History Of The Fiat Strategic On The Market Marketing Essay

History Of The Fiat Strategic On The Market Marketing Essay The intention of this marketing strategy proposal is to examine FIATs current and historical marketing strategies and apply academic models and principles to make recommendations for their future marketing strategy. We will examine what the Agnelli family and its shareholders want to achieve for the company, which direction they are prepared to take the company to achieve their goals, and what techniques they use to evaluate their success. It is important to refer to FIATs long history, to understand some of FIATs marketing strategy options available today, and appreciates that even in this modern constantly changing environment, FIAT understands that it cannot completely lose sight of its underlying principles. History The FIAT brand was started by Gianni Agnelli in 1899 under the name Società   Anonima Fabbrica Italiana Automobili Torino (Turin). In the 1920s, utilising the same methods as those employed by Ford, FIAT began mass producing its first four seat automobile, the 509. Post World War II, Italys economy was booming and much of this can be attributed to the automobile industry. FIATs cars and farm machinery production grew rapidly due to the new production facilities that FIAT set up worldwide. In 1967 FIAT released the 124 model, a model that went on to win FIAT its first title of Car of the year  [1]  . FIATs success continued into the mid 1970s when the world experienced the oil crises which began when the Middle East declared an embargo on the U.S. During the 80s and 90s when it was experiencing heavy competition, FIAT promoted itself-lf as an innovative brand proposing avant-garde technological solutions at affordable prices.  [2]  and turned its focus to producing vehicles i n developing markets. Post Millennia Fiat was falling behind with the times and invested into changing its core structure, examining its corporate culture and building a relationship with the customer through quality and design innovations and to symbolise this new start, FIAT changed its traditional round badge to a square more formal badge. Chapter II 2.1. The FIAT BRAND FIAT has changed and developed as a car manufacturer through more than a century of existence. The company has had seven logos, symbolising the different development stages, time, age and current position. FIAT has been selected nine times directly and three times through its subsidiaries as the overall winner of the European Car of the Year award. No other company has received this premier automotive award more times than FIAT. The FIAT brand today has the power to evoke all the stages that have made the history of FIAT and its cars: being close to people, their needs and desires, with concrete answers that are flexible and customised.  [3]   2.2. Why did FIAT need the new start? Once the primero name in the Italian automobile market, due to increasing competition from international manufacturers such as the Japanese, Fiat had been unable to hold on to the number one spot. Historically imported cars were prohibitively expensive as high taxes were levied at customs so most people bought domestic cars, which contributed to the success that Fiat enjoyed for decades. Today these tariffs have been removed and Fiat is losing out to the Asian car producers who have the technological advantage with processing and production.  [4]   FIAT has been struggling and losing business over the past 10 years. A failed collaboration with General Motors (GM) only made this position worse.  [5]   FIAT has concentrated in designing small cars, rather than producing a gamut of models like its peers. The lack of segregation of Fiat model range and the placement of the brand means that its almost unidentifiable in the market. Fiat is predominantly reliant on the home market and concentrates its efforts there. Fiat cars are sold at competitive prices, but it is these low prices that are potentially having a detrimental effect on sales. FIAT cars are considered by many as being of an inferior quality which might very well be the physiological consequence of FIAT targeting a lower price. 2.3. Automotive Industry The automotive industry is one of the largest industries in the world. Although the traditional markets have reached saturation point for the conventional combustion engine (excluding vehicle replacement), emerging markets such as China and India are driving new demand. 2.4. Internal and External Analysis 2.4.1. S.W.O.T. Analysis The Internal analysis of strengths and weaknesses focuses on internal factors that give an organisation certain advantages or disadvantages in the market. 2.4.1.1. Strengths Fiat has a strong historical brand name. Fiat is very good at producing small cars such as the Fiat 500. Fiat has a strong presence of Plants overseas. The senior management of Fiat are open-minded to new technologies and are very good at reviewing different ways to organise the organisation. Fiat has a strong senior management team. 2.4.1.2. Weaknesses Poor economies of scale. Fiat tries to put into operation economies of scale, even though it does not the financial power to sustain them. Fiat is rarely a pioneer in introducing new models for the target market. Fiat has a weak marketing network. Their marketing department does not understand market trends and customers expectations. Meaning that Fiat tries to sell something which is not in line with what the customers wants. Poor product quality. Focus on small car segment which has lower margins. The External analysis of opportunities and threats focuses on external factors that exist in the environment. Both of them exist separately of the firm. 2.4.1.3. Opportunities Emerging markets such as the Chinese market or the Indian market. The Chinese automotive market is one of the most rapidly growing in the world. Fiat wishes to focus on expanding into third world countries, markets believing that they are the only markets where firms can expect growth. With less stringent safety requirements, and people happy to trade off non-essential features for a cheaper car, Fiat does not need to invest in development of new models and features. For example, most lack air-conditioning. In fact, Fiats specialisation in smaller cars puts it at a benefit in those markets. A general trend of reintroducing classic models, or models inspired by classic models to try and take advantage of the prestige on the cachet and cool that they generated the first time around. For example, the Beatle by VW and the Mini by BMW. The technology of fuel cells, and hybrid cars presents new opportunities for the industry, and the environment. Government scrappage schemes that encourage people to purchase new cars with the incentive that their old vehicle will be scrapped in exchange for a generous minimum payment, even when this far outweighs the value of the car. 2.4.1.4. Threats The recent macroeconomic downturn has also affected the demand for automotive products worldwide. Manufacturers have had to resort to widespread sales tactics to stimulate demand. Most automobile manufacturing companies around the world face innovation rivalry from Japanese manufacturers, from high technology, through just-in-time production to extensive warranties. Raw material costs are increasing. In the last decade, North American, Japanese and European markets saw a slow progress in demand. Conversely, strong demand is present in emerging Eastern European and especially in Asian markets. Both developments may stimulate price competition between firms as we approach world over-capacity. Safety standard requirements are increasing which requires more research and development, more testing and other costs associated with compliance with external bodies. 2.4.2. P.E.S.T. ANALYSIS FIAT GROUP This type of analysis is used to determine the external driving factors in the automobile industry which can affect the performance of FIAT and the automobile industry altogether. These encompass political, economical, social and technological factors. 2.4.2.1. Political Factors 2008-2012 According to the Kyoto protocol, all the participating countries including the UK have to decrease greenhouse gas emissions by an average of five per cent over the five-year period. Nearly 200 countries have deposited their ratification paperwork. The most notable country that has not ratified the protocol is the United States of America The recent expansion of the EU between 2004 and 2007 should be taken into consideration, which in May grew from 15 to 27 States, including the following countries; Poland, Slovakia, Malta, Estonia, Cyprus, Lithuania, Hungary, Czech Republic, Slovenia, Latvia, Romania and Bulgaria. 2.4.2.2. Economic Factors The Chinese automobile market is growing rapidly. In the past decade it has gone from an also ran to the largest producer and market in the world. Recent instabilities in the price of oil have affected the price at the pump. The price swings have been so great that fuel retailers have been unable to smooth out the price using the recognised method of buying exchange traded futures contracts or over-the-counter forward contracts. The general move to hybrid and all electric vehicles is being assisted by penalising conventional combustion engine vehicles by offering discounts on more environmentally friendly models and governments introducing progressive taxes based on carbon dioxide omissions. 2.4.2.3. Social Factors Most world conflicts relate to oil production/transportation (e.g pipelines) or at least involve a country that has a significant oil supply/infrastructure, which adds to the price volatility. The increasing importance of environmental factors and the effect this has on consumers spending should not be ignored. People are gradually becoming less interested in owning a high performance, petrol guzzling car, and would rather drive a more efficient, less polluting green vehicle. This social consciousness of population extends to people who use public transportation, which is well supported in Europe. 2.4.2.4. Technological Factors The demand for oil will outstrip global oil (ASPO, Association for Study of the Peak Oil Land Gas, 2005). Consequently, automobile producers are researching into alternative fuels. For instance, Iceland hopes to be self-contained in energy in another 40 years by using hydrogen fuel cells. 2.4.3 PORTER GENERIC STRATIGIES Porter summarised that there are three main strategies for a successful business model. Cost leadership, differentiation and market segmentation. Companies that pursued moderate market share often suffered the hole in the middle problem, giving them the lowest profit. Fiat Group utilises all three of these strategies, cost leadership through its relatively low cost small cars, differentiation through commercial and agricultural vehicles, aviation, financial services and publishing, and niche markets through its acquisition of Ferrari and Maserati. So one might instantly consider that by covering all three strategies, it runs the risk of spreading itself too thinly and suffering the fate of low profitability. However, Fiat has been careful keeping its different activities separate, allowing each business to focus on its core strategy, so that each one can achieve optimum success. These successful enterprises are then combined at the group level for the purpose of differentiation to make the group more resistant to market shocks. 2.4.3. FIAT FIVE FORCES 2.4.3.1. Competitive rivalry within the industry There is always intense competition between companies in the automobile industry that focus both on the international and national markets. Fiat has pursued advancing itself compared to its competitors through product differentiation, improving quality and implementing producer process innovations. For example, Fiat began to look seriously at outsourcing more contracts and cutting component costs in the 1990s. FIGURE 1: Porters Five Forces for FIAT (Cammarata et al., 2006) In a continuously changing market, there is always a threat of rivalry from overseas. Intense competition from Japan and Korea has rewarded them with piece of Fiats domestic market share. 2.4.3.2. Threat of the new entrants Fiat strategic aim is to expand its portfolio through acquisition. Firms can choose to merge in order to remove barriers to entry in new markets. Nearly all the main automobile companies, for instance, Toyota, Honda, Renault and Nissan acquired separate divisions or merged into a group such as Volkswagen Group and many find themselves in a very complicated cross-ownership network. In addition, Fiat has to be able to manage brand identity to keep away the threat of new entrants to its markets. 2.4.3.3. Threat of the substitute products Although in the strictest sense there is not an equivalent substitute for the car, there are many alternative brands. Fiat is focused on cheaper models, good design and quality. 2.4.3.4. Bargaining Power of Customers Selecting a low price point compared to its competitors reduces the ability that customers have when bargaining over the price. With its range of models and levels of equipment it can find a suitable vehicle to satisfy the customers wallet. 2.4.3.5. Bargaining Power of Suppliers Fiat produces many components in house, or from within the Fiat Group. Fiat has a strong relationship with its outsourced partners. 2.4.4. PRICING STRATEGIES 2.4.4.1. Premium Pricing . The practice of setting a high price for desirable and/or unique products. Fiat Group utilises this strategy for its premium marques such as Ferrari and Maserati as they have a substantial competitive advantage due to their prestige and brand loyalty. 2.4.4.2. Penetration Pricing Here the price is set low initially to encourage take up, and then increased once the popularity rises. The initial low offering may result in losses which will be covered once the price is raised. Fiats pricing strategy is always to be low cost, so there is less scope to reduce prices at launch. Some naysayers might say that its Fiat motor car brand is lower quality than other mainstream produces, so this strategy might not be available to Fiat. 2.4.4.3. Economy Pricing Costs of marketing and manufacture are kept at a minimum to create a product that is available to the masses. Fiat has always had the strategy of penetrating the market by setting consistently low prices, partly due to concentrating on producing small cars and partly due to avoiding competing on quality. Only recently has Fiat started investing more heavily in marketing. 2.4.4.4. Price Skimming Is where a new product is released at a high price point and typically targeted at those that are early adopter and are price insensitive, or need the product at any cost. Having high prices, and more importantly high margins attracts competitors, which drives the price down. In a mature market such as the car market, price skimming is not a viable option except for possibly in the car accessories market e.g. satellite navigation when it was first introduced. Along with the four main pricing strategies, there are other approaches to pricing 2.4.4.5. Psychological Pricing This approach targets the consumers emotional responses, rather than their rational response. One common trick is to select a price point such as  £19,950,  £19,990, or even  £19,999 rather than  £20,000. 2.4.4.6. Product Line Pricing This is where the product is priced based on the benefit relative to other products in its range. Fiat sells its cars based on size and performance which helps the buyer understand the price relative to a, for example, a smaller model with a lower price and a high performance variant with a higher price. 2.4.4.7. Optional Product Pricing Here a basic product is advertised and sold. Optional extras will then be adding to the overall price of the vehicle. Fiat, as well as all car manufacturers create a fully safety compliant vehicle with a standard engine to get people interested in their car. Once the buyer is interested then it is up to the retailer to promote the advantages over performance, styling and functionality of the optional extras 2.4.4.7. Captive Product Pricing Manufacturers will charge a low price initial and recoup its margin through complementary purchases or maintenance. A recent trend in the motor industry is to sell the vehicle at low price but recoup extra money through after service and high costs of parts and labour. To counter this other companies have introduced up to a 7 year warranty. 2.4.4.8. Geographical Pricing Geographical pricing is where there are variations in price around the world. Variations may occur due to shipping costs, local competition, laws and regulations. Most of Fiats vehicles sell to mainland Europe and so have the steering wheel on the left. However in the UK and elsewhere in the world the steering wheel is on the right. In tropical countries cars do not need to be fitted with a heating system, likewise in cold climates air condition need not be fitted. Car manufacturers usually create a basic model to be sold in developing countries 2.4.4.9. Value Pricing In the current recession, people have less disposable income and are more likely to put off large purchases such as a vehicle, hence Fiat has to reduce margins further to present extra value to the customer. 2.4.5. MARKET SEGMENTATION Market segmentation is the process of identifying subsets of a market made up of individuals demanding similar products based on attributes such as price, function or style. A true market segment is distinct, homogenous, reacts to stimuli and behaves in the same way to stimulus. Market Segmentation, includes but is not limited to the following bases Geographical continents, countries, town, region Demographical Age, Gender, Social Class, Family Type Psychographic Cultural, Activities, Interests, Opinions, lifestyle, religion Geodemographic a combination of Geographical and Demographical Behavioural usage rate or loyalty Fiat selects models and equips vehicles based on the geographical segment of the market that they are to be sold. For example, in countries with unsealed roads it sells 4 wheel drive models, rather than sports models. In hot countries air conditioning is standard and heating is optional, likewise in cold countries the opposite is true. In South America, cars are modified to run on compressed natural gas, and ethanol fuel is used as an alternative to petrol or diesel Demographically, Fiat aims smaller, economical models at the young, performance cars at 25-45 year old men, estate/hatchback cars at young families and large saloons at senior businessmen and retirees treating themselves to a quality car that will last. Psycho graphically, electric/hybrid models aimed at the environmentally conscious. The redesigned Fiat 500 or other stylish models at trendy young people, who consider themselves a bit different Behaviourally, Appeals to those who have owned a Fiat before. The Fiat 500 is also targeted at nostalgic middle aged people who probably had one, or at least wanted on the first time around, as a second car. 2.4.5.1. Fiats Four Ps Jerome McCarthy proposed the 4 Ps for describing the marketing mix Product Various models, sizes, configurations, equipments standards Price Fiats cost leadership means that its customers pay a low price Place Fiat has a worldwide presence for direct sales and distribution. Promotion How effectively Fiat can market its products through direct and indirect advertising, public relations, word of mouth and point of sale. The original four Ps can be extended by a further three Ps for marketing services People: includes employees, management and consumers Process: Procedure, mechanisms and flow of activities Physical Evidence: The environment in which the service is delivered. Both tangible goods that help to communicate and perform the service, and the intangible experience of existing and potential customers 2.4.6. Bowmans clock An expansion of Porters three generic strategies, Bowman compares price against value. The strategies form around the central spoke hence the comparison to a clock. ValuePrice Low Price Medium Price High Price High added value Hybrid. By carefully off-shoring, Fiat can reduce production costs whilst still delivering the same product Differentiation. Investing in exciting new models to build its customer base and brand loyalty Focus Differentiation. Hybrid cars and Electric cars currently have a high price, to recoup the costs involved to bring this high value attribute to the market Mediocre added value Cost Leader. Through low prices, Fiat attempts to be a cost leader Raise Price. High Margins for its premium car brands. There is a possibility of losing sales to competition, but it is unlikely to be price related Low Added Value Fiat retails budget, low specification variants to developing nations Increased Price and Low Value. With the amount of competition in the car industry, this option is not really viable. Selling such a big ticket item, people weigh up the cost vs benefits 2.4.7. Boston Matrix Created by the Boston Consulting group, this chart is used to plot a companies business units to allow a company to make decisions on strategic marketing and brand marketing. Detailed in the chart are 4 specific business units of the Fiat brand. Its important to note that even with low market share and low growth, satisfactory profits are still possible. High market share low High Star question mark / problem child growth of market cash cow dog Low European Car Market Chinese car market South American market Financial services Chapter III 3.1. Direction of Growth 3.1.1. Ansoffs Matrix 3.1.1.1. Market Penetration This theory advocates the strategy that the company markets its existing products to its existing customers. By promoting the product and repositioning the brand the company can gain competitors customers, increase sales to existing customers and gain new customers that are considered part of the existing market but have not yet invested. 3.1.1.2. Market Development This theory advocates the strategy that the company markets its existing products to new customers. The product remains the same although it may be repackaged physically and metaphorically for a new audience. The product may be exported to reach a new international market. FIGURE 2: ANSOFFS MATRIX (Source:http://tutor2u.net/business/presentations/strategy/ansoff/default.html slide3) 3.1.1.3. Product Development This theory advocates the strategy that the company markets new products to its existing customers. The company may develop innovative replacement products, complementary products to existing products, or sell entirely disconnected products to its existing customer base. For FIAT this means updated existing models or replacing them to be marketed to existing customers, or offering complementary products such as car accessories or finance. However, Fiat divested its insurance sector in 2003. Fiat also offers aspirational brands to its existing customers in the form of Maserati and Ferrari. 3.1.1.4. Diversification This theory prescribes the strategy that the company markets new products to new customers. The company diversifies into new markets where it previously had no presence. This diversification takes two forms, related diversification, where the diversification remains in the industry or market where the company is established, or unrelated diversification, where the company enters a new industry in which they have no market experience Fiat diversified itself in the related personal transportation market through its Piaggio motorcycle brand, which in 1999 it sold to Morgan Grenfell Private Equity, through the related, components, metallurgical products, production systems, commercial vehicles, buses and services vehicles, agricultural and construction equipment. It also diversifies itself into less related and unrelated industries through aviation, IT, finance, leisure, publishing, communication and even sponsorship of the Jamaican bobsledding team!  [6]   Chapter IV 4. The Method of Development 4.1. Merger or Acquisition of FIAT Apart from in its home country where FIAT is well received, it cannot rid itself of the perceived and genuine quality issues internationally. To combat this FIAT should consider recommencing its attempted allegiance with General Motors or seek a well known domestic manufacturer with a track record of delivering quality. If neither of these options are viable, FIAT could look to other strategic alliances perhaps with the Japanese, or with a German Manufacturer, highlighting the qualities that these partnerships bring when promoting their vehicles in the UK. Only by pursuing a joint venture or by associating itself with a recognised service provider will FIAT be able to be a contender in Europe. This approach will invariably be a costly one, but if the sincere objective is to increase the market share of the brand, FIAT has to follow this determined approach. Along with the failed allegiance with General Motors, over its history FIAT has had many associations (and attempted associations) with various European producers which have all ultimately failed. The reason for failure is down to two imperative reasons. Firstly any substantial agreement with an external entity would require a considerable shake-up of the production capabilities which would result in a substantial reorganisation for the employees of both parties. Secondly the outcome would change the dynamics of the Agnelli family involvement and control of the company, vastly reducing its impact in the management and running of the company. If FIAT had reached a satisfactory resolution with General Motors the combined business would have been able to win market share from its competitors by leveraging off of the synergies created by the two entities in engine, and component design. The union between the two would have allowed for the Agnelli family to control the implementation of the agreement in the Europe market.  [7]   This united company would surely be a definite force in the emerging markets of Russia, Brazil and other South American countries, particularly with its existing exposure unsurpassed by its Chapter V 5. Conclusion The analysis shows that Fiat is not a well represented and truly desirable universal brand. Its goal, and therefore its marketing effort must be to change consumers attitude and perception of the brand and promote Fiat as being superior to its competitive peers such as Vauxhall and Peugeot. By identifying rivals in the industry such as these, its possible to access relative strengths and weaknesses, similarities and disparities so as to gain an insight into the changes that must occur for the company to be successful in achieving the companys target. Similarities Differences FIAT vs. Vauxhall -Both are targeted as familiar or traditional (associated with practicality over style.) Impersonal sales -Similar notion about prices (but FIAT is considered cheaper) Vauxhall target customers are slightly older FIAT is poor quality while Vauxhall is medium quality Vauxhall is recognised for the full range of car types, FIAT is recognised for its small vehicles FIAT is less popular Fiat vs. Peugeot -Similar notion about prices -Equally reliable Peugeot is considered good quality (well built and comfortable to drive) while FIAT is poor quality. Peugeot is well designed with more has better performance Due to Fiats competitive price strategy, and its position of being a cost leader, it is considered by many as offering an unreliable, low quality alternative to the other majors. However, it is not the actual quality of FIAT cars that is driving this belief, but the customers perception of quality based on their competitive price point. Purchasing a motor vehicle is an expensive investment, and an investment that will reduce in value over time. Buyers use a combination of rational values and emotional elements when making their selection decision. Rational values involves all the costs associated with the vehicle and affordability and the emotional elements involve the selection process of choosing a vehicle or brand that you identify with and which one you would be most happy living with for a number of years. One must consider the Points of Parity and Points of difference when marketing a brand. This table is related to the points of parity and difference of each brand. Points of parity Points of difference FIAT   Traditional, rudeness Leader in cost Vauxhall   Familiar, comfortable, rust Many models (you can choose for different purposes) Peugeot   Comfortable, good design   Sportive design People need to identify with a car, feel that the car represents them. Fiat does not employ a strong enough emotional message to distinguishing it from its competitors, and offset its negative perception and creating desire am