Smart Car Market Analysis

Executive summary

This report is the result of the research about the small car market and how Smart has been operating in it recently via interviews with Smart dealers, a survey and the official website of Smart. The goal of the research was to figure out what could be improved or changed to increase sales and get a bigger market share for Smart. Smarts mission is to become leader in the small car market with the Smart fortwo. In the past there were more types of Smart like the Smart roadster and Smart forfour.

After disappointing sales figures, Smart decided to focus on what they became famous for, the small, diverse city car, Smart fortwo. In the past decade the Small Car Market (SCM) has grown rapidly due to new trends and customer awareness of the environment and customer budgeting. The analysis of the macro environment shows that this is one of the best times for car manufacturers to enter the small car market.

Trends concerning cars show that the public is looking for more fuel efficient, greener cars. Furthermore manufacturers want to erase the feeling that small cars are not safe. Smart is expanding their market to America in 2012 with the smart for4. Smart is expected to expand their market share. Other small car manufacturers pose a big threat for the market, in which Smart started out as a leader.

The competition analysis shows that Smarts market share in de small car market has decreased in the last 5 years. Although Smart has the most options for the customer concerning customization and uniqueness in design, they have not been able to compete with the overwhelming competition selling their cars at a lower price. Another factor contributing to the low sales of Smart is the low promotion policy. Global corporate social responsibility studies show that customers are more likely to buy a product from a social and sustainability responsible company. Target groups are affluent people, that can afford to buy a Smart as a novelty next to their Mercedes. Another target group is companies. Smarts are ideal for businesses as they can be customized and stand out. Also people that live in urban areas, that like to be mobile and that can think outside of the box. Smart as a brand has been losing reputation over the past decade. Appearing on the car market as a new innovative product, the public seems to have decided that smarts are not exactly what they seem to be. A survey thorough monkeysurvey.com has shown that people have awrong impression about what Smart is.

SWOT martrix analysis shows that the greatest opportunities for Smart lie in the ecofriendly market. This way Smart can reclaim their position as most innovative and unique company. A recommendation on the current marketing strategy is that smart should actively approach the market’s expansion. First grow the sales with the Smartfortwo and focus the promotion on the special features such as excellent savety and a very low CO2 emission. Smart could lower the profit margin on the Smartfortwo and therefore offer it to the customer at a more competitive price. Also Smart should promote the electric drive and the car2go. The marketing mix can be improved on the following points.  Product: – Focus on sustainable variences of the product – Put in innovative but economical features. Promotion – Change brand image into safe, green and smart. Price – Incorporate all tax refunds and exemptions in price and therefore creating a competitive price.  Place – Create an own showroom where smart is no longer a sidekick for Mercedes, but a brand in itself. – Make the showrooms appeal more to the target group – Use showrooms as sale attribute.

Introduction

Welcome to MCC Smart “Open your Mind” – Daimler AG Since its establishment in 1994 in cooperation with Swiss SWATCH and Mercedes Benz in Böblingen, Germany, Smart has been a revolutionary car and brand. With its size, motor, safety, comfort and environmental friendly thinking. Thus, to guide you into the company we will examine several internal and external factors on Macro, Meso and Micro level and after that give recommendations on the marketing strategy and the product mix. This report will first introduce you to the company itself and their products. This will give you, as a reader, essential background information. Followed by the Market analysis, here you will find among others important information about STEP analysis and expectations and opportunities.

The next chapter will focus on the Competition, here we will provide relevant you information about the micro level and answer questions like who are competitor’s of Smart. Followed by the customer analysis, which will give you an overall view of the target groups and their behaviour. Ultimately, we will examine the Brand itself; here we will look into questions like what is smart? What was or is their intention? Finally, these analyses will result in a SWOT matrix analysis, were you will find the strength, weaknesses, possible opportunities and threats of Smart. This will be than supported with a new marketing strategy with recommendations on the company’s 4P’s of the marketing mix. We hope you enjoy the reading…

1.Company analysis

1.1 Company information Smart was founded in 1994 as collaboration between Swatch and Mercedes. In 1996 the first actual Smart was presented on a car show in Frankfurt. Smarts vision: “To provide unparallel safety and comfort on the roads along with the options to choose from a lot of versions.” Smarts mission: “To become market leader in 2 door compact car in Europe by the year 2010.” Smarts slogan: “Open your mind” holds that there is a lot of freedom for the customer to make their ideal car. This is translated in all the options given when you buy a Smart. It also means that people who drive Smarts don’t hold limitations in their way of thinking about transport. “Open your mind” is also the company’s philosophy. 1.2 Products At the moment, Smart offers only one type of car, “The Smart fortwo”.

This is available in coupe and convertible. In the past there were more types of Smarts like the roadster and the Smart forfour. After disappointing sales figures, Smart decided to focus on what they became famous for, the small, diverse city car, the Smart fortwo. All the Smarts can be adapted to any preference of the customer. A lot of options such as colours and different interior can be added. The width of the product-line mix is not that great due to the limited offer in diversity. There is only one Smart. The length of the product-line mix is also in a decline over the past 10 years, as sales of the Central Bureau of Statistics show. This decline in sales was a big part of the decision to drop all other cars but the Smart fortwo. The following chart shows how smarts are manufactured and what parts come from where and which company supplies them.

2.1 Definition of the market In the broad perspective Smart is competing within the SCM (Small Car Market). As known the SCM has been growing rapidly due to environmental awareness and basic customer budgeting. 2.2 Market needs The markets needs are quite basic if you are simply trying to sell small cars. The criterion for this is as follows: Fuel economical Safety A lot of space inside ( Even though it’s a small car, customers want as much as they can get) Cheap maintenance Compact but powerful Stylish design (The vast majority of small cars are used within major cities, appeal therefore becomes a big factor)

Low cost purchasing Easy parking possibilities

Now Smart on the other hand is not simply focusing on the broad SCM. They are focused on a niche market segment. They are not the cheapest or most economical small car out there, and they don’t want to be. They are focused on providing a specific product to a specific customer. 2.3 Market size The small car market (SCM) size has been growing steadily for quite some time now. According to the European Automobile Manufacturers’ Association (ACEA): Market share 2008 – 38.9% of total car market Market share 2009 – 44.9% of total car market Market share 2010 – Has not yet been calculated, but according to sources they are expecting another increase of market size.

There are many factors as to why the market for small cars is growing, to name the few essentials: Fuel price increase Environmental awareness Customer budgeting (countries financial position) Demographic density

STEP analysis

Political:

This is one of the best if not best times for car manufacturers to enter this market in relation to political regulations. Governments are contributing and participating in getting people to buy smaller more eco friendly efficient cars. In some cases governments will give you discount on for example road taxes if you drive or purchase a small car. Governments are, at this moment in time, consumed in the green stream idea.

Technological:

When we look at how technology is affecting the SCM, we can see that it has negative and positive aspects. Positive: Lighter materials, making the car faster and more fuel economic Engine technology helping to increase power and compact size Safety measures, such as air bag technology and roll cage design. Making small cars safer and therefore more appealing.

Negative:

Due to engine technology development, larger vehicles are also prospering from the fuel economics technology. For example the larger hybrid cars which could increase competition for the small cars due to there being less of a difference in costs. The options that bigger cars give could challenge the idea of a small, relatively primitive car, making it harder for the customer to set his mind to a small selection of cars. Economical: At this point, even though we are currently in an economical crisis, the SCM is doing exceptionally well. With increase in market size and sales, we can assume that there should be no worries economically. Furthermore it might be safe to say that due to the negative economic situation, people have actually increased the sales of small cars. Trading in your big car for a small compact seems to be the trend. This was clearly shown when American SCM increased by 1.9% this year compared to 90% of all the other car market segments decrease.

Social:

The target group is segmented in geographical, demographical and behavioural aspects. Geographical: Benelux Urban or sub urban environment Cities of medium size

Demographical:

Above average income per year Young professionals/ young families with kids/ business people Male and female

Behavioural:

Like to be flexible Can think outside of the box Need to be able to go where they want to go when they want to

Trends and Developments

The major trend of this moment is fuel efficiency. Due to the major increase in fuel prices, all car manufacturers are trying their best to lower the consumption of fuel per kilometre. Specifically within the SCM, car manufacturers are promoting heavily on efficiency, if you take for example the Chevrolet small care. They promote that a full tank of fuel will cost you 20 Euros and will take you approximately 500 kilometres. Developments within the SCM are focused on hybrid or electric powered engines. The aim is to reduce emissions and fuel usage. The idea is to get you from A to B while doing as little damage not only to the environment, but also to your wallet.

Another major development is safety technology within the small cars market. The manufacturers want to erase the idea that a small car is not safe compared to the big cars such as BMW and Mercedes-Benz. 2.6 Expectations and opportunities Smart is expanding their market to America with the forfour in 2012, they are expecting to increase market size worldwide and hopefully catch a ride on the eco train. The expectations for SCM are good. By reviewing figures over the last 3 years, a steady growth is in sight. The automotive industry is getting “Smaller” you could say. Smart has some great opportunities ahead in America, where the small car trend has finally kicked in after many years of monster truck driving.

3. Competition analysis

3.1 Competitors Daimler Number 12 Sold 1.055.169 units Smart Market Share 0.22% Market share in Daimler 10% Sold 114.000 units Competition Analysis The market shares / size / position of the main competitors: Toyota: Market share: 12.03% Number 1 Sold 6.148.794 units. Peugeot/Citroën (Peugeot Société Anonyme): Market share: 5.84% Number 6 Sold 2,769,902 units Renault: Market share: 4.00% Number 11 Sold 2,044,106 units As we can see is that the competition is bigger than Daimler (worldwide numbers), in share and in position. Source: http://oica.net/wp-content/uploads/ranking-2009.pdf 3.2 Competitive power in terms of: positioning of the brands, strengths / weaknesses and unique selling proposition The brand Smart is connected to Mercedes and Maybach, two brands of luxury and comfort. But most off al reliable cars. With all the skills that Daimler has from buildings these cars they out league every other manufacturer.

The Smart is one of the smallest cars in the world, and reliable. You can park anywhere. You can use it as your daily car, because it has all the comfort it needs. The Smart is fuel efficient, and with the upcoming Electric Drive it will be even more fuel efficient and it will help the customer to help the environment. This unique car is more than just a small car, it’s trendy. You can even tailor made your car, what this means is you can tune your Smart car by the famous tuners Brabus. What the competition is doing now is showing that their car is bigger. They have cars with four seats. They are showing that the customer can do the daily business like doing groceries or shop for clothing everything fits in the small car. The weakness in these kinds of cars is the quality of the car. A Smart is a high quality small Benz, and the other cars are cheaper cars.

3.3 Definition of how they differ in promotion policy and communication tools What Smart isn’t doing at all, is making TV commercials, while their competition is active in promoting their cars via commercials and advertisements. Smart is falling behind in these segments of communicating to their customers. 3.4 Description of ethical issues need to be addressed in this market There are hundreds of ethical issues. The issues we think is the biggest is safety versus cost. There is the technology to make cars much safer, but if it makes a car too expensive then effect of it is that no one will buy it. So the manufactures are building cheaper and more dangerous cars, instead of expensive safe ones. Especially in the small car market, this market is more and more focusing on are cars that are affordable for everyone. This will affect the industry. Another issue is the companies now have started outsourcing most of their manufacturing, and depend largely on 3rd party suppliers, whereas they only do the assembling.

For example, the gas pedal issue with Toyota, has tarnished the High-quality producer image of Toyota just because it was outsourcing the manufacturing of the gas pedals to CTS of Elkhardt, Indiana. 3.5 Description of corporate social responsibility that are evident in this market A company like Smart is a company that can provide jobs for everyday people manufacturing, distributing, and servicing the products. That is something that Smart needs to think of as a social responsible company. In a 2006 Global Corporate Social Responsibility (CSR) study (www.ameinfo.com), shows that nearly nine out of ten customers indicated that they were more likely to purchase a product or service from a corporation with responsible business practices while eight of ten indicated that they would refrain from purchasing a product or service if the corporation failed to follow environmentally friendly or ethical business practices.

4. Customer analysis

4.1Target groups and their behaviour According to several interviews with Smart dealers – The first target group is affluent people. These people are wealthy enough two buy two cars. The car is bought the most by men as a second car, for the main reason to give it to their children or their wife. They see the Smart more as a gadget than as a normal vehicle. They like to be exclusive as well. – The second target group is companies. First of all the Smart car is used by companies as a loan car. The users of the loan car have a job where they have to travel a lot for. For instance people who have to visit the clients of the company. They want environmental cars, which can also park at a lot of places. But most important they want a unique car. They want this because than they stand out and use the car to promote their company as well. Second of all companies are likely to use the Smart car as a delivery car, for instance pizza restaurants.They are not likely to spend a lot on the car.They prefer an environmental vehicle.They like to use the company car for promotions. – The third target group is city people. These people work and/or live in big cities. They are not likely to own more than one car. They deal with a parking problem. And they are likely to be modern

4.2 Purchasing-decision processes The purchasing-decision process exists from five different stages. Customers can either go through them quickly orslowly, depending on the type of customer, need and product. 1.Need recognition 2.Information search 3.Evaluation of alternatives – Purchase intention – Attitudes of others – Unexpected situational factors  4.Purchase decision 5.Postpurchase behaviour Stage 1: Need recognition. In this stage the customer recognizes a need or a problem. This need or problem can be activated by internal stimuli; the need gets to a level where it becomes a drive. The need gets activated from inside the person. These stimuli can’t be influenced a lot. A need or problem can also get activated by external stimuli. The need gets stimulated by an outside factor, by the use of commercials or the use of the product from other persons around the customer, But also by sense of smell. These can be influenced.

And here is where the research is done. What kind of problem arises and why? What activated the need? What led the customer to buy a certain product? By getting this information it is possible to find out what kind of stimuli is the main cause of activating a particular need. Stage 2: Information search. This stage can be skipped by the customer if the drive behind the need is strong and there is a product nearby. If not then research will be done by the customer. He can either enter heightened attention, this means that the customer will pay more attention to advertisements, products used by others around and conversations. Or the customer will go into active information research. He will look for reading material, reviews and get information on other ways. The amount of effort of the customer punt into the research depends on the strength of the drive, the knowledge of the product before research, the value of extra information and the satisfaction of obtaining more information. Step 3: Evaluation of alternatives. At this stage the customer has made a couple of final brand choices.

Here they will figure out what the best choice will be. They do this by several processes. – Benefits Aside from satisfying needs or solving problems customers may look for other benefits the product could bring along. The set of product attributes of a particular product will define the extra benefits of the product. – Degrees of importance The customer will value each attribute of the product to see if they are relevant. And here salient attributes will occur, these are attributes that come to mind when a customer thinks of the special features from a product. – Brand beliefs Here the brand image is of importance. The customer will compare the product attributes to what they think of the brand, where the customer places the brand. This is based on experiences to the effects of selective perception, distortion and retention.

– Utility function Here the consumer decides which attribute will make the satisfaction of the product the biggest. Combining the levels of the attributes with the highest utility levels will of the customer will form the best brand choice. Consumers can either buy a product after a long process of evaluating. Or consumers can buy a product on impulse without evaluating a lot. Stage 4: Purchase decision. Here the consumer actually buys a product. Two other factors can influence the purchase still. Attitudes of others If other people around the customer do not like the brand the customer has chosen this could influence the customer and stop them from buying the product. This is depended on how much the customer cares about the other’s opinion.  Unexpected situational factors. When the customer has based his purchase on expectations and these expectations will turn out different it will influence the customer and it could stop them from buying the product.

Stage 5: Postpurchase behavior. If the product turns out to not follow up to the expectations of the customer, mostly created by advertisements, the customer will take action. The greater the difference between expectations and performance the greater the disappointment will be. 4.3 Cultural differences affecting buying behaviour Different cultures have different values and different attitudes towards products, services and brands. The buying behaviour will get the most affected by different cultures because of differences in habits, for instance in type of food and clothing. 5. Brand analysis

Smart came out as an answer to a need for a small city car. The name Smart is derived from Swatch Mercedes Art. The idea was to have an innovative design like swatch and the durability and quality of a Mercedes. A Smart is functional, stylish and innovative. Smart classifies itself as a luxury small car. A survey conducted through www.surveymonkey.com amongst 155 people shows that most people know about smart but generally have a wrong idea about the car. This survey was a BETA version. An updated version will show a better understanding of the target group’s feeling towards Smart. It will be less leading and leave more room for personal opinion. It will have a better introduction towards the subject and more understanding of the purpose behind the questions. The questions will be designed to get a better understanding of the target audience without leading them into any prejudice they might have towards Smart.       72.7% sees Smart as a city car. This is good because it was intentionally build to be just that. Most people know Smart is a part of Mercedes. 56.4% Over 89% does not see Smart as a luxury car. 79% does not see smart as a safe car. 50% could see themselves doing their daily business in a Smart. A vast majority thinks Smart is for young people only.