Case 3.2 Your Integrated Case- Advanced Automobile Concepts
· New division of a large automobile manufacturer, ZEN Motors. ZEN is a multinational manufacturer headquartered in the United States.
· ZEN’s divisions have been slowly losing market share too their competitors
· AAC was created to revive the aging ZEN automobile brands by either reengineering existing models or developing totally new models that are more competitive in today’s new car market.
· Thomas is concerned about the strategic direction AAC should take.
· He knows the trend has been toward smaller, fuel-efficient automobiles; but on the other hand, he knows that this maybe a passing trend, similar to what occurred in the 1970s when fuel costs soared.
· As soon as OPEC countries lowered their pricing of oil it led to the SUV craze of the 1990s through about 2006.
· Thomas is the market’s attitudes toward global warming. (scientific community is in reasonable agreement about global warming, there is enough controversy in the information environment to cause consumers to wonder if concern for global warming is real)
Thomas Does Not Know
· Thomas doesn’t know how to deal with global warming in terms of the direction he should take with his auto-mobiles.
Thomas Does Know
· Some believe it is a hoax. These consumers enjoy citing record-low temperatures.
· Other consumers believe there may be global warming, but it is a natural phenomenon of the earth’s temperature cycles. These consumers do not believe mankind contributes to global warming.
Questions Based off Concerns
· Thomas wonders if consumers really believe oil prices will remain high.
· If consumers believe this, they will probably prefer smaller, fuel-efficient vehicles.
· If they do not, he believes demand for these smaller vehicles will be a passing fad.
Thomas Hiring Steps to Help
· Thomas was hired as CEO, he hired Marilyn Douglass, former director of marketing research at Nord Motors, who has many years of experience working in the automotive industry.
· Nord Motors is a major competitor of ZEN.
Thomas’s Reason of Hiring
· Thomas wanted Douglass on his team because he felt he needed someone to interpret consumers’ future automotive needs.
First Task for Douglass
· He asked Douglass to prepare are port summarizing what she felt were the major automobile alternatives for ZEN to consider.
· Her report, referred to in the company as the “Douglass Report,” outlined the following major alternatives.
Douglass Report Highlights
· Suggests that ZEN’s best opportunity will reside with hybrids that use both electric power and engine power, using either gasoline, diesel, biodiesel, or even CNG.
· The key to the future was thought to be hybrid cars with an electric motor charged by and alternating with an internal combustion engine.
· Her best choice for the engine fuel for now is biodiesel simply because diesel engines get higher miles per gallon (mpg) than gasoline and there is not likely to be a major change in the infrastructure needed to make biodiesel widely available.
· The Douglass Report recommends that this decision be confirmed by others at ZEN.
· Report stated that ZEN’s competitiveness will depend on selecting the car designs (models) that best meet market demand. So, the smallest vehicle will have “very high” mpg and the largest proposed model will have “good” mpg.
1. Very small, one-seat vehicle designed to get near maximum mpg
2. Small, two-seat vehicle designed to get high mpg
3. Larger, economy/compact size, four-seat vehicle designed to get good mpg
4. Large, standard size, five- to six-seat vehicle with conventional trunk space designed to get reasonably good mpg
How many of these models will ZEN want to create, manufacture, and market? The Douglass Report explains that there may very well be enough demand to justify several ZEN models. It will be critical to determine which models have the greatest demand. Secondly, Douglass warned that just because we have an energy and environmental crisis, the car buying public will not be satisfied with one solution. Similar to the market today, there are varied segments and each may prefer a unique model to best satisfy their demands and to determine market segments. Finally, the Douglass Report discusses the need to market vehicles in the futureas efficiently as possible. Two factors are given for the additional efficiency requirements in the future. First, there will be increased competition. Start up firms will been courage by new governmental policies to produce new, energy saving vehicles. Second, profit margins will be lower on smaller vehicles of the future. As noted earlier, smaller cars traditionally have been priced competitively; they do not have the “higher” price points of some of the larger, luxury cars. Marketing efforts will need to clearly “reach” the market segments with promotional materials without wasting promotional dollars on market segments that are not interested in the vehicle being promoted. Media can be purchased that targets markets based upon knowledge of standard demographic data, such as gender, marital status, number of persons in a house hold, age, level of education, job category, income, dwelling type, number of vehicles owned/leased, and type of vehicle owned (economy, standard, luxury, SUV, pick up truck, van). Also, dealer locations can be selected based on other factors, such as size of the city. Thomas read the Douglass Report carefully. He believed it was a good point to start the decision making process, but he needed additional information.
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