the automobile industry kristen barnett, alexa davis, skyler dale, gabriel polsky april 28, 2015

The Automobile IndustryKristen Barnett, Alexa Davis, Skyler Dale, Gabriel PolskyApril 28, 2015

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II IIII V VI VII

Auto companies’ strategies utilized in commercials

A big picture look at the automobile industry

Main takeaways from the raw data for automobiles

Deep-dives on social media and the effects of recalls

A deeper analysis of the commercials

Wrapping it up

Competitive Pressures

Advertising Strategies

Industry Overview

Raw Data Analysis

Case StudiesAdvertisement Analysis

Takeaways

Toyota and General Motors lead the automobile market

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I II III IV V VI VIICompetitive Pressures


Industry Overview

Raw Data Analysis


Takeaways

Why We Chose This Topic

‣ Personal interest in the industry

‣ Unique perspective on how advertising can change a company’s brand image in response to crisis

‣ Previously discussed topic in class

Industry at a GlanceCar & Automobile Manufacturing in 2015

Revenue

Profit

Annual Growth 10-15Exports

Annual Growth 15-20Businesses

$107bn

$4.5bn

5.4%$57.3bn

2.5%203

Key External DriversThe automobile industry is sensitive to macroeconomic pressures

World price of crude oil As gas prices decrease, consumers will be less sensitive to fuel-efficient vehicles, which are often from International brands.

World price of steel Steel prices can be a major cost pressure, which can’t be passed onto customers. Prices are expected to decrease.

Yield on 10-Year Treasury note

The 10-Year Treasury note is tied to interest rates. As interest rates rise, demand for cars rise due to lower financing costs.

Auto industry is international so appreciation of USD lowers export rates and industry revenues. Trade-weighted index

Consumer Confidence Index

Spending behavior on large purchases, like automobiles, have a positive relationship with consumer confidence.

Demand from new car dealers

Greater demand at the retail level, which is represented by car dealers, generates greater demand at the manufacturing level.

Supply ChainThe automobile industry is heavily dependent on its suppliers

Buying industries

Selling Industries

Cost StructureAuto manufacturers are cutting costs to bounce back from bankruptcy

‣ Largest percentage of costs are inputs, including engines, transmissions, etc.

‣ Wages falling, but still large due to labor contracts and inflated salaries‣ Manufacturers that work with

UAW Union will struggle to compete with mass-market, lower priced cars

‣ Renewed profitability due to:‣ Lower labor expenses‣ Improved retail sales‣ Greater credit access‣ Increasing consumer confidence

International TradeNAFTA inflated trade statistics between US, Mexico and Canada

Exports ($57.3bn)Exports ($57.3bn) Imports ($159.8bn)

HIGH and INCREASING

High rate of exports to Canada due to NAFTA restrictions and location of manufacturing plants near Great Lakes

China’s growth as export market due to rising affluence and standard of living

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HIGH and INCREASING

High rate of imports from Canada and Mexico due to NAFTA restrictions1

2International automakers moving assembly plants to Mexico to lower labor costs

Products & Market SegmentationLuxury and sports cars only comprise 17% of the market

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Industry Overview

Raw Data Analysis


Takeaways

Barriers to EntryThe automotive industry has high and steady barriers to entry

Regulation & PolicyMEDIUM

CompetitionMEDIUM

ConcentrationMEDIUM

Technology ChangeHIGH

Life Cycle StageMATURE

Capital IntensityHIGH

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4

6

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3

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Barriers To Entry

Internal Basis of CompetitionCompetition in automotive industry is medium and increasing

Price Fuel EconomyStyling Reliability

‣ Each car class (compact, mid-size, etc.) has range of prices

‣ Similar vehicles, which are marketed to different customers will be priced differently

‣ Price varies according to personalization and higher add-ons

‣ Automakers redesign vehicle’s styling every five years

‣ Recently redesigned cars sell in higher volumes than other cars

‣ Redesigning a vehicle is not always a profitable venture if customers prefer the outgoing model

‣ Reliability concerns are lesser since domestic auto makers caught up to international auto makers, like Toyota and Honda

‣ Quality control procedures and manufacturing equipment have improved among domestic companies

‣ Consumers have shifted away from cars with low fuel economy (SUVs & trucks) to compact and mid-size cars

‣ Manufacturers offer environmentally friendly options, like hybrid-electric, electric & clean diesel engines

‣ Shift from naturally aspirated engines to forced-induction engines

Industry Market ShareThe automobile industry has an HHI of 1123

Automobile Industry Market LeadersGM and Toyota comprise greatest market share despite recent struggles

• Makes cars and trucks; brands include Buick, Cadillac, Chevrolet and GMC

• Concentrating efforts on energy-saving models, growth in china

• Split into General Motors & Motors Liquidation after mid-2009 bankruptcy

• Ad strategy focused on engaging with “passion points” and featuring real customers

• 2015 YTD unit sales = 684,039; annual change = -2.4% (March 2015 vs. March 2014)

• Headquartered in Japan with 50 manufacturing facilities worldwide

• Slowly attempting to repair sales and brand image after 8 million vehicle recall in 2010

• Competitive advantage from being first-mover in alternatively fueled vehicle research

• Ad strategy focused on targeting dads and sports fans through Facebook videos

• 2015 YTD unit sales = 575,620; annual change = 4.9% (March 2015 vs. March 2014)

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Industry Overview

Raw Data Analysis


Takeaways

Advertising strategiesPickup trucks

1

Dominant strategies● Complementary, not in prestige but in “tough

guy, outdoorsy” sense● Use of animals and nature, more than most

other types of ads, car driving off road● Few product attributes discussed ● Predominantly men in the ads● Music often highly involved

Key differences: GM versus Toyota

Overall no discernable difference in advertisements

Advertising strategiesSports cars

Dominant strategies● Signaling as information● Often feature long stretches of the camera

showing the car● Lots of displays of car driving, turning, drifting● Emphasize speed, boldness● Generally Male demographic ● Rarely involve a story● Sex appeal


Overall no discernable difference in advertisements

Advertising strategiesSedans

Dominant strategies

● Persuasive● Use humor and stories, featured families● Rarely comparative● Little focus on attributes


GM• More emphasis on family unit• Rarely used attributes

Toyota• More celebrity and complementary

advertising• Messaging is more fun

Advertising strategiesLuxury

Dominant strategies

● Complementary ads - Prestige● Usually not focused on attributes● Emphasis on music


GM (Cadillac)• Involve actual people• More celebrity advertising• Focus on story-telling

Toyota (Lexus)• Some comparative advertising• Rarely show people• Sometimes shows attributes

Advertising strategiesSUVs/CUVs

Dominant strategies

● 2 divergent strategies:o Focus on durability o Capabilities for family and space

● Humorous, light-hearted approach


GM (Chevrolet Equinox)• Use of humor

Toyota (4Runner)• Use of humor to tell the story• Emphasis on outdoors (targeting)• Focuses on durability and speed of car

Advertising strategiesCompact/Sub-Compact

Dominant strategies

• Focus on making car trendy• Raising awareness segment• Emphasizing on unique features such

as size, environmental benefits• City, affordability


GM (Chevrolet Cruze)• Focus on the changing world, culture

Toyota (Corolla)• Focus on innovative features (wifi)

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Industry Overview

Raw Data Analysis


Takeaways

Sex Appeal in Segment AdvertisingSex appeal is only used in the sports car segment

Family Centric Ads in Segment AdvertisingFamily-centric ads are most common with SUVs and Sedans

Complementary in Segment AdvertisingComplementary ads are common, but vary among segments

Speed Attribute in Segment AdvertisingThe speed attribute is most emphasized in the sports car segment

Off-Road Driving in Segment AdvertisingShowing off-road capabilities is most common with pickup trucks

Stories in Segment AdvertisingStories are most used in the Sedan segment

Humor in Segment AdvertisingHumor is used in family-branded segments

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Industry Overview

Raw Data Analysis


Takeaways

Top Shows for Market LeadersGM and Toyota advertise on complementary shows

Number of Ads by ManufacturerNumber of ads generally related to market share

Ad Expenditures by ManufacturerTotal ad expenditures are directly related to amount of ads

Average Length of Ad by ManufacturerLength of ads are very standard

Cost per Ad by ManufacturerCost per ad is more standardized than gross expenditures

Network Breakdown by ManufacturerGM and Toyota have very similar network breakdowns

Network Breakdown by ManufacturerFord and Fiat have very similar network breakdowns

Network Breakdown by ManufacturerHyundai and Honda have very similar network breakdowns

Monthly Breakdown by ManufacturerToyota takes a pulsating approach to advertising

Monthly Breakdown by ManufacturerFord and Fiat have similar monthly advertising breakdowns

Monthly Breakdown by ManufacturerHyundai and Honda have similar monthly advertising breakdowns

Number of Ads by Primetime TimeslotAll manufacturers have similar ad-timing distributions

Advertising to Sales Ratios by ManufacturerAdvertising to sales ratios vary throughout industry

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Industry Overview

Raw Data Analysis


Takeaways

The recall effect: what actually happensEffect of recalls on reputation, brand loyalty, etc.

Recalls are essentially ubiquitous among manufacturers62M the number of cars recalled in

2014 alone1

1. Source: NYTimes.com2. According to Souiden, et al. in “Product Recall Crisis Management”

Problem identified

DENY

INVOLUNTARY RECALL

VOLUNTARY RECALL

SUPER-EFFORT

LIFETIME OF A RECALL2

FIRM REACTION EFFECTS OF REACTION

Strong negative effect on manufacturer’s image

No substantial effect

Significant positive effect of voluntary recall

Very large positive effect when actively improves

The recall effect cont.Reputational considerations

1. Source: “Liability of Good Reputation” by Organizational Science

Good reputation can be disadvantage during a recall as expectations for quality were higher, therefore the brand will have a significant, relatively lower position in a consumer’s mind following a recall

Expectancy-violation effect

2 Considerations Mitigating factorsGood reputation as a DISADVANTAGE because of the expectancy-violation effect• If firm is originally perceived to be of lower quality,

then expectations will not dip as low after recall

Good reputation as an ADVANTAGE due to effects of reputational inertia on ordering• Firm is able to continue with strong sales due to

durability of brand

FINDING: Reputation is an organizational liability and a firm with a better reputation will suffer a greater penalty as a result of recalls

SUBSTITUTABILITYIf there are few substitutes with equivalent reputation, the effects of a negative market reaction are lessened• Perceived risk of going to lesser quality brand and

finding alternatives is higher than chance of subsequent recall with higher quality brand

GENERALISM/SPECIALISMIf there is a focused product identity stemming from a specialization, quality is still perceived to be high• Larger, more mainstream firms will suffer more

Case Study – Social Media AnalysisToyota is more active on twitter though GM has had an account for longer

Brand

Followers 406K 486K

Tweets 11.4K 14.5K

Case Study – Social Media AnalysisToyota is more engaging on social media

Case Study – Social Media AnalysisToyota is more adaptive and creative on Twitter

● Toyota includes more videos and links

● GM included only pictures● Toyota had several instances of

humor, while GM had none● Toyota’s “women in the world

campaign” resulted in many likes and retweets

● GM’s posts were more disjointed● Overall, GM is a more traditional

brand, with less of a presence

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Industry Overview

Raw Data Analysis


Takeaways

Manufacturing Sales GrowthToyota is the only manufacturer to have seen growth in 2014

Family Centric Ads in Segment AdvertisingFamily-centric ads are most common with SUVs and Sedans

Takeaways

We recommend car manufacturers adopt Toyota’s targeted approach to advertising by launching social media campaigns, which will promote customer engagement

Social-media focus

Mobile-friendly

Focus on product-specific attributes

Alternative-fuel and fuel-friendly

Younger demographics

QUESTIONS?

the automobile industry kristen barnett, alexa davis, skyler dale, gabriel polsky april 28, 2015

Documents

auto industry

industry revenues

class slide

consumer confidence

automobile market iv

bn high

industry unique perspective

lower labor costs