketing plan with the help of certain controlling measures. Customers’ Feedback Tesla Motors can conduct special polling and survey sessions for estimating perceptions and satisfaction level among the customers. The success of new products traded in Russia can be determined in terms of the customers’ feedback (Amin, Razmi & Zhang, 2011). Target Sales Estimation The marketing plan aims to enhance the revenue of Tesla by 10% and profit by 5% at the end of the first year. The company can compare its actual profit and revenue with the targeted limits so as to monitor success of its marketing plan. Market Share Analysis Tesla can also analyze efficiency of its marketing plan by way of estimating the market share obtained in Russia at the end of the first year. References Amin, S. H., Razmi, J. & Zhang, G. (2011). Supplier Selection and Order Allocation Based On Fuzzy SWOT Analysis And Fuzzy Linear Programming. Expert Systems with Applications, 38(1), 334-342. Baaij, M. G. & Slangen, A. H. (2013). The Role of Headquarters-Subsidiary Geographic Distance in Strategic Decisions by Spatially Disaggregated Headquarters. Journal of International Business Studies, 44(9), 941-952. Boutenko, V., Kreid, E., Lang, N. & Mauerer, S. (2013). Transforming Russia’s Auto Industry. BCG. Retrieved from http://iberglobal.com/files/rusia_auto_bcg.pdf. Boyle, S. (2007). Impact of Changes in Organisational Structure on Selected Key Performance Indicators for Cultural Organisations. International Journal of Cultural Policy, 13(3), 319–334. Bunse, K., Vodicka, M., Schönsleben, P., Brülhart, M. & Ernst, F. O. (2011). Integrating Energy Efficiency Performance in Production Management–Gap Analysis between Industrial Needs and Scientific Literature. Journal of Cleaner Production, 19(6), 667-679. Butje, M. (2005). Product Marketing for Technology Companies. London: Routledge. Hartung, A. (2013). Why Tesla Is Beating GM, Nissan and Ford. Retrieved from http://www.forbes.com/sites/adamhartung/2013/06/28/why-tesla-is-beating-gm-nissan-and-ford/. Kitchen, P. (1999). Marketing Communications: Principles and Practice. London: International Thomson Business Press. Kotler, P. & Keller, K. L. (2006). Marketing Management. New Jersey: Prentice Hall. Kotler, P. (2008). Principles of Marketing. New Jersey: Prentice Hall. Kum, M. H. (2012). PESTLE Analysis and Sectorial Study of Russia. GTU. Retrieved from http://www.gtu.ac.in/ABP/GCSR%20PDF%202013/727%20Russsia%2010-.pdf Peng, M. W. (2008). Global Strategy. Connecticut: Cengage Learning. Stryker, R. (1998). Globalization and the Welfare State. International Journal of Sociology and Social Policy, 18(2), 1-20. Tesla Motors. (2014). Tesla Motors. Retrieved from http://www.teslamotors.com/. Weber, L. (2007). Marketing to the Social Web: How Digital Customer Communities Build your Business. New Jersey: John Wiley & Sons, Inc. Read More