CASE ANALYSIS
HYBRID CARS
Date: November 9, 2005
For: Prof. Zwick
Group #3
Xiang Chen
John Farcich
Christopher Irwin
Lori Rayner
Weijie Yang
1
APPROACH
Our approach is from the perspective of the product category of hybrid cars, which we
define broadly as: “automobiles that do not use traditional fossil fuels as the primary source of
energy.” (NOTE: Mild hybrids do not qualify under this definition.)
PROBLEM STATEMENT
Although the technology for hybrid cars is ready, the problem facing this product
category is: How to increase sales of hybrid cars in Canada and the U.S.?
The main cause of this problem appears to be (1) lack of awareness and (2) insufficient
stimulus for consumers to choose a hybrid vehicle over a standard combustion-engine vehicle.
UNDERLYING ISSUES
There are a number of contributing factors that shape our analysis, many of which we deal
with in the following Product and Industry analyses. These are:

Limited sales volume inhibits the economies of scale that enable price parity with fuelconsuming cars.

Consumers are unfamiliar with the technology, the product, and the ownership experience.

Actual limitations exist with the technology compared to existing cars.

Some economic/political segments may thwart efforts to change oil-consuming behaviour.
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PRODUCT ANALYSIS
Since the time of the case writing, hybrid cars have entered “prime time” from a function
standpoint. The following illustrates strengths and weaknesses of hybrid cars:
Strengths
Instrumental in meeting “clean air”
legislation by reducing harmful chemical
emissions
Outward/performance parity to existing
automobiles
Overall efficiency (e.g: more efficient in
converting fuel to power vs. traditional cars)
Weaknesses
Environmental value proposition insufficient in
persuading consumers to purchase hybrid cars.
Emergent user, complement and producer
networks
Unfamiliarity as a concept and some stark
operations differences (e.g. “silent idling”)
Expensive to produce/limited economies of scale
Perception of technological transience (e.g. “stop
gap” or stepping stone toward fuel-cell vehicles)
NETWORK ANALYSIS
User Network - The potential user network for hybrid cars consists of both individuals and
companies. The strategic value of the inroads into “fleet” markets (trucks, etc.), is minimized
because these user groups appears rather closed. A larger user network is the key inhibitor to the
success of this product.
Complements Network - The complementary network has several subsets.
Fuelling/recharging network: Although the hybrid does not completely eliminate the “gas
station,” it does minimize its importance. The replacement is locations that allow for
“recharging” while cars are not in use. A number of locations could form this network with
electric outlets; whether in people’s garages, parking lots, offices, shopping malls, etc.
Parts and repairs (including emergency response): This complements network could develop
more easily, as more similarities exist between the current parts/repair network of dealer shops,
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gas stations or other independent operations. The ties to the Producer Network will likely make
this more easily adopted. Any increase in ensuing dangers following vehicle collisions will have
to be mitigated through the necessary public sector/ public service channels. (e.g. first-response
teams handling a car crash involving hybrid or fuel-cell vehicles).
Roads and infrastructure (including parking and drive-thru): This network is largely
supported chiefly by municipalities, which could provide leverage for governments to further the
initiative in order to serve environmental objectives. Again, this network will be almost identical
to the existing network that supports fossil fuel burning vehicles. Potential differences may exist
should novel designs (e.g. Smart Car) persist.
Producer Network - The producer network appears to have the least threat of change should
there be widespread acceptance to non-traditional automobiles. Increases in demand will
provide motivation for car manufacturers to invest in new types of vehicles to capture firstmover advantage. At the time of the case, the producer network included primarily Toyota and
Honda, but there are currently offerings by all the major car manufacturers, including General
Motors, Daimler-Chrysler (with Smart) and Nissan.
STAKEHOLDERS ANALYSIS
Due to the positive environmental effects of widespread use of hybrid car, humanity at
large is a key stakeholder. The movement toward these vehicles can count on strong support
from environmental organizations, and from the scientific community. Support from the public
sector will vary with public opinion, as well as with the effectiveness of lobbying efforts from
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various industry stakeholders. Resistance will come from industries—and countries—that rely
heavily on oil and gas resources.
STAKEHOLDER
Policy makers (Governments levels)
Environmentalists
Scientists
Car manufacturers
Oil producers
Oil distributors
Consumers/Society
POSITION VIS-À-VIS HYBRID CARS
Varies
Favourable
Favourable
Favourable
Opposed
Opposed
Neutral/TBD
INDUSTRY ANALYSIS
Each producer may approach this new market opportunity differently, but the overall
environment presents the following Opportunities and Threats. (See Appendices A & B)
OPPORTUNITIES
Vast potential market (car sales in the
U.S. in 2000 topped 17M units)
Curry favour with municipalities by
reducing metropolitan pollution
Curtail supplier power of oil producing
network
THREATS
Retaliation from oil producing network
Reduction in the overall car market due to
limitations of urban infrastructure
Inability to achieve economies of scale
necessary to make hybrid cars profitable
CRITERIA FOR EVALUATION1
In order to evaluate the alternatives that will successfully address the root cause of the main
problem, we have developed four criteria.
1. DOES IT CREATE A COMPELLING REASON TO BUY?
This addresses the main problem, and identifies whether the alternative will provide the sales lift
that will help auto manufacturers to achieve necessary economies of scale.
1
Moore, G. A.; Crossing the Chasm
5
2. DOES IT SIGNIFICANTLY INCREASE FAMILIARITY FOR EARLY MAJORITY?
Increasing familiarity (awareness) for early/late majority will definitely help overcome the
chasm, which is essential for a new product to achieve success in mass market.
3. WILL IT PROVIDE A BREAKTHROUGH WITHIN 5 YEARS?
Since the hybrid car is a “stopgap” between current traditional cars to fuel-cell cars, it is essential
for hybrid car manufacturers to catch the marketing opportunity in the near-term.
4. IS THERE A REASONABLE COST/BENEFIT RETURN?
When we evaluate the alternatives, we will also consider the cost and benefit. Increasing sales is
not the only goal. Objectives should be achieved in the context of reasonable implementation
cost and profit margin.
ALTERNATIVE I – BOWLING ALLEY
In this alternative, car companies will invest and cooperate with transportation-related
businesses to increase exposure to consumers. In order to increase the awareness and encourage
trial, we can use this “bowling alley” strategy2 to win related groups of customers.
One of the obstacles for hybrid cars to become a mainstream product is the lack
familiarity, which hinders sales. The technology perception is at the product level now. By
experiencing the vehicles performance first hand, this can move to the process level, and the
consumer will see the parity to traditional automobiles.
PROS
Increase the exposure of hybrid cars to the public
Consumers have the opportunity to experience the
hybrid car i.e.: taxi’s
2
CONS
High cost associated with companies purchasing
hybrid cars
It takes a relatively long time to build consumer
familiarity
Geoffrey A. Moore – Crossing the Chasm: Marketing and Selling High Tech Products to Mainstream Consumers
6
ALTERNATIVE II – LOBBYING THE NETWORK
Under this alternative, Governments and other Network participants will provide
incentives for consumers to buy hybrid cars and impose penalties on owning gas-consuming
vehicles. For example, the Government will provide more favourable incentives for hybrid car
buyers (tax credits, special road rights, and free parking) and to manufacturers (subsidies). At
the same time, the Government will also impose penalties on gas-consuming car buyers: parking
restriction in certain areas; driving restriction in certain areas; and punitive taxes for emission
generating cars.
PROS
Consumers will have incentives to purchase hybrid
cars (high potential to inc. sales)
Automakers can also implement programs. i.e.:
higher trade-in value for hybrid buyers.
Automakers will have monetary incentive to
produce more hybrid vehicles.
CONS
Requires a strong lobbying effort, in order for
gov’t to introduce this type of program
Counter lobbying and delays
Actual result highly contingent on lobbying impact
on policies (cost/benefit)
ALTERNATIVE III – PUBLIC AWARENESS
The third alternative deals primarily with education and promotion. Under this alternative,
education will be offered to mass consumers. For instance conferences will be held to promote
the benefits of driving a hybrid car, mass marketing campaign such as TV shows, magazine,
newspapers, online and radio broadcasting will be organized to educate the consumers and
promote the use of hybrid cars.
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PROS
Easy to implement – players in car mfg
industry can create promotional/ awareness
campaigns together, as well as by themselves.
CONS
Education and environmental conciseness are
not the main factors for consumers. Without
concrete and monetary incentive, the impact of
the promotion will be limited.
A one-time marketing and educational
campaign will not be enough to create
awareness of hybrid cars to mass consumers.
The cost is relatively low in comparison to
other alternatives.
EVALUATION OF ALTERNATIVES AND RECOMMENDATION
Bowling Alley
Lobbying Network
Public Awareness
Compelling
reason
Familiarity
Time
Cost and
benefit
Total
score
2
3
1
3
2
1
3
2
1
2
2
2
10
9
5
BOWLING ALLEY STRATEGY WINS
IMPLEMENTATION
According to Geoffrey A. Moore, many business plans are based on traditional
Technology Adoption Life Cycle (TALC).3 TALC is a smooth bell curve of high tech customers,
progressing from Innovators, Early Adopters, Early Majority, Late Majority, and finally
Laggards, with a “chasm” between Early Adopters and Early Majority.4 Right now, the market
for hybrid car is right in the chasm.
In order to cross the chasm, it is essential to win the pragmatists (as opposed to
technology enthusiasts), who require is a 100 percent solution to their problems- the whole
product. According to Moore, the winning strategy is to identify a single beachhead of
pragmatist customers in a mainstream market segment and win a niche foothold (e.g.
referencable customer) as quickly as possible – this is what is meant by crossing the chasm.
3
4
Ibid
Ibid
8
The following questions server to evaluate a segment within the Early Majority
(Example: Taxi companies)
•
Q1 -Is the target (taxi companies) well funded and accessible to our sales force?
-
Yes, in fact taxi companies typically replace its taxis every three to five years.5
-
Q2 - Do taxi companies have a compelling reason to buy a hybrid car?
-
No, not yet. We need to develop a compelling reason. E.g.: save on gasoline costs,
protect environment (environmentally conscious company).
•
Q3 - Can manufacturers today, with the help of partners, deliver a whole product?
– Yes, but car manufacturers must still work on it. (e.g. Complements network)
•
Q4 – Could an entrenched competition prevent a fair shot at this business?
– No entrenched competition exists.
•
Q5 - If this segment is won, can it be leveraged to enter additional segments?
– Yes, it can be leveraged to other related segments, increasing exposure to consumers.
Therefore, our implementation plan is as follows:
1) Identify companies that are potential partners to build familiarity with consumers.
1 Taxi companies
2 Rental car companies
3 Utilities companies
4 Driving schools
5 Delivery Fedex, etc.
6 Restaurant delivery (i.e.: pizza)
6 Buses (public/school) 7 Any other car fleet company
Note: Ranking is in order of importance for building familiarity with consumers. We discuss the
TOP THREE prospects below.
Gillbert and Schaller. “Fixing New York City Taxi Service”. Accessed from:
www.schallerconsult.com/taxi/taxi3.htm. Nov 1, 2005.
5
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Taxi Companies: Taxies are not only our moving advertising medium, but also they are able to
provide people with real hybrid riding experience. Once people have the same experience when
traveling in a hybrid vehicle as they would in a traditional car, they will have increased
confidence in the cars, moving the perceived technology from the product to process level.
Car Rental Companies: After penetrating the taxi segment, manufacturers should target car
rental companies. These companies also have high exposure to the public, as well; they enable
consumers to have a first hand experience driving the vehicles.
Utility Companies: These are the companies that also have high exposure to the public i.e; Bell
Canada, Rogers, Enbridge and Toronto Hydro. As people see these utility companies’ hybrid
vehicles more often, they will get familiar with hybrid cars.
2) Identify unique needs of each company:
Taxi Companies
Rental Car Companies
Utility Companies
Often stop and go traffic (mostly
in-city)
More efficient use of gasoline
can save them money.
Vehicles need to be comfortable
Stop and go traffic and hwy
driving
Assistance/info will be required
for new users
Vehicles need to be comfortable
Larger vehicles – truck and vans
Customized interior to fit tools
and equipment.
3) Offer tailored incentives to each company:
Taxi Companies
Rental Car Companies
Utility Companies
Work with gov't/ municipalities
to offer cars at a subsidized cost
Providing hybrid training to all
drivers / company mechanics
Extended car maintenance
agreements
Encourage bulk purchase - i.e.: if
company buys 20 cars, get 1
complimentary vehicle
Work with gov't/ municipalities
to offer cars at a subsidized cost
Providing training to all staff on
hybrid vehicles
Extended car maintenance
agreements
Provide one page training Q & A
"cheat sheets" for all rental car
drivers.
Work with gov't/ municipalities
to offer cars at a subsidized cost
Providing hybrid training to all
drivers / company mechanics
Extended car maintenance
agreements
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4) Create a public relations campaign to leverage the press (television, newspapers and
magazines), in general and for each market, to promote environmental friendliness.
Taxi Companies
Paint taxi green to symbolize
that it is an environmentally
friendly vehicle.
Rental Car Companies
Utility Companies
Put a sign/logo on hybrid cars
to symbolize that is an
environmentally friend car.
Put a sign/logo on hybrid cars
to symbolize that is an
environmentally friend car.
CONCLUSION
We believe that alternative I provide “whole products” for a segment of customers. As a
result, this will enable manufacturers to build familiarity with consumers. The goal of this
implementation plan is to target the pragmatists. When pragmatists adopt the hybrid car, it will
become a mainstream product. As more and more customers buy hybrid cars, manufacturers can
achieve economies of scale and therefore lower their cost significantly.
Lower cost will again encourage the purchase of hybrid cars, and then it becomes an
upward cycle.
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APPENDICES
Appendix A PESTE Analysis
POLITICAL - Favoured
Political factors include government regulations and legal issues and define both formal and
informal rules under which the firm must operate.
1.
Tax credit to those who purchased a hybrid vehicle favours its introduction to US market.
2.
Dependence on foreign oil increased from 8% to 52%. Hybrid cars could be a solution to
reduce the dependence.
3.
Federal government began legislating emission controls. The first attempt was the Clean Air
Act in 1970.
4.
CAFE calls for fuel efficiency.
5.
CARB mandated that by 1998, 2% of all passenger vehicles sold in California had to be
“Zero emission” vehicles.
ECONOMIC - Not favoured
Economic factors affect the purchasing power of potential customers and the firm's cost of
capital.
1.
Purchasing power of potential customers are increasing but not to a degree for customer to
buy at a $5000 price premium.
2.
Cost of manufacturing hybrid vehicle is still $4000 and $5000 above the cost of
manufacturing a comparably outfitted gasoline-only vehicle.
SOCIAL - Not favoured
Social factors include the demographic and cultural aspects of the external microenvironment.
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1.
Price premium about $5000. Demand is still low. The combined sales of the two vehicles
still amount to only about 17000 units per year
2.
Sharp increases in gasoline prices caused consumers to seek out smaller, more fuel-efficient
vehicles.
3.
Environmental consciousness caused some consumers to question the logic of a vehicle that
got only 10 MPG.
4.
Light trucks- SUVs and minivans are favoured both by customers because of their visibility
and crash protection and by manufacturers because of their high profit margins.
5.
It was unclear that consumers were as committed to reducing gasoline consumption and
emission as were state and federal governments.
6.
Customers ranked functionality, safety, and price over gas mileage.
7.
Only 4.3% of the 32000 car buyers surveyed considered gas mileage the most important
factor in their choices of vehicle.
TECHNOLOGICAL – Favoured
Technological factors can lower barriers to entry, reduce minimum efficient production levels,
and influence outsourcing decisions.
1.
Generally, hybrid cars are ready in terms of technology and it could be a stopgap measure
until so-called “zero-emission” vehicles.
a) High mileage makes it cost-effective commuting car.
b) It is practical enough to take on longer trips.
c) But there are also some disadvantages, for example, too slow, small and too vulnerable
on a crowded road.
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2.
Currently, the internal combustion engine was not efficient; it converted only about 20% of
its total energy out.
3.
Zero emission vehicles are not perfected yet.
ENVIORNMENTAL - Favoured
1.
The United States was the single largest polluter in the world, accounting for 25％
worldwide emissions in 1999. A chief source of these emissions was the automobile.
2.
Environmentalists are against the use of gasoline-relied automobiles.
3.
Increase concerns about the environment.
Conclusion of PESTE analysis
Overall, hybrid cars are favoured by governments, environmentalists and scientists. The hybrid is
supported politically, environmentally and technologically. However, the majority of consumers
are not ready to buy those cars because of the premium price of hybrid cars vs. traditional cars.
As well, many consumers are not confident in the new technology.
PESTE DIAGRAM:
Economic, 50%
Technological,
70%
Social, -50%
1
Environmental,
100%
Political, 100%
-100%
-50%
0%
50%
100%
150%
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Appendix B Porter’s Five forces
Rivalry - High
1.
Exit barrier is high due to the large investment
2.
Fixed cost is high
3.
Companies are responsive to competitors’ strategic actions
Suppliers’ Power - Medium
1.
The suppliers’ power is increasing since increased gasoline prices will drive up the cost of
raw material for auto makers
Threats of Substitutes - Low
1.
There is an increase in miles driven per vehicle
2.
Automobiles are the primary means of transportation (North America)
Barriers to Entry -High
1.
Globalization and consolidation in auto industry
2.
High capital requirement
3.
Brand equity is an important factor when consumers purchase cars
Buyer power - High
1.
Consumers have many choices when they buy cars
2.
Switching cost is low since many North Americans change their cars within 3 years
3.
Consumers are price sensitive.
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