Magazine article Marketing

Mark Ritson on Branding: Profit Edges out Sales in Car Race

Magazine article Marketing

Mark Ritson on Branding: Profit Edges out Sales in Car Race

Article excerpt

The race to be the world's biggest car manufacturer has entered the final lap.

In January, most analysts were predicting that Toyota would break General Motors' 76-year winning streak and overtake it to become the top-selling automotive producer. But the third-quarter sales figures, published last week, suggest that the contest remains too close to call.

Up until September, GM had sold 7.06m cars, exactly 10,000 more vehicles than Toyota. John Middlebrook, vice-president of marketing and sales at GM, was clearly elated at the news. 'GM's record third-quarter sales were driven by exceptionally strong demand in emerging markets and our improving competitiveness in developed markets. We are on track to have our second-best annual sales performance in our almost 100-year history.' GM's sales were up by 22% in Latin America, 15% in Europe and the firm is on course to be the first to sell 1m cars a year in China.

And you know what? It really doesn't matter. Too many marketers view sales as the ultimate measure of success, which is, of course, nonsense Sales figures rarely give you the true picture. Profitability is the real lifeblood of any organisation. I don't give a toss how many products a firm has sold, it is all about how much profit was generated.

Do you know how much money per car GM made last year? Actually, it is a trick question because it didn't make anything. It lost dollars 146 for every one of that record number of cars that it sold in 2006. GM was delighted with this figure because it represented a considerable improvement on the dollars 1271 it lost per car in 2005. In contrast, Toyota is the most profitable car manufacturer in the world. Despite, or probably because, it lags behind GM in unit sales, it made dollars 1977 profit per car in 2006. The reasons for Toyota's superior profitability over GM are simple.

GM's brand architecture is a perfect design for generating sales; it houses lots of models from many different brands aimed at a range of segments. But it is also a poor structure for generating profits due to low economies of scale, cannibalisation and big marketing overheads. With the exception of its niche brands Lexus and Scion, the vast majority of Toyota's sales are accounted for by its single branded house, thus ensuring maximum profitability.

GM is also guilty of over-using dealership and employer promotions to shift its cars. …

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