Tesla Case Study

1. Introduction
In light of the constant rises in petroleum prices, climate changes and an economy recovering from the effects of the recent economic downturn, consumers have started to reconsider the usage of electric cars (Global EV Outlook, 2013). Electric Vehicles [EV] have been around since the 1830s, yet it is only recently that countries have experienced an increase in their production thus redefining tomorrow’s automobile and transportation industry. This year, the global production of EV is predicted to rise by 67% (IHS, 2014). 1.1 Market Trends

According to the Green Car Guide (2014), top Battery Electric Vehicles (BEVs) models include the BMW I3, Renault Zoe, Nissan Leaf and the Tesla Model S. In 2012, 90% of the EVs were present in the US (38%), Asia (31%) and Europe (21%) (IEA, 2013; see figure 1 in appendix). Sales of BEVs are predicted to grow over the next decade, reaching a number of 3.8 million vehicles by 2020. This means that the EV market segment will experience a 40% compound annual growth rate in comparison to the 2% forecasted in the general automobile industry. For the time being, the US will remain the largest market for electric-powered cars. However Europe is in the midst of transformation; it is the second largest market for electric vehicles behind the United States.

France, Germany and the UK are predicted to remain the market leaders of BEVs in Europe due to the increase in the number of charging docks from 7,250 to over 3.1 million stations over the period of 2012-2019 (Frost & Sullivan, 2013). Despite the advances made and positive trend forecasts, the BEV market is experiencing numerous barriers which have caused a slower adaptation rate from consumers. Although France has consolidated its leading position in Europe, others like Germany and Norway have failed to reach similar success in terms of sales (despite owning developed EV industries). The industry’s most pressing challenges are the associated high costs, limited charging infrastructure and consumer perception regarding the EV industry (Austin, 2013).

Tesla’s long-term marketing strategy is to expand into the global market. To achieve their goal, the firm must create a brand awareness that will appeal to its current market and future mass-market customers. Therefore, it is important to fully develop existing markets (in this case Europe) first in order to provide a solid foundation for global expansion. The identified managerial issues address the following question: ‘How can Tesla increase sales revenues in the European market?’ In order to approach the above, Tesla needs to further investigate the following: How is the Tesla brand perceived by consumers?

What are the main characteristics of consumers (willingness to adapt, price sensitivity) in relation to Tesla? How accessible and available is the brand and its offered products? Is the current positioning strategy in Europe an issue for the brand? Should Tesla keep its current marketing strategy for the European market or alter it? 2. Tesla’s Business Model

Founded in 2003, Tesla Motors is one of the most innovative and progressive companies to emerge on the green technology market. Tesla is currently present in 37 countries worldwide with 31 stores situated in trendsetting cosmopolitan cities in prime locations (Tesla, 2014). The firm’s goal is to “produce a line of vehicles for every purse and purposes” (BusinessWeek, 2008). Tesla is depicted to be the ‘iPhone of the auto-industry’ and has undoubtedly adapted Apple’s business model (Mangram, 2011).

Like Apple, Tesla’s business model targeted early adopters. Positioning itself as a luxurious brand it now is gradually becoming more affordable to a wider range of customers to achieve its two main marketing goals (Mangram, 2011): Generate a drive in the sales for Tesla’s cars in order to expand into the mass market Capture emotionally involved individuals and create a long-term brand awareness and perception

Tesla’s image and positioning are vital for the business. According to Mangram, the name Tesla is perceived as a high-tech, reliable and environmental friendly brand (2011). Figure 2 in the appendix looks at a SWOT analysis for Tesla and how it affects the company.

2.1 Product & Pricing Analysis

Contrary to many sales models in the industry, Tesla sells and markets its cars directly to their customers through global networks, events and its stores. Tesla has three distinct models on the market each answering to different customer needs and wants:

Model
Characteristics
Roadster
Priced around $100,000 targeting higher-income consumers (first model) Modern car with a sporty appearance created to attract consumers in the luxury sport vehicle market Rival with Ferrari and Porsche

(Aden & Barray, 2008; Tesla, 2014)
Model S
Priced around $60,000
Competes in the luxury sedan market (Audi A6, Mercedes E-Class) (Sun, 2011)
BlueStar
Priced around $30,000 targeting middle-income/families
Crossover/SUV to be launched in 2015
(Sun, 2011)

Tesla is currently operating in a market with high growth levels yet possesses relatively low market shares. Based on the above and using the growth share matrix, Tesla is in the growth phase in its Product Life Cycle and has room for improvement and development (see figure 3 in appendix).

Additionally, it is vital to notice that Tesla listens to consumer concerns. The firm has planned to expand its supercharger stations across Europe by the end of 2014 (see figure 4 in appendix). This will ease customer concerns regarding the lack of charging stations and facilitate consumer intent to purchase Tesla products.

2.2 Consumer

Tesla’s products target forward-thinking customers that are environmentally conscious and economically driven. Nevertheless, due to the different model types, three main consumer segments can be identified: I. High-end sports car market: Sporty lifestyle with higher-income levels targeting a narrower market II. Luxury vehicle sedan market: Higher-income individuals interested in more spacious vehicles III. Mainstream vehicle consumer segment: Middle-income consumer segment interested in the basic

Although three target segments are identified it is important to understand that different customers might have the same need yet different perspective and receptivity levels. It is thus important to have a thorough knowledge of consumers’ behaviours and opinions for a brand like Tesla to succeed.

3. Consumer Behaviour Analysis
This section will focus on how the current target market of Tesla make decisions regarding the purchase of their automobile. In order to better understand the needs of our target customers a survey (see appendix; figures 5-14) was developed; the sample method used was convenience sampling. Due to the lack of resources and time this method was the most appropriate. The main drawback encountered was that the sample was unlikely to be fully representative of our target population, making it difficult to generalise our conclusions. This should be treated as a pilot study; a larger, more effectively sampled study should be undertaken to obtain more representative results. For this study, it will be assumed that the generalisations are representative to an extent.

3.1 Consumer Attitudes and Perception towards the Electric Car Industry and Tesla One of the first few questions respondents encountered was where they lived. Specifically, it asked them if they lived in a rural area, small/large town or a large/metropolitan city. This was important in terms of understanding our sample and whether any correlation could be made between this question and the remaining. Consumer needs often vary according to various factors, which include geographical location. Someone who lives in a rural area may require a more robust vehicle whereas someone living in a city may require something more compact due to lack of space. Furthermore, emotional attributes may play a part in determining attitudes towards automobiles.

A consumer living in the city might want a flashy car that reflects his lifestyle whereas one in a rural area might take a more pragmatic view (e.g. point A to point B). The research next explored the respondents’ familiarity with electric vehicles. Figure 13 (see appendix) states that ~42% of respondents were “not at all familiar with electric cars” while ~51% were only “somewhat familiar”. Only ~6% were very familiar with electric cars. Comments from certain respondents derived from other questions indicate that some work or have previously worked in the automobile industry. Therefore there would be existing knowledge regarding electric cars. However, for most of the respondents, knowledge of electric cars and their existing applications/benefits remain vague. This has implications for Tesla as this lack of awareness about electric cars in general affects their product and brand awareness.

Consumers may not be comfortable about the idea of purchasing an electric car as they do not know exactly what it entails. Under the five-stage Buying Decision Process, the second stage (information search) may not even consider electric cars as the concept is not as well-known. Consumers would look to more traditional vehicles even if electric cars could offer a product that might better benefit them. Respondents were then asked whether they would consider purchasing a Tesla electric car (figure 9; see appendix). The top response (30% of respondents) was “no”, due to the fear of being stuck somewhere and not being able to recharge the vehicle.

This links with a similar response in that 20% would not consider purchasing an electric car due to the technical limitations (and therefore short lifetime) of the battery. On the other hand, ~28% would consider purchasing one as they identified the cost savings in fuel as a benefit. ~18% of respondents were also driven by being environmentally conscious and would consider purchasing an electric car. However, altogether more respondents leaned towards “no”. Select responses reinforce the managerial issues mentioned previously: “Existing infrastructure for charging not in place everywhere.”

“Batteries, batteries, batteries. Battery life isn’t good enough, not just for a single charge, but the need to replace them after a couple of years can be expensive. Battery tech needs a revolution for this to take off.”

Specifically, this relates to the lack of charging infrastructure available. This (along with battery technology) may be hindered by the current high costs and all of this impacts consumer perception. Various electric car attributes were also ranked by respondents in order of importance (1 being the most important; see figure 10 in appendix). Car performance was the top ranked attribute, followed by safety and a higher distance with one recharge. Consumer attitudes and decision-making towards automobile vehicles remain practical – it is vital that the core of the product serves its primary purpose; that of safely transporting them from point A to point B. This is a tricky issue for Tesla to navigate as a limited number of charging stations along with general battery life per recharge are issues that still need to be improved on.

If the product cannot communicate the core benefit effectively, it can have a huge impact on the brand. Interestingly, lower pollution levels were not an attribute that ranked high; it was third last. This attribute may target a niche market and certainly create positive connotations for consumers but at the end of the day it has to at least directly link to attributes that consumers can relate with more (e.g. cost savings from fuel). Finally, respondents were asked if and how they had heard of Tesla and their thoughts on current Tesla models starting at a price of $60,000. Figure 8 (see appendix) summarises the responses, where the two most common responses were either “no (had not heard of Tesla before)” or “word-of-mouth”.

This falls in line with Tesla’s unique marketing strategies of utilising little to no traditional marketing promotional activities, instead focusing on generating word-of-mouth in regards to their products and brand. Although most definitely not a failure, the fact that many of the respondents had not heard of Tesla before (as opposed to a brand like BMW) indicates that there is room for improvement. In terms of price, over 75% of respondents stated that the current starting price of $60,000 was too expensive (see figure 11 in appendix). However, figure 12 (see appendix) states that ~38% of respondents would heavily consider (75% weighting) the specific fuel cost savings that the Tesla Model S could provide when making a purchase decision. Price is certainly a major factor when it comes to the consumer attitudes and decision-making.

4. Recommendations and Implementation
Tesla’s current marketing strategy involves a clear segmentation of their target markets based on their current and upcoming car models (Roadster, Model S and BlueStar). With the goal to expand further within the European market (Burns, 2014) Tesla will be looking to capitalize on potential growing demand for electric vehicles, thereby increasing their sales revenues. Tesla as a company is still a fledgling compared to some of their competitors like Audi and BMW and they must ensure that they gain a solid foothold within Europe. The American start-up has come a long way, but it must now channel resources to appropriate marketing actions in order to pose a serious challenge.

As mentioned earlier, high costs, limited charging infrastructure and consumer perception regarding the EV industry are key issues that Tesla must address in order to ensure strong growth and achieve sales success within Europe. Specifically, Tesla should look at how the brand is perceived and whether they have strong brand/product awareness along with further insight into consumers’ attitudes towards electric cars. The following will look to recommend improvements that could be taken into account regarding Tesla’s marketing strategy (specifically 3 P’s of the 4) and how such actions could be implemented.

4.1 Product

For the time being, Tesla has a limited product portfolio (two models currently with the BlueStar scheduled to be launched in 2015). This provides them with little flexibility to operate around which means that STP has to be effective. Although both the Roadster and the Model S have created two clear segments, more could be done in terms of positioning in order to increase consume reach. It is understandable that R&D takes time and that Tesla cannot produce a new model every year, but alternative models related to the base models could be introduced. This could include customisable accessories/peripherals that further segment the particular base model.

Technological developments will also be vital for Tesla over the next few years. Battery life is a major factor in a consumer’s purchase decision (as seen from the consumer behaviour analysis) and Tesla will need to focus on
increasing the duration from which its cars are able to drive for. Tesla has stated they will introduce many more supercharging stations across Europe, but will need to consider ease of access for consumers in this regard.

4.2 Price

Leading on from the above regarding alternative models that include additional peripherals and customisable accessories, Tesla could address the issue of price sensitivity of its current models towards the mass market through further segmentation of its models. By offering wider price ranges for its products, Tesla would better appeal to many consumers. As long as Tesla sticks to the core elements of its product, brand dilution should not be an issue, especially as it has much flexibility to work with in that regard (brand shaping as a relatively new entrant to the market).

4.3 Promotion

Promotion is perhaps the most important element of the 4P’s in terms of Tesla’s marketing mix at present. It addresses what is one of the major factors concerning Tesla and its challenges – consumer perception.

Respondents had earlier stated that they were not very familiar with the Tesla brand and the electronic car industry. This can impact potential sales revenue if consumers are unfamiliar with the product and do not properly evaluate the benefits it could provide them. Tesla is renowned for their zero dollar budget approach to advertising (Woodyard, 2014). For the time being, demand for their cars supposedly outstrips the need for Tesla to have to advertise their product other than through word-of-mouth. However, as mentioned earlier, when early adopters and consumers with more pre-existing knowledge of electric cars make their purchases, it leaves the vast majority of the market present who may not be as familiar. Likewise, as competitors catch up in the electronic cars market, Tesla will soon have to compete with big advertising budgets that their competitors will put to good use.

As seen above in the Stages of Brand Development Triangle, a mixture of both “cold” (factual) and “hot” (emotional) elements have to be incorporated into the mix in order to create resonance with the consumer. At the moment, Tesla has done well in developing their brand from scratch but now is the time to invest in an advertising budget to be able to compete and build for the long-term. Tesla needs to be able to impart knowledge or spark interest from the mass-market (e.g. a well-done commercial/endorsement that positively interacts with a consumer emotionally, causing interest and further investigation into Tesla, thus increasing factual knowledge) so that they may mount a successful challenge over the years to come.

5. Appendix

Figure 1 – Presence of Electric Vehicles worldwide

Figure 2 – Assessment of Tesla’s Business Model (SWOT Analysis)

Figure 3 – Analysing the Product Portfolio (Growth Share Matrix)

Figure 4 – Planned Increase in Supercharger Stations

Figure 5 – Survey Results: Question 1

Figure 6 – Survey Results: Question 2
Figure 7 – Survey Results: Question 3
Figure 8 – Survey Results: Question 4

Figure 9 – Survey Results: Question 5

Figure 10 – Survey Results: Question 6

Figure 11 – Survey Results: Question 7

Figure 12 – Survey Results: Question 8

Figure 13 – Survey Results: Question 9

Figure 14 – Survey Results: Question 10

6. Bibliography
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