| | Are automobiles the next commodity?
by Lance Ealey , Luis Troyano-Bermudez As the motor industry enters the tenth year of its second century, it finds itself in a jam. Barring an innovation of the order of Henry Ford s original mass production assembly line, demand across Europe, the US, and Japan has mostly matured; growth into the next century is likely to be no greater than 1 or 2 percent,(1) High new car prices, stagnating wages, and a supply of inexpensive, good-quality used cars have throttled back demand. At the same time, new entrants to the market, new regulations, too much capacity, and insatiable demand for fresh and differentiated products have eroded profit margins for many original equipment manufacturers (OEMs). Motor manufacturers' response has been to try to make their products more attractive, and so maintain price premiums, by actively managing brands. In contrast with packaged goods manufacturers, the purveyors of the world's largest consumer item - the motor car - are relative latecomers to brand management. Instead of managing individual vehicle line identities, most car companies have until recently managed the overall marque identity (the values that make a Chrysler a Chrysler, for example). Today, several companies have brand managers charged with shaping the message and profile of individual cars to specific audiences, and responsible for ensuring that value, packaging, and content match the requirements of targeted consumers. Although a step in the right direction, these efforts seem too little too late. Many brand-management strategies focus on the traditional ways car companies have differentiated their wares via attributes. But these differentiators are less powerful than they were. Given competitors' increased capability, the accelerating pace of change, and customers' sophistication, a car maker grows in a world of flat demand only by taking a holistic approach to improving the perceived value of a vehicle at the time of sale, and by increasing the total revenues generated throughout its lifetime. Perceived value is improved by optimizing performance, quality, and price - all features commonly ascribed to brand management - but also by means of often overlooked levers such as managing "things gone right," and by exploiting downstream opportunities to communicate with customers via innovative and unusual channels. Traditional "marque" differentiators are converging Product features, performance, quality, styling, and efficiency have been the traditional attributes used to distinguish motor vehicles since the industry began. In 1912, Cadillac was the first car company to introduce a practical electric starter on its vehicles. The Delco starter was indeed a better mousetrap, offering a safe, toil-free way to start the engine. Cadillac's sales increased 20 percent that year, while General Motors' in total remained flat. This is a classic example of attribute-based differentiation. Add a new feature or performance attribute, promote it as a sales point and, if customers find it attractive, they will beat a path to your factory door. But it also illustrates the chief drawback of attribute-based differentiation its transient nature. Within four years, according to one report, almost 90 percent of the cars sold in the US featured self-starters [ILLUSTRATION FOR EXHIBIT 1 OMITTED]. Today, attempts to differentiate a vehicle based on features tend to get lost in the white noise that surrounds automotive marketing. There are few, if any, new features as self-evidently useful as the electric starter was in 1912. New features now tend to address latent or hidden customer issues. Indeed, a recent survey indicated that up to 43 percent of customers believed their cars were equipped with anti-lock brakes, when they were not. At a time when overall vehicle function is satisfactory on most counts, the issue becomes how much more the customer is willing to pay for each new performance enhancement. (When Chrysler decided to introduce airbags on all models, it reportedly offered them as a zero-margin feature to maintain prices.) The content of many cars has reached a point where the incremental value of yet one more feature is often overwhelmed by the high number of standard features that even entry-level vehicles have. In the rare cases where a company does come up with an innovation that enhances demand (the second sliding door on the Chrysler minivan, for example), the rest of the industry co-opts it rapidly, giving the company at most a two- to three-year lead before parity returns. Vehicle performance levels are converging After the 1970s oil crisis, the Japanese gained market share in the United States because of their cars' superior fuel economy. American cars of the time averaged 13 miles per ...
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