From the very beginning of automobile industry, product and branding strategies are considered as one of the major functions performed by the manufacturers. What is interesting that, with the passage of time, its importance is increasing significantly. Even though the voyage of automobile commenced in 1335 by Guido da Vigevano, in true sense there was not any considerable development until 1885, when Karl Benz invented the first practical automobile. Since then the automobile industry has gone a long way consisting of a number of renowned companies.
In this industry, the core product is transportation and communication facility backed by actual and augmented product. Product line decision involves Line stretching and Line filling. In this industry, Mercedes-Benz lengthens its product line by using both line stretching and line filling.
Since the early branding era, the branding strategies have changed throughout the time. Branding is, now-a-days, influencing the consumer buying behavior to a greater extent. As such manufacturers are now concentrating more on brand placement rather than product placement. They are developing brand loyalty in the minds of their customers in order to achieve high retention rate. Automobile companies can build up both product and corporate brand, but the recent trend is towards emphasizing on corporate branding. Previously it was thought that Branding is necessary from the sellers point of view to differentiate own products, but it has regarded as find out the desired product for consumer. Top automobile companies possess high brand equity which enables them to generate differential effect. Today, 9 automobile companies hold their position in the list of top 100 companies in terms of brand equity. Building a strong brand requires not only introducing the brand name but protecting it as well. Although brand sponsorship can be executed by- manufacturer brand, private brand, licensed brand and co-branding; in this industry, private and licensed brands are hardly used. Brand developing strategies includes line extension, brand extension, multibrand, new brand. Environment is also related with branding strategies. So in this industry, companies always try to introduce new and quality product and build and maintain strong brand.
Origin of the Report:
As per for the successful completion of course F-204, (Principles of Marketing), we are required to prepare a report on a related topic. It is from this inspiration and according to our instructor, Shabnaz Amin; we started to prepare our report on “Product & Branding Strategies”. For this purpose, we chose the world Automobile Industry. This is a very lucrative topic to learn about the real business life and we found the topic very informative and appealing.
Objectives of the Report:
The main focus of this report will be on analyzing the product and branding strategies of Automobile Companies. The aim of the report is to give a general overview of development of automobile industry and the multidimensional strategies related to product and branding taken by the companies in this sector.
Our objective is to provide a formal report on the theoretical knowledge learned in the class on real business life perspective.
Our distinct objectives are:
- To find out the nature of product.
- To analyse the various product & branding strategies.
- To learn about the practical implementation of theoretical strategies.
- To provide information about the recent and probable future trends.
Scopes of the Report:
This report provides an overall situation of branding culture in automobile industry. It finds out the reason behind why the product and branding strategies are so important to both launch and develop a product or brand. While talking about the performance of these strategies, the report also highlights the historical background and the process of taking these strategies in this sector.
Methodology of the Report:
This report has been prepared on the basis of related articles, personal studies, data collected from different sources, expert opinions etc. In preparing the report, only secondary data have been used. We have shown a few analyses conducted by ourselves based on available data. Besides these, the particular sources of information are mentioned in bibliography part.
Limitations of the Report:
Our target was to prepare an exact report delivering the real condition of product and branding strategies used in Automobile sector. But unavailability of primary information proved to be the most disturbing constraint in preparing the report. Data collection was proven to be most hazardous. This was not readily available. We have gathered data from various online resources and libraries by visiting many times. This was an exciting topic to prepare a standard report but there were not enough particular studies on this topic. But, we have tried our level best to prepare this paper with sincerity. Our effort will be a successful one when this paper will approach readers’ desired level.
History of Automobile:
The history of automobile began when several Italians recorded designs for wind driven vehicles. The first was Guido da Vigevano in 1335. It was a windmill type drive to gears and thus to wheels. Vaturio designed a similar vehicle which was also never built. Later Leonardo da Vinci designed clockwork driven tricycle with tiller steering and a differential mechanism between the rear wheels.
A Catholic priest named Father Ferdinand Verbiest has been said to have built a steam powered vehicle for the Chinese Emperor Chien Lung in about 1678. There is no information about the vehicle, only the event. Since Thomas Newcomen didn’t build his first steam engine until 1712 we can guess that this was possibly a model vehicle powered by a mechanism like Hero’s steam engine, a spinning wheel with jets on the periphery. Newcomen’s engine had a cylinder and a piston and was the first of this kind, and it used steam as a condensing agent to form a vacuum and with an overhead walking beam, pull on a rod to lift water. It used the same vacuum principle that Thomas Savery had patented to lift water directly with the vacuum, which would have limited his pump to less than 32 feet of lift.
In 1765 James Watt developed the first pressurized steam engine which proved to be much more efficient and compact that the Newcomen engine. Newcomen’s lift would have only been limited by the length of the rod and the strength of the valve at the bottom.
Nicolaus Otto was born on June 14, 1832 in Holzhausen, Germany. Otto’s first occupation was as a traveling salesman selling tea, coffee, and sugar. He soon developed an interest in the new technologies of the day and began experimenting with building four-stroke engines (inspired by Lenoir’s two-stroke gas-driven internal combustion engine). After meeting Eugen Langen, a technician and owner of a sugar factory, Otto quit his job, and in 1864, the duo started the world’s first engine manufacturing company N.A. Otto & Cie (now DEUTZ AG, Köln). In 1867, the pair was awarded a Gold Medal at the Paris World Exhibition for their atmospheric gas engine built a year earlier.
In May 1876, Nicolaus Otto built the first practical four-stroke piston cycle internal combustion engine. He continued to develop his four-stroke engine after 1876 and the work finished after his invention of the first magneto ignition system for low voltage ignition in 1884. His patent was overturned in 1886 in favor of the patent granted to Alphonse Beau de Roaches for his four-stroke engine.
In 1885, Gottlieb Daimler (together with his design partner Wilhelm Maybach) took Nicolaus Otto’s internal combustion engine a step further and patented what is generally recognized as the prototype of the modern gas engine. Daimler founded the Daimler Motoren-Gesellschaft in 1890 to manufacture his designs. Eleven years later, Wilhelm Maybach designed the Mercedes. A few years later left Maybach left Daimler to set up his own factory for making engines for Zeppelin airships. In 1894, the first automobile race in the world was won by a car with a Daimler engine.
In 1889, Daimler invented a V-slanted two cylinder, four-stroke engine with mushroom-shaped valves. Just like Otto’s 1876 engine, Daimler’s new engine set the basis for all car engines going forward. Also in 1889, Daimler and Maybach built their first automobile from the ground up; they did not adapt another purpose vehicle as had always been done previously. The new Daimler automobile had a four-speed transmission and obtained speeds of 10 mph.
Karl Friedrich Benz was born in 1844 in Baden Muehlburg, Germany (now part of Karlsruhe). He was the son of an engine driver. Benz attended the Karlsruhe grammar school and later the KarlsruhePolytechnicUniversity. In 1871, He founded his first company with partner August Ritter, the “Iron Foundry and Machine Shop” a supplier of building materials.
In 1885, German mechanical engineer, Karl Benz designed and built the world’s first practical automobile to be powered by an internal-combustion engine. On January 29, 1886, Benz received the first patent (DRP No. 37435) for a gas-fueled car. It was a three-wheeler; Benz built his first four-wheeled car in 1891. Benz & Company, the company started by the inventor, became the world’s largest manufacturer of automobiles by 1900.
Rudolf Diesel was born in Paris in 1858. His parents were Bavarian immigrants. Rudolf Diesel was educated at Munich Polytechnic. After graduation he was employed as a refrigerator engineer. However, his true love lay in engine design. Rudolf Diesel designed many heat engines, including a solar-powered air engine. In 1893, he published a paper describing an engine with combustion within a cylinder, the internal combustion engine. In 1894, he filed for a patent for his new invention, dubbed the diesel engine. However, his engine was the first that proved that fuel could be ignited without a spark. He operated his first successful engine in 1897.
At Augsburg, on August 10, 1893, Rudolf Diesel’s prime model, a single 10-foot iron cylinder with a flywheel at its base, ran on its own power for the first time. Rudolf Diesel spent two more years making improvements and in 1896 demonstrated another model with the theoretical efficiency of 75 percent, in contrast to the ten percent efficiency of the steam engine.
Charles Duryea and Frank Duryea were bicycle makers who became interested in gasoline engines and automobiles. Charles Duryea and Frank Duryea were the first Americans to build a successful automobile, and the first to incorporate an American business for the expressed purpose of building automobiles for sale to the public.
On September 20 1893, their first automobile was constructed and successfully tested on the public streets of Springfield, Massachusetts. Charles Duryea founded the Duryea Motor Wagon Company in 1896, the first company to manufacture and sell gasoline powered vehicles. By 1896, the company had sold thirteen cars of the model Duryea, an expensive limousine, which remained in production into the 1920s.
Automobile manufacturer Henry Ford was born July 30, 1863, on his family’s farm in Dearborn, Michigan. From the time he was a young boy, Ford enjoyed tinkering with machines. Farm work and a job in a Detroit machine shop afforded him ample opportunities to experiment. He later worked as a part-time employee for the Westinghouse Engine Company. By 1896, Ford had constructed his first horseless carriage. In 1932, Henry Ford introduced his last engineering triumph: his “en block”, or one piece, V-8 engine. On January 13, 1942, Henry Ford patented a plastic-bodied automobile – a car 30 percent lighter than metal cars.
Ford revolutionized manufacturing. By 1914, his Highland Park, Michigan plant, using innovative production techniques, could turn out a complete chassis every 93 minutes. This was a stunning improvement over the earlier production time of 728 minutes. Using a constantly-moving assembly line, subdivision of labor, and careful coordination of operations, Ford realized huge gains in productivity.
Products and product levels: Automobile Industry
A product is a good, service, or idea consisting of a bundle of tangible and intangible attributes that satisfies consumers and is received in exchange for money or some other unit of value. There are 3 levels of products; they are- core product, actual product, and augmented product.
Products in automobile industry can be classified into the following levels:
Let’s take the Toyota Corporation as an example. We have tried to find out the different levels of products that the company provides to its customers.
Core Product: – Transportation and communication facility.
- Brand Name: COROLLA, LEXUS, LAND-CRUISER.
- Design: Convenient seating pattern, attractive internal & external design.
- Feature: Fuel efficiency, adjustable wheel, bullet proof body
- Quality: Long lasting, speedy, consistent.
Receive more than just the car- a warranty on parts and workmanship, free lessons, quick repair service when needed and toll free telephone number when needed.
Product Line Decision: Automobile Company
Product line decision involves two considerations- Line stretching and Line filling.
Product Line Stretching
When a company lengthens its product line beyond the current range in response to customer wants and demands then it is called product line stretching. It can be upward stretching and downward stretching or both.
Product Line Filling
Product line filling occurs when a company adds more products within the current range of the line without changing the basic feature and quality. The company should ensure that the new items are noticeably different from existing ones.
Product Line Stretching
Branding and the role of brands, as traditionally understood, were subject to constant review and redefinition. A traditional definition of a brand was, the name, associated with one or more items in the product line, that is used to identify the source of character of the item(s)
From a different point of view, a name, term, sign, symbol, or design, or a combination of them, intended to identify the goods and services of one seller or group of sellers and to differentiate them from those of competitors.
Product Branding & Corporate Branding:
The most recent turn in branding literature emerged in the mid-nineties. Businesses began shifting their focus from product brands to corporate branding. The corporate brand perspective supports, and could be a consequence of, the strategic view of brands. Corporate brands are leading to the development of a new branch of marketing which should be known as “corporate- level marketing”.
According to Balmer and Gray, corporate and product brands are different in terms of their composition, constituencies, maintenance, management, and disciplinary roots. Hatch and Schultz distinguish six differences between product and corporate branding:
- The shift in focus from product to corporation of the branding effort;
- The different exposure the organization is subject to, which makes the firm’s behavior and its interaction with society much more visible;
- The relation of the brand to all company stakeholders, not just customers;
- The requirement of organization-wide support;
- The greater reach of corporate brands than product brands means that they take on more strategic importance.
Knox and Bickerton identify six “conventions” of corporate brand building, they are:
- Brand context: understanding where the brand stands
- Brand construction: how the brand is positioned in accordance to customer and stakeholder value
- Brand confirmation: the way the brand is articulated to the rest of the
- organization and all of its audiences
- Brand consistency: delivering clarity to all stakeholders through its communication channels
- Brand continuity: alignment of business processes with the corporate brand
- Brand conditioning: ability to monitor and manage brand on a continual basis.
Brand Hierarchy: Automobile Industry
Product Line Brand
Chevrolet Lumina Sports Coupe
Corolla SE Limited
Branding: Sellers, the only beneficiary?
From a narrow point of view it seems that the sellers enjoy the most of the benefits of branding. But, as a matter of fact, branding provides equally for the buyers as well.
- Differentiates product offering from competitors.
- Helps segment market by creating tailored images.
- Identifies the companies’ products making repeat purchases easier for customers.
- Reduces price comparisons
- Helps firm introduce a new product that carries the name of one or more of its existing products…half as much as using a new brand, lower co. designs, advertising and promotional costs.
- Easily cooperates with intermediaries with well known brands.
- Facilitates promotional efforts.
- Helps foster brand loyalty helping to stabilize market share.
- Firms able to charge a premium for the brand.
- Helps identify the product that they like/dislike.
- Identifies marketer
- Helps reduce the time needed for purchase.
- Helps evaluate quality of products especially if unable to judge products characteristics.
- Helps reduce buyers’ perceived risk of purchase.
- Helps Derive a psychological reward from owning the brand
Brand equity, is the ‘added value’ with which a given brand endows a product. Brand equity has also been defined as the enhancement in the perceived utility and desirability a brand name confers on a product.
In other words, high brand equity generates a “differential effect”, higher “brand knowledge”, and a larger “consumer response”, which normally leads to better brand performance, both from a financial and a customer perspective.
Strong brand equity provides the following benefits:
- Facilitates a more predictable income stream.
- Increases cash flow by increasing market share, reducing promotional costs, and allowing premium pricing.
- Brand equity is an asset that can be sold or leased.
However, brand equity is not always positive in value. Some brands acquire a bad reputation that results in negative brand equity. Negative brand equity can be measured by surveys in which consumers indicate that a discount is needed to purchase the brand over a generic product.
FIG- The most valuable brands currently in the world
BRAND EQUITY (Million)2004
BRAND EQUITY (Million)2003
FIG- Brand Equity of top Automobile Companies
Managing Multiple Brands
Different companies have opted for different brand strategies for multiple products. These strategies are:
- Single brand identity – A separate brand for each product. For example, in Automobiles TOYOTA offers uniquely positioned brands such as Corolla, Carina, Allion, etc.
- Umbrella – All products under the same brand. For example, BMW offers many different product categories under its brand.
- Multi-brand categories – Different brands for different product categories. FIAT uses Punto for car, CNH Global for Agricultural and construction equipment, Teksid for metal products, and La Stampa for Publication Company.
Building Strong Brands
Building strong brand involves the major decisions regarding brand positioning, brand name selection, brand sponsorship, and brand development.
Marketers can position brands at any of the three levels. These three are product attributes, benefits, beliefs and values.
Brand positioning process:
Generally, the product positioning process involves:
- Defining the market in which the product or brand will compete (who the relevant buyers are)
- Identifying the attributes (also called dimensions) that define the product ‘space’
- Collecting information from a sample of customers about their perceptions of each product on the relevant attributes
- Determine each product’s share of mind
- Determine each product’s current location in the product space
- Determine the target market’s preferred combination of attributes (referred to as an ideal vector)
- Examine the fit between:
- The position of your product
- The position of the ideal vector
Brand Name Selection:
A good name can add a lot to a brand’s success. Although selecting a good brand name is not an easy task to do, businesses must make sure that the name is attractive to the target customers and at the same time exclusive of any negative expression. A good brand name should have the following qualities.
- Easy for customers to say, spell and recall (including foreigners).
- Indicate product’s major benefits.
- Be distinctive- Rolls Royce.
- Be extendable- Fiat.
- Compatible with all products in product line.
- Used and recognized in all types of media.
- Single and multiple words- Lexus, Dodge Grand Caravan, BMW (letters), or a combination Mazda RX7.
- Use words of no meaning to avoid negative connotation- Lexus.
How to protect the Brand?
- Need to design a brand that can be protected through registration.
- Generic words are not protectable- Flying Car.
- Surnames and geographic or functional names are difficult to protect.
- The brand is not likely to become considered an infringement on any existing registered brand.
- Guard against a brand name becoming a generic term used to refer to general products category- Honda, Jeep.
There are four major sponsorship options. They are-
- Manufacturer’s brand
- Private brand or Distributor’s brand
- Licensed brand
Brand Sponsorship in Automobile Sector
In automobile industry manufacturer’s brands dominate the market. BMW, Mercedes-Benz, Toyota all are manufacturer’s brand and even each and every product-line brand & sub brand is manufacturer’s brand as well. It seems that the manufacturers do not want to face further competition from non-manufacturers in this particular industry.
A private brand is a brand created and owned by a reseller of a product. In terms of automobile industry, there is no private brand. It is, in fact, obvious that no private distributor has that much ability and goodwill to introduce private brand in this industry and impose threat to the well-known manufacturers.
In many industries manufacturers take time to develop a distinguished brand name and then let the brand licensed by others in exchange of a significant amount of fee or royalty. But in the industry with which we are concerned, licensing brands are not familiar yet.
When a brand has relevance beyond its owner’s competencies it should explore brand licensing as a route to market for new, brand-enhancing, revenue-generating products that appeal to a latent market of brand aficionados. A side effect of extending beyond the company’s core competencies is that it can result in a change of perception and direction for the brand.
Co-branding is the most widely used brand sponsorship option in automobile industry. Now-a-days, many distinguished companies like Ford, Nissan, Mitsubishi, Honda, etc launch co-branded products.
Above, we have shown that the Maruti Group of India along with the Suzuki Corporation of Japan has introduced a new brand Maruti-Suzuki in India, which is a co-brand.
Another example of co-branding we have found, which is also in India, is of Hero-Honda. The Hero Company (India) in collaboration with the motor-cycle division of Honda Motor Corporation (Japan) has introduced a new motor-cycle brand.
Brand Development Strategies:
Automobile Companies can extend their lines by modifying the interior and exterior feature, color, design etc. For instance, Toyota tries to extend line by introducing Solar-powered cars and electric cars without changing the product as well as the brand.
Ferrari, the number one manufacturer of sports car, mostly produces RED colored cars. It allows them to conduct line extension by changing the color in response to consumer demands and wants.
In 1990s, 81% of new products used brand extension to introduce new brands and to create sales. In automobile industry, the practice of brand extension is quite familiar. Honda does it by covering different products like cars, motor-cycles, marine-engines, lawn mowers, snow blowers and snow mobiles under the name Honda. This allows Honda to advertise that it can fix “six Hondas in a two car garage”. It is one of the new product development strategies taken by Honda which can reduce financial risk by using the parent brand name to enhance consumers’ perception due to the core brand equity.
In order to make brand extension:
- GM might bring Segway-style personal transportation.
- Lexus can offer home luxury seating with power controls.
The concept of Multibrand is used when companies introduce additional automobile brands in the same category. We can find this strategy been applied by the GM. The upper class division of the company consists of several brands like: Cadillac, Hummer, Chevrolet etc.
New brands are created when companies enter into a new product category for which the current brand names are not appropriate. Nissan launched the Infinity brand to differentiate its luxury car from the established Nissan line.
Brand Development Index:
Brand Development Index (BDI) measures the relative sales strength of a brand within a specific market (e.g. BMW brand in 10 – 70 year old). It is a measure of the relative sales strength of a given brand in a specific market area.
BDI is calculated by A% / X%, where A is the percentage of a brand’s total sales in a specific market area, and X is the percentage of the total population in that market area. The BDI is especially useful in conjunction with the Category Development Index (CDI). It can be used in deciding the allocations in the media to which a specific brand is advertised. It can also be used to determine how much advertising, or promotion effort is, or should be put in that specific market.
Branding and the Environment:
Consumers are beginning to take environmental impact into consideration in purchase decisions. Businesses that demonstrate environmental responsibility have the opportunity to contribute favorably to their images while aligning themselves with their customers’ wishes.
Subaru is safeguarding the environment
Subaru of America (SOA), and its parent company, Fuji Heavy Industries LTD. (FHI), are demonstrating their commitment to preserve the global environment through their multiyear FHI Environmental Conservation Program. Expanding on FHI’s efforts during the 1990’s, the program addresses the entire product lifecycle — from the development and design of a vehicle to its disposal.
Subaru’s Environmental Policy is committed to:
- Complying with all environmental laws and regulations related to their business activities.
- Implementing effective pollution prevention systems that protect our air, land and water.
- Conserving natural resources, reducing, reusing and recycling materials.
- Continuous improvement of their Environmental Management System (EMS).
- Creating employee awareness and commitment to SOA’s Environmental Philosophy and Policy.
Brand Loyalty in the Car Industry: Toyota #1
Every automobile company wants high customer retention numbers, and the industry is always particularly focused on brand loyalty. Toyota leads the pack in terms of customer retention within its line of products, but General Motors (NYSE: GM) is slowly closing the gap. In fact, GM’s customer retention is up three percentage points higher over the prior year, and this increase appears to represent a trend. In terms of loyalty to specific brands within the manufacturers’ lines of products, Toyota and Lexus (both owned by Toyota) ranked first and second for loyalty with Chevrolet (a GM brand) coming in fifth as the highest ranking American made brand. While it’s certainly interesting to see an upswing in customer retention for GM, the most interesting part is actually the companies ranking lowest in terms of customer retention. What’s going on at Isuzu that the company only has a 1.6% customer retention rate? Isuzu has a limited product line, but 1.6% really jumps out as significantly poor. Maserati North America has a limited product line, but still manages to retain 41.9% of its customers.
Why Brand Placement rather than Product Placement?
At present audiences are facing mostly brand placements instead of product placements. The cause for this transformation rests with not only the distinction between brands and products, but also the advantages of brand placements over product placements with regards to their own features. While product placements merely display the product in a movie or on TV, brand placement highlights not only the brand but also its uses and attributes as they are discussed or demonstrated. On one hand, with brand placement the brand is fully integrated with the story or actors on the ground that it is discussed or used. Yet with product placement, the most usual situation is that the product just shows up in the background with no mention of it.
The MINI Couple was embedded in the movie “The Italian Job”, it is not only the excellent performance of MINI cars that was focused, what is more, the spirit of the MINI brand, which is ingenious, capable and vigorous, that attracts the audience and makes unforgettable impressions. Brand placement originating from product placement, is more advanced and satisfies the high expectations of today’s marketing.
A great many advertisers are attempting to integrate their brands into the programs themselves, instead of limiting their presence to commercials that are separated from the program. For example, Ford Motor Co. built a campaign in Europe around the James Bond adventure “Casino Royale” to launch its new Ford Mondeo there. A FORD car advertisement on a subway is something common and is probably not going to have the same effect when James Bond drives that car in the movie.
Advertisers take advantage of the characters and story of programs to demonstrate what the brand represents or stands for, or even harness the program to prove a brand’s superiority over other competitors by fictionalizing a scene that one branded product beats out its rivals. Take the BMW brand in 007 movie “Tomorrow Never Dies” as an example. In this classic movie, a BMW 7 series car is embedded into the story and acts as one of James Bond’s significant intelligent weapons to fight against his enemies. Firstly, the BMW brand’s spirit, appearing as driving-oriented, powerful, and sophisticatedly equipped, is thoroughly conveyed by both the charm of James Bond himself and the plot that shows Bond defeating his enemy in an ingenious way. Secondly, the BMW car in the movie triumphs over its rival Mercedes-Benz which is also one of BMW’s major competitors in reality. With brand placement BMW gets the opportunity to express a message that it has remarkable superiority to Benz in equipment, driving-quality, and other similar aspects and the BMW brand is perfectly prepared for those customers who are pursuing an exciting, passionate, and energetic style of life.
Findings from the study:
- Like others, Automobile Companies also provide with three levels of product– core product, actual product, and augmented product.
- Automobile companies make significant implementation of line stretching and line filling strategies to capture new markets and retain the existing ones.
- Branding is one of the most vital requirements in automobile industry from the very beginning and it is becoming increasingly important.
- Both corporate branding and product branding are found in this industry and the emphasis is going towards product branding in recent times.
- Branding is not serving the sellers only, it also facilitates the buyers.
- Top automobile companies maintain high brand equity.
- Selecting a brand name requires lots of concern to avoid negative impression.
- An important characteristic of the industry is the absence of private brand and licensed brand.
- Co-branding is one of the most frequently found strategies in the industry.
- Line extension, brand extension, multibrands, and new brands are widely practiced branding strategies in this sector.
- Now-a-days environment plays a key role in influencing the brand strategies of the companies.
- Companies are trying to develop brand loyalty in customers’ mind.
- A recent trend is towards brand placement rather than product placement.