Marketing Innovations in the Automotive Industry

Towards the end of the nineteenth century, the Europeans were the first to design and construct motor vehicles and sell the first cars, but it was in the U.S. that mass production was developed as the main constituent of mass marketing. Indeed, at the beginning of the following century, the U.S. became the foremost manufacturer, primarily thanks to the work of Ford, who introduced the Model T into the market in 1908. In both Europe and the U.S., the first cars were sold to rich individuals, who were passionate about innovation and set on standing out and showing off their status. The vehicles were built at the specific request of individual buyers, who generally purchased the chassis from one manufacturer and the body from another. Since the first vehicles introduced into the market often stalled, the sturdiest and most reliable constructions were primarily identified through endurance racing. One cannot talk about marketing in the modern sense of the term at that stage. Many important characteristics of today’s car industry date back to those early years. First and foremost, it was then that the dominant car design and the importance of clusters came to light.

The move towards mass marketing occurred in the U.S. in the first decade of the previous century. Henry Ford understood that the potential market for a means of transport affordable by the masses was enormous. Prices could be kept down by producing large volumes of identical cars, to take advantage of economies of scale and reduce product costs per unit. Mass production and mass marketing were born. With regard to marketing, Ford assumed that what the customer wanted was an affordable price. He recognised that this approach could lead to a downward spiral of lower costs allowing for lower prices, with the latter leading to greater volumes, which, in turn, would allow for even lower costs. Renown was guaranteed through the popular appeal of innovation in terms of both the production process (assembly line) and the product. However, Henry Ford ignored the drivers of change. He failed to understand that the rules for success were changing and to adapt his marketing strategies to the changes in consumers’ buying behaviour. Consumers were waiting for up-to-date models. He was so convinced of his choices that he persisted in using outdated production and marketing strategies. While other carmakers placed their bets on increasing wages among the population and on a growing interest in cars, Ford restricted his offering to a product for the masses sold at a low price. With this marketing strategy, he could not compete.

Towards the end of the 1920s, a second turning point in the evolution of car marketing came about. General Motors (“GM”) overtook Ford in terms of sales volumes by offering more attractive vehicles. Contrary to Ford’s approach, GM concentrated more on the styles, colours, and external appearance of its vehicles. GM’s marketing strategy was geared at segmentation: “a car for every purse and purpose”. The strategy was based on the class divisions that were coming to shape American society. Economic development favoured social climbing. As the average income increased, more people climbed the “ladder of consumption”, acquired a new status and had more time at their disposal to enjoy a new lifestyle. For the different social classes, GM offered different products at different prices, seeking to attract potential clients from the various segments through different advertisements. When he became President of GM in 1923, Alfred Sloan established a new relationship within management between marketing and engineering, and marketing and production. In just a few words, he rewrote the rules of marketing. He understood the importance of changing consumer expectations. In this sense, he too was a “disruptor”. The motto “A car for every purse and every purpose” not only established the principles of segmentation, but also signalled the abandonment of the rule of considering a product merely in physical terms. GM devised its products not simply as means of transportation, but as objects, as tools for attracting and eliciting positive perceptions among potential customers.

In Europe, the history of the car industry and the evolution of marketing strategies took a very different course compared to the one taken in the U.S. In the first decades of the twenty-first century, Europe was influenced by Ford’s model of mass production, yet maintained a tradition of craftsman-like automobile manufacturing which, to a certain extent, still persists to this day in the manufacture of luxury models and sports cars. Cars were mainly produced on a commission basis. They were an object of pleasure rather than of utility. There were few in circulation. Competitions triggered desires that only rich people were in a position to satisfy, and they chose the best manufacturers. During the 1930s, two trends emerged that left a lasting mark on Europe: a strong company identity and an indirect rivalry between products by the same manufacturer. In marketing, this was a period of design continuity by a single producer, and of a relentless search for beauty and diversity in terms of the visual. In those years, the main factors that influenced marketing were the emergence of new technologies, economic development (growing average income per capita), and the beginnings of mass consumption. Above all, though, it was influenced by the capacity of new entrepreneurs to understand the trends of potential demand and to draw upon technological and management knowledge tested and developed in other industries too.

Throughout the 1940s, after the end of World War II (WWII), consumer expectations regarding automobiles remained the same as in the years immediately before the war, and the European car industry failed to propose new ideas. However, from the early 1950s, western European countries began to resume automotive production in a surprising way. In Germany, France, and Italy, companies capable of large-scale production emerged, such as Volkswagen in Germany, Peugeot and Citroen in France, and Fiat in Italy. They quickly established themselves as market leaders. The products or services that such leading companies developed often set the standard for other carmakers, thereby enabling them to achieve a prominent position among customers in quality terms. Their position as market leaders also provided them with some other advantages: better access to distribution channels; a strong and enduring image; and the means to achieve low production costs through greater economies of scale. In the mid-1950s, two differences in the marketing strategies of European carmakers began to surface: (1) a national identity that would gradually disappear after the Treaty of Rome (1960); and (2) strong differences between the strategies of mass market producers (such as Fiat, Volkswagen, and Opel) and those of high-end (e.g. Mercedes Benz) and niche specialists (such as Ferrari and Aston Martin).

In the 1950s, the cars by the Big Three, especially GM, placed style ahead of engineering, “form ahead of function”, thus giving great importance to design. GM’s designers were free to design cars as they saw fit, believed, and wanted. Advertisements frequently used words like “power”, “mighty” and “bold”, emphasising the sense of America’s technological superiority at the time. Under the pressure of several European small-car specialists, such as Volkswagen, the market share of the Big Three declined in the late 1950s. In a few years, segmentation changed from being product-centred to being size-centred. The segmentation of the U.S. market by size helped the Big Three to defend their positions against imported cars, but hindered the path of the clear, class-based market positions of their full-sized cars. For as long as most households had only one car, the Big Three were able to maintain their traditional marketing strategies of positioning their products through prices to closely conform to the pyramid-shaped distribution of U.S. social classes. However, during the 1960s many American households started to own more than one car. When, in the 1970s, the energy crises drove Americans to buy smaller and more fuel-efficient family cars, Detroit’s traditional, large family cars died out, and with them so did the strategy of creating a hierarchy of cars, differentiated by price, which appealed to people in every social class (“ladder of consumers”).

In the 1960s and 1970s, the marketing and production policies of Japanese manufacturers exerted a strong impact on marketing strategies as they saw market segments as being almost isolated from one another. “Product concepts” differed from one segment to the next. Together with the variability of purchasing behaviour, this led to highly varied marketing strategies and increased the intensity of the competition. Toyota pioneered a new approach that became known as the Toyota Production System (“TPS”), later called “lean production”. The TPS combined the flexibility and accuracy of craftsmanship with the low cost of mass production. By using lean production methods, Japanese car manufacturer achieved production costs per unit well below those of European and American manufacturers, with greater volumes. They also succeeded in increasing the speed and efficiency of new product development, a significant ability in a competition in which time to market constituted an important advantage. The new Japanese production system had a major impact. It marked a radical new approach to the manufacturing process and created a paradigm shift in automotive manufacturing worldwide. In terms of marketing strategies, lean production made it possible to produce a variety of models on the same assembly line. By increasing the variety of the offering, it increased the capacity to open up new market segments.

In the 1970s and 1980s, European, American, and Japanese carmakers shared two trends that signalled the first steps towards globalisation in the car industry: (1) product proliferation; and (2) convergence in marketing management methods. Consequently, a set of “universal” industry factors drove carmakers towards strategies of the same nature, wherein execution was often the ultimate success factor. The first step was to extend the product line (i.e. product proliferation) by introducing products that were not completely new but which marked an improvement on previous versions (i.e. annual model) into the market. By studying customers’ new demands and expectations or based on technological improvements, companies were able to take the second step by introducing new products that completed their existing range, to increase their market share. Gradually, some factors started to generate convergence in marketing strategies: (1) strong capital intensity; (2) long product life cycle; (3) competition based on the proliferation of models; (4) every country having its “national champions” and the political sensitivity of the car industry; (5) the relative stability of base technology; and (6) the fact that the major carmakers assembled around 25–40% of the final product. The outer percentage was supplied by firms that sold to everybody. Differentiating strategies therefore became more and more difficult.

Few carmakers passed the selection process of the automotive industry’s first decades of history. Many authors have dealt with the secrets of success. Tedlow (1996) identified a number of specific items that had a great impact on marketing strategies: the strategy of creating profit through volume; entrepreneurs having the talent and creativity to see new opportunities; the strategy of building an effective vertical system; the first-mover strategy of reaping high returns by building barriers against new entrants; the strategies of new entrants to attack those barriers; and success in the market being determined by how well the relentless change in competition and consumer behaviour was faced and managed. Some carmakers, led by exceptional entrepreneurs or managers skilled at coordinating mass production and mass marketing, obtained significant results in terms of profit and returns on investments. Others, attracted by these results, sought to enter new markets, but few succeeded in overcoming the barriers created by first-movers. The higher the barriers erected by first-movers, the longer they were able to hold onto their successes. In the car industry, one of the most relevant barriers is capital requirement.

The initial stage of what today we call “marketing science” can be dated back to the 1950s, having first come to light in the U.S. It was founded by a group of individuals belonging to a university who were seeking to distinguish their research and publications from those of practitioners. The breaking point was the foundation of the Marketing Science Institute, the objective of which was to bridge the gap between academic studies on the one hand and the practical aspects of marketing on the other. Marketing science started to be considered as modelling marketing actions based on the disciplines of economics, statistics, operations research, and other related fields. Was there any impact on carmakers’ marketing strategies? There is no clear evidence of a direct, fast impact on marketing strategies, especially in the car industry. However, the inception of Marketing Science indisputably paved the way for a conceptual marketing framework which, in that period, drove what is called the “marketing revolution”. The major carmakers successfully assimilated many of the advances driven by marketing science. Such benefits included better-defined market targeting thanks to progress in motivational research and a deeper understanding of consumers’ behaviour when faced with different pricing options, through a conjoint analysis. The main results were achieved through decisions based on econometric models or market experiments to measure advertising efficiency. These models could be classified into three streams of research: (1) models of advertising elasticity; (2) models of advertising carryover and dynamics; and (3) models of advertising frequency.

During the 1960s, progress in marketing strategies driven by firms spurred on and led a strong evolution in marketing research, academic studies, and management literature. These included Sloan’s My Years with General Motors, Levitt’s Marketing Myopia, Ansoff’s product/market matrix, Borden and McCarthy’s marketing mix concept, Andrews’ contribution to the SWOT analysis, the “learning curve”, and the rise and fall of portfolio management, to mention just a few. All of them, directly or indirectly, had a considerable impact on the evolution of marketing strategies in the car industry, in which, due to the major investments and long product cycle, firms were desperately seeking tools and concepts to help them face uncertainty. The best contributions often came from managers who, during their professional lives, had introduced innovations and then successfully laid out their experience in articles or books. There was no shortage of academics and creative talent, such as Alfred Chandler, Theodore Levitt, and Robert Buzzell, who conceptualised management techniques or practices previously introduced and tested through the marketing function of carmakers. Consulting firms played a special role. Called upon to study situations and propose solutions, they achieved considerable success (more than academics) with the problems of car companies, in light of the actions taken by management and the results obtained by their proposals. Some of their best solutions became part of management’s repertoire and were included in MBA textbooks, often using cases drawn from the car industry, such as the “BCG’s growth-share matrix” and the GE/McKinsey matrix.

The sharp increase in the price of oil—first in 1973 and then again in 1979—signalled a change in the structure of the competition, what to produce, and marketing strategies in the car industry. The oil crisis harmed the Big Three badly as American consumers turned to Japanese manufacturers. The oil crisis had pushed Americans to purchase cars on the basis of fuel consumption rather than segmentation based on social class. Having defined social class differences for half a century, the full-sized model market was now destroyed by Americans’ preference for the smaller, more fuel-efficient Japanese cars. The mantra “listen to the voice of the customers” once again generated substantial results. The Japanese began to patiently build up a distribution network in the U.S. and, most importantly, to gain recognition for the quality of their products, their attentive after-sales service, the safety of their vehicles, and their reduction of harmful emissions into the atmosphere. In Western Europe, the consequences of the oil crisis were dramatic. Two trends came to light: (1) more cost-conscious consumers; and (2) the emergence of the German “premium brands”. Audi, BMW, Mercedes, and Porsche developed a new “premium brand” strategy. During the 1970s and the early 1980s, the major carmakers began to extend the perimeters of their brand portfolios. They realised it was possible to serve more segments (through more brands) with great benefits in terms of lowering average costs, but to be able to do so, they needed to be able to sell at different prices in the various segments.

In the 1990s, driven by further changes in technologies and customer expectations, marketing strategies in the car industry achieved another breakthrough. In their pursuit of excellence, some carmakers successfully pioneered the shift towards mass customization. In the early 1990s, two stages of the value chain were partly mixed/blended together: mass production, and mass distribution. This change was driven by three key factors, namely: (1) limits to the mass production process; (2) divisions into social classes, age differences, differences in lifestyle, and inequalities in the distribution of income, which reduced the homogeneity of the markets and drove towards dishomogeneity; and (3) instability of demand. There was a transition from a sellers’ market to a buyers’ one, and from markets “ruled” by sellers to markets “ruled” by buyers. In place of homogeneous markets, standardised products and long product life cycles, a new market structure emerged, consisting of heterogeneous and fragmented markets, a variety of products and shortening product life cycles. The internet significantly increased the possibilities of mass customization. Carmakers were able to put together components and modules as requested by customers at the last minute before delivery. While the main goal of mass production was to develop, produce, and market automobiles at prices low enough “that nearly everyone could afford them”, the main goal of mass customization was to develop, produce, and market affordable automobiles and services so that “nearly everyone would find exactly what they want”.

In the mid-1990s, in Western markets, the evolution of industries and technologies was accompanied by an emerging shift in competitive advantages from “upstream” activities towards “downstream” ones. Info-intermediaries emerged, such as Autobytel.com, which took power away from carmakers (OEMs) in distribution and granted more power to consumers. The centre of gravity shifted towards the “downstream” area, and therefore also towards marketing, requiring many principles to be revised. This also paved the way for the entry of new competitors onto the market. The car industry resisted these threats. It was more resilient to the value migration than expected, but for the management of major carmakers it was clear that the change called for a response to important strategic questions such as: “Where will profits emerge in the new digital infrastructure?” and “How can we reshape our business to take advantage of the new opportunities better and faster than competitors?”. The responses to these questions all involved the incorporation and assimilation of new digital technologies. On the threshold of the early years of the new millennium, the advances towards a transformation in the automotive industry were already clear. Information technology had begun to be deeply integrated as a tool in marketing research, and in the other main functions: from sourcing to product design, from logistics to manufacturing, and from marketing to after-sales services. Products could be better designed and manufactured. Customers’ reactions and expectations could be quickly understood and analysed. Cars became more reliable, maintenance less frequent, and repairs rarer.

The word disruption, in its original sense, expresses the concept that even successful companies can fail, despite continuing to do what they did before well. In the digital era, it is often used both when a company is well-managed but fails, and when it fails because it is badly managed. In the car industry potential disruption is generated by the combined effect of more digital technologies, platforms (Uber, Lyft, Didi), electromobility (Tesla), and autonomous driving (Apple and Google). Disruptors in automotive industry are big data and machine intelligence companies, at their core; they use direct-to-consumer models; they are venture-backed startups; they make decisions with incomplete data and uncertainty; they hire the best; they are organised in small teams; and they take risks and break rules. Choosing the most appropriate moment to enter the market or drastically change strategies is more important than ever in a highly changing environment. The history of technological innovation is full of potential disruptors that could offer superior performance to rivals, but which failed to identify the right moment to enter the market. Finally, how can disruption be managed? The first step is to predict the impact of a new disruptive business model on consumer behaviour. The second involves estimating how many consumers could move to the new product. In the automotive industry, how many consumers would adopt a level 4 or level 5 driverless car? The third step is to extend the analysis of the impact of a disruptive business model to other related sectors.

On the threshold of the new millennium, certain carmakers made an important initial reaction to the advances in the digital economy. They started to prepare themselves for their future as “transportation solutions providers”, and no longer just vehicle manufacturers. The “day of reckoning” came about in November 1999 when both Ford and GM announced their plan to each launch their own value chain based on digital technology. However, a new breaking point in the marketing of automotive companies was approaching. It was driven by new digital technologies that enormously expand the reach, speed, convenience, and efficiency of platforms. It derived from the fact that the system of relationships rendered possible by the platforms changed and damaged the traditional value chain in the automotive industry. The new technologies facilitated communication and the exchange of data between participants in the network. The more a company attracted new participants to the platform (owners, providers, producers and consumers), the greater the network became and the more transactions between demand and supply increased. The larger the scale, the more value it generates. The capacity of certain companies to take advantage of the development of the platforms soon posed a threat for incumbents. New competitors quickly entered the market, proposing a new kind of “crowd-based public-private partnership”, including Uber, Lyft and BlaBlaCar. The emergence of Tesla is also a clear example of a threat for incumbents. In recent years, digital marketing in the automotive industry has made significant advances, but it is still behind compared to other major sectors.

Advances in new computing technologies to gather and process large quantities of information, increased further in the second part of the 2000s. Nowadays, car clients make great use of digital media. Given that potential clients find a huge amount of content online, they make many decisions concerning the purchasing process before visiting a dealership. The marketing content they can find online has a significant impact on these decisions. The development of digital technologies marked the need to extend the “4Ps” of marketing to 7, to include people, process and physical evidence. The impact on the traditional marketing was profound. New technologies made it possible to change the core product and extend it. From the early 2000s, car companies moved towards “selling personal transportation solutions” rather than “just selling cars.” Customers participated in creating products through the web. In the pricing field, transparency increased, downward pressure on prices grew, and dynamic pricing challenged vendor-fixed pricing, especially for the low-cost segments. Regarding place, the relationship between customers and dealers is difficult to replace. Almost everywhere, franchisees have obtained state legislation to protect their positions. However, given that many car buyers make their purchasing decisions before they even consider visiting a dealership, manufacturers often turn to augmented reality (AR) and virtual reality (VR) to present their products. In terms of promotions, the digital age opened up new channels of communication: some people speak of “the end of an era.” In the digital age, customers have access to a large amount of information about products, and power shifts towards them.

On the eve of the 2020s, the concept of “digital transformation” is discussed increasingly frequently in the car industry. It has brought about a profound change in the competition in all sectors of the economy, so this chapter examine how significant its effects are in various sectors. Analyzing the current situation regarding specific trends in the automotive industry, the aim is to offer a prediction as to the evolution of marketing strategies as we move towards the 2030s. Three forces, acting together, created the new digital world. The first, in order of time, was the exponential growth and ever lower costs of computer power. The second force is the value of networks, which has grown as they have grown in size, and the third is that more data have been transmitted at an ever lower cost using cloud computing technology. In car industry political, environmental, social, and economic trends are changing the competition. Faced with technological change occurring at an exponential rate, companies are much slower. Filling or reducing the gap is the main challenge faced by management. Furthermore, in the automotive industry four innovative trends merit particular attention thanks to their likely rapid evolution over coming years and their impact on the entire industry: mobility services instead of vehicle ownership; increasing demand for connected services; autonomous driving; and electromobility (EV). The chapter tries to answer to the following question: Why, even though it is difficult to predict the consistency of EV and driverless cars demand, are almost all manufacturers investing significant amounts?

Three main issues have to be analyzed when defining a marketing strategy in the time of digital transformation. The first one is the consumers’ desires, which are increasing to such an extent that they might be described as “unreasonable expectations”. If consumers want a quote for a built-to-order car, they expect fast responses even for the most personalised, specific requests. On-board instruments have been improved: voice-activated functions, artificial intelligence, and augmented reality. The problem lies in understanding, during the design stage, which technology actually brings value for the client. The second issue to analyze is the competitive environment. The digital revolution redefines the competition between companies and the relationships between companies in various ways, and competition occurs less within individual industries and more between different industries (Google, Apple, Amazon, Uber, Lyft, Didi). Moreover, some companies compete among themselves in certain areas, but are partners in others (co-opetition). The third issue deals with understanding how digital marketing fits into the company’s business model and how and what changes are needed in the processes. Big data must be managed; the nature of competitive advantages can change; new value propositions have to be offered; and the need of new organizational structures and culture increases. Under the pressure of the digital transformation, established carmakers must make broad adjustments to marketing strategies. They must defend “old” business segments and open new ones. The key questions are: How is selling mobility services different to selling vehicles? and “A new machine will change the world again”?