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Tesla Marketing Strategy

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Ahmed Elrayes

Tesla has achieved great success through understanding market environments, targeting multiple consumer segments, and innovating their marketing mix. They produce high-quality electric vehicles to meet consumer needs while furthering environmental sustainability. Tesla's strategic focus on the customer experience, rather than lavish marketing, has helped them build loyal customers. Reinventing sales channels and reducing overhead costs has also contributed to their competitive edge over other automakers.

Automotive
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electric-cars
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Table of Contents 1. PREAMBLE.......................................................................................................................2 2. INTRODUCTION ..............................................................................................................2 3. SUCCESS OF TESLA MOTORS.......................................................................................3 3.1. UNDERSTANDING MARKET ENVIRONMENTS................................................................ 4 3.2. COMPETITORS ANALYSIS & MARKET POSITION.......................................................... 5 4. TESLA’S MARKETING SUCCESS FORMULA...............................................................5 4.1. SEGMENTATION & TARGETING ................................................................................... 6 4.2. MARKETING MIX ........................................................................................................6  Products ...................................................................................................................... 6  Promotion.................................................................................................................... 9  Place ........................................................................................................................... 9  Price.......................................................................................................................... 10 5. CONCLUSION................................................................................................................. 12 6. FUTURE RECOMMENDATIONS.................................................................................. 13 APPENDIX 1: DETAILS ON PEEST ANALYSIS................................................................... 14 APPENDIX 2: TESLA MODEL S VERSUS COMPETITOR.................................................. 16 REFERENCES......................................................................................................................... 17 BIBLIOGRAPHY..................................................................................................................... 20
Ahmed Elsayed Elrayes – 15024408 ___________________________________________________________________________ Page 2 of 20 Tesla Motors from a 19th century Design to 21st century and Innovators and Electrical Vehicle Leaders 1. Preamble Thinking about Electrical Vehicles (‘EV’) is like imagining the future, however, in reality EV were developed and produced in 1800s, EV dominated the steam and gasoline vehicles in 1909 reaching 30,000 registered EV in U.S. alone (Høyer, 2007). With the technology advancement in Internal Combustion Engines (ICE) and Oil revolution, it started to be more feasible and economical to shift to ICE vehicles (Høyer, 2007). The resurrection of EV production was supported by UN World Commission for sustaining the environment for better future, and the UN Green Economy initiative that aims for economics growth, resource sustainability, and preserving the environment (UNDP, 2010 and WCED (1987, cited in Høyer, 2007) this led for hidden race between automakers to deliver an environment friendly vehicle and meets the consumer needs, which was first met by Toyota Prius in 1997 (Høyer, 2007). Tesla Motors is the 21st century market success story in EV automaker industry, this report aims to analyze the marketing success factors contributed to Tesla’s success, Tesla’s utilizations of marketing mix, and highlights key recommendation for Tesla’s future. 2. Introduction Tesla Motors (‘Tesla’) was founded in 2003 by Silicon Valley inventors with an aim of producing pure electrical vehicles, based on original 1888 Nikola Tesla electrical motor, Tesla’s mission is “To accelerate the world’s transition to sustainable transport and bring mass market electrical cars to market as soon as possible” that makes Tesla not only a car manufacturing company, but also a technology and energy innovation company. (Tesla Motors, 2016). Maneuvering in a very competitive market with high barriers of entry that requires strong financial and infrastructure support (The Economist Intelligence Unit, 2012), just after 16 years, Tesla managed to re-define the automaker industry with successful launch of its main stream model 3, achieving the biggest marketing and financial success in the history of any industry, recording $ 7.5 Billion U.S. dollars worth of pre-orders in just 24 hours (The Economist, 2016 and Randall, 2016). Tesla is the anomaly that survived the market high
Ahmed Elsayed Elrayes – 15024408 ___________________________________________________________________________ Page 3 of 20 entry barriers compared to its peers/startups with successful strategies, business model and marketing approach lead by Tesla’s CEO (Muller, 2013). 3. Success of Tesla Motors “For Marketing strategy to be developed successfully, it is necessary to understand an organization’s strategic context and then to fit the marketing strategy...” (Baines & Fill, 2014). Tesla gained its success of being the zero emission automaker that successfully delivered workable production vehicles that address consumer needs (Mangram, 2012). Additionally, Tesla has gained market attention in the automaker industry similar to Apple and being ranked #1 world’s most innovative company in 2015 by Forbes (Forbes, 2015), and ranked #3 in 2013 after big players like BMW and Mercedes in selling electrical cars and #1 in electric automakers (Reynolds, 2013 and Hartung, 2013). Financially, Tesla created a success with steady increase of revenue since 2012 second quarter when Model S delivery started shown in Figure 1.
Ahmed Elsayed Elrayes – 15024408 ___________________________________________________________________________ Page 4 of 20 3.1. Understanding Market Environments A quick PEEST analysis for EV automaker can be summarized by the following: Tesla is operating in a positive environment, which enables success of environmental friendly vehicles, Tesla’s products have the political and legislative support to achieve environmental sustainability. Consumers are looking for a suitable alternative to ICE vehicles in support of environmental issues, and to unlock the economical benefits of saving from fuel and running costs. Also, governments realized the economical benefits of adopting green vehicles as means of transportation based on the economical value to nations’ GDP and environmental sustainability. Finally, with technology advancements in long lasting batteries, and recharging networks that made governments establish platform for Tesla’s success. Refer to Appendix 1 for additional details of PEEST analysis.
Ahmed Elsayed Elrayes – 15024408 ___________________________________________________________________________ Page 5 of 20 3.2. Competitors Analysis & Market Position Tesla is taking advantage of big companies’ slower movement to capture new profit opportunities, and focus on what they do best and trying to shift to make EV (Flowers, 2008). Tesla has chosen a niche market segment of providing luxury, stylish, long range EV on a single charge and more horsepower with no direct competitors (Tesla Motors, 2016 and Gould and Muioi, 2015). In addition, when Tesla launched the Model 3 for mass-market, it gained the competitive edge over other automakers with supercharged stations across U.S. and Europe and functions that meets consumers’ needs, making Tesla the lead competitor for giant automakers to be aware of, adding the past success of Tesla being ranked #1 in EV sales in 2013 operating with almost no direct competition (McGee, 2016 and Hartung, 2013 and The Economist, 2016). 4. Tesla’s Marketing Success Formula A strong marketing strategy will ensure success, which is the fault of many start ups tend to forget and focus on operational aspect of the organization (Flowers, 2008). Tesla didn’t focus on lavish marketing approaches to succeed, but focused on understanding consumers’ needs, and establishing loyal consumers by focusing on the Tesla EV ride experience and functionalities. Moreover, Tesla way of selling is by itself a differentiator from other competitors, by reinvented the sales channels and cutting the car dealership methods, reducing the overhead costs (Trefis Team, 2016 and Reynolds, 2013 and Gould and Muioi, 2015).
Ahmed Elsayed Elrayes – 15024408 ___________________________________________________________________________ Page 6 of 20 4.1. Segmentation & Targeting Tesla aims to contribute to cleaner environment and by changing the transportation means to be cleaner and efficient use for every consumer (Tesla, 2016). Realizing this mission requires Tesla to adopt multi-level approach in marketing their products (Mangram, 2012): a. B2B Market: Tesla encourages the partnerships with other automakers by having its technology patents open for use, by this enables Tesla achieve its mission of sustainable transportation (Tesla, 2016). Tesla partners with big automakers and sells the drivetrain and battery technologies to automakers to produce their models, such as, the Toyota 2012 RAV4 EV (Fleming, 2013) and German automaker giant Mercedes-Benzes (Yared, 2014). b. B2C Market: Tesla targets the consumer by three main models, the luxury sedan Model S, the family SUV Model X, and the mass market Model 3. In addition to the complimentary products (Tesla Motors, 2016) 4.2. Marketing Mix A successful implementation of organizational strategy requires efficient and effective utilization of the marketing mix, enabling the organization to communicate successfully with consumers (Proctor, 2002). Tesla is not only considered a technology innovator or electrical automaker, Tesla redefined the industry business model and the utilization of the marketing mix to achieve its strategic goals. Tesla re-invented the automakers approach in selling its products and distributed the market (Reynolds, 2013 and QMAC, 2016). Examine Tesla’s Marketing Mix components as follows:  Products  Targeting automakers, Tesla sells its drive-train technologies and lithium-ion batteries to automakers, because of reduced cost and long lasting duration of batteries (Fleming, 2013 and Yared, 2014). With increasing demand of EV batteries, Tesla partnered with Panasonic to build “GigaFactory” to be ready by 2017 to meet Tesla’s own demand for its EV and their clients (Economist, 2014).
Ahmed Elsayed Elrayes – 15024408 ___________________________________________________________________________ Page 7 of 20  Targeting consumers, Tesla focus in making the suitable car for consumers considering all aspects of their needs, such as, environmental friendly, long distance travel on a single charge, horsepower, loaded with useful latest technologies and gadgets, high level of road safety, and the key element is the modern stylish design of Tesla’s models, in contrast with regular automakers and EV startups tend to design and build either futuristic cars or small compact cars to resolve some of the issues related to electricity consumption, which don’t appeal to consumer making (The Economist, 2014 and QMAC, 2016). “A Tesla is a more stylish way of displaying environmentalist credentials than a lumpen Toyota Prius and more practical than a Ferrari—putting two child seats in the back boosts the capacity to seven passengers” (The Print Edition-the Economist, 2014). Appendix (2) compares EV models and clearly shows Tesla Model S is taking the spot lights (Davies and Nudelman, 2013)
Ahmed Elsayed Elrayes – 15024408 ___________________________________________________________________________ Page 8 of 20  Complimentary products, Tesla builds Supercharger stations across the world, enabling Tesla’s vehicles and other electrical vehicles to utilize those supercharger stations. Tesla’s Supercharger stations more efficient and effective in battery charging, and in less time that regular charging technologies which gives them a competitive edge over the market. (Girotra and Netessine, 2013 and Trefis Team, 2016 and Tesla Motors, 2016). Tesla provides “Powerwall” a home battery to utilize with solar power for storing energy, providing efficient use of home electricity even at night, with more than 1,000 consumers utilizing Tesla’s Powerwall alongside Solar Panels to store electricity (Economist, 2014).
Ahmed Elsayed Elrayes – 15024408 ___________________________________________________________________________ Page 9 of 20  Promotion In just 24 hours from launching Model 3 prototype, Tesla recorded a 198,000 reservation orders of a vehicle that would start production in late 2017, this shows how Tesla’s promotion strategy is effective in reaching its consumers (Randall, 2016). Tesla succeeded without spending on mainstream promotions and no plans of hiring an advertisement agency, Tesla focuses on communications through its website, stores and social-network capturing client’s experience driving a Tesla (AdvertisingAge, 2013). In addition, Having Tesla’s CEO as the face of the company with over 2 million followers in social media updating the world of Tesla’s mission, products and stories (QMAC, 2016).  Place Tesla is all about the consumer experience, exclusivity and modernization from establishing interest of buying a Tesla model to even aftersales services. Tesla
Ahmed Elsayed Elrayes – 15024408 ___________________________________________________________________________ Page 10 of 20 reinvented the purchasing experience of a vehicle, Tesla removed the “middleman” traditional dealership approach by directly selling to end consumer. It didn’t stop at channel selection but also carefully opening Tesla stores at shopping malls with no stock of cars, consumers go to Tesla’s shops for the experience and learning more about Tesla’s technologies, mission and exclusivity of being each purchased car customized for its owner (QMAC, 2016 and The Economist, 2015). Another sales channel is Tesla’s interactive website ordering applications that provides full control to the consumers to make the purchase, while understanding all aspects of the products and number of varieties of customization (QMAC, 2016 and The Economist, 2015). Even aftersales support is completely managed by Tesla ensuring quality of service and enhanced customer experience, as most of the vehicle services are software update, Tesla provides over the internet update to its models without the need of visiting a service center (QMAC, 2016)  Price Currently, Tesla is classified against luxury automakers segment as Tesla’s current models are compared to Mercedes S Class, Porsha, BMW…etc. So far. Tesla Model S starts at 70,000$ which is highest of EV cars, but still Tesla sold
Ahmed Elsayed Elrayes – 15024408 ___________________________________________________________________________ Page 11 of 20 more cars in Q1 of 2013 than Mercedes or BMW similar models (Valdes- Dapena, 2013). Tesla strategy to produce mass market EV (Model 3) at a range of 35,000$ and lower, this can be achieved by completing of “Gigafactory” and advances in battery technologies, giving Tesla the competitive edge over the EV market (The Economist, 2015 and Davies and Nudelman, 2013).
Ahmed Elsayed Elrayes – 15024408 ___________________________________________________________________________ Page 12 of 20 5. Conclusion Tesla achieved its mission of successful delivery of environmental friendly cars to consumers, whither through Tesla’s top of the range vehicles or through Tesla’s innovative technologies that are open for other firms to build on. It’s true the market macroeconomic environment provided the required infrastructure and demand enabling Tesla to successes, but Tesla’s success came from its strategic business model, which is built around Tesla delivering what is the consumers need. Tesla succeeded in building loyal consumers base by actively communicating with consumers to understand their needs, experience and delivering the right products. Tesla’s adopted business model outcomes were tangible during the launch of Model 3 recording over 800 individuals in single Tesla store to place their advanced reservation amount (@elonmusk, 2016).
Ahmed Elsayed Elrayes – 15024408 ___________________________________________________________________________ Page 13 of 20 6. Future Recommendations Moving ahead Tesla will definitely have a continuing demand for its products and technologies, and playing a major role as innovators for sustainable transportation with several speakers and articles predicting that the near future transportations won’t be based on ICE vehicles (Urquhart, 2013). It is important to sustain Tesla’s position in the market for future the success established by Tesla’s market, key recommendation raised from conducted research are:
Ahmed Elsayed Elrayes – 15024408 ___________________________________________________________________________ Page 14 of 20 Appendix 1: Details on PEEST Analysis  Political/Legal: Governments are supporting the UN’s green initiative and working to reduce carbon footprint, with setting target to achieve a certain CO2 emissions levels, which creates a need for environmental friendly means of transportation, Figure 2 shows targets set by leading countries to reduce carbon footprint. (McKinsey & Company, Amsterdam Roundtable Foundation, 2014). Inline with governments’ initiative different laws/legislations were in place to support citizens shift to EV, such as tax reduction/exemptions, free parking or other means. This political/legal aspect established a demand for greener cars, for example, Toyota is planning to double its production of green flagship model Prius (The Economist Intelligence Unit, 2012).  Economic: Shifting to EV contributes positively to the economic growth, both at consumer and nation levels. Saving fuel costs and ability to spend the saved money in different items, leads to better circulation of money in economy at whole (Ozaki and Sevastyanova, 2009 and Gallagher and Muehlegger, 2008). In Addition, adopting new technologies resolves national economical issues such as, unemployment by increasing demand for different skill sets and opens doors for supporting businesses to service EV, which contributes to national GDP (McKinsey & Company, Amsterdam Roundtable Foundation, 2014 and Hecker, 2005).
Ahmed Elsayed Elrayes – 15024408 ___________________________________________________________________________ Page 15 of 20  Ecological: The political aspect is highly linked with ecological aspect of this analysis, as mentioned in point 3.1.1, there is strong push started in 1986 by WCED and UN to reduce carbon footprint and preserve the environment WCED (1987, cited in Høyer, 2007). In support of environment preservation, California State placed zero emission regulation in 1990s, which started the race again for research and development of EV and home of Tesla Motors (Høyer, 2007).  Social/Culture: Consumers’ buying behavior are strongly linked with economical benefits of long- term saving, and contribution of preserving the environment (The Economist Intelligence Unit, 2004), Figure 3, shows top motivation for customers to purchase EV (Ozaki and Sevastyanova, 2009)  Technological: The EV history started with advances in battery technologies, and passing the 60 mile range limitation (Høyer, 2007), Governments are supporting EV automaker by investing in new technologies that motivate the consumers to buy alternative vehicles than ICE, such as the smart roads in UK that aims to recharge the vehicles while it moves. (Highways England Company Knowledge Compendium, 2015).
Ahmed Elsayed Elrayes – 15024408 ___________________________________________________________________________ Page 16 of 20 Appendix 2: Tesla Model S versus Competitor Tesla models are packed with major horsepower over competitive that allows Tesla’s vehicle compete with traditional cars in driving experience and acceleration. Most importantly, Tesla cars travels double the range of existing electric car on single charge. Finally, Tesla cars looks modern, pragmatic and loaded with functionalities that meets consumers’ needs. Source: http://www.techinsider.io/tesla-versus-other-electric-cars-2015-9
Ahmed Elsayed Elrayes – 15024408 ___________________________________________________________________________ Page 17 of 20 References  Karl Georg Høyer (2007) The history of alternative fuels in transportation: The case of electric and hybrid cars, ScienseDirect (2008) 63 71  Economist Intelligence Unit (2012), Agent of Change: The future of technology disruption in business report, The Economist, The Economist Intelligence Unit N.A., Incorporated.  Tesla Motors (2016), About Tesla, https://www.teslamotors.com/about, Access 28th Mar, 2016.  Myles Edwin Mangram (2012), The globalization of Tesla Motors: a strategic marketing plan analysis, Journal of Strategic Marketing (2012) 289-312  Forbes (2015), The World’s Most Innovative Companies, http://www.forbes.com/innovative-companies/, Access 6th of Mar, 2016  Joann Muller (2013), The Real Reason Tesla Is Still Alive (And Other Green Car Companies Aren't), http://www.forbes.com/sites/joannmuller/2013/05/11/the-real- reason-tesla-is-still-alive-and-other-green-car-companies-arent/#4d641b5c239c, Access 10th Mar, 2016  Siimon Reynolds (2013), Why You Should Copy  Tesla's Way of Marketing, http://www.forbes.com/sites/siimonreynolds/2013/09/01/why-you-should-copy- teslas-way-of-marketing/#50bb40453c51, 10th Mar, 2016  Paul Baines and Chris Fill (2014), Marketing, 3rd Edition, Oxford University Press  Tesla Motors (2016), Forums, https://forums.teslamotors.com/forum/forums/tesla- timeline-0, Access 25th Mar, 2016  McKinsey & Company and Amsterdam Roundtable Foundation (2014), Electric vehicles in Europe: gearing up for a new phase?, Amsterdam Roundtable Foundation.  Ritsuko Ozaki and Katerina Sevastyanova (2009) Going hybrid: An analysis of consumer purchase motivations, Energy Policy 39 (2011) 2217–2227.  Keey Sims Gallagher and Erich Muehlegger (2008) Giving green to get green? Incentives and consumer adoption of hybrid vehicle technology, Journal of Environmental Economics and Management 61 (2011) 1-15  Economist Intelligence Unit (2004), Why the future is hybrid, The Economist, The Economist Intelligence Unit N.A., Incorporated.
Ahmed Elsayed Elrayes – 15024408 ___________________________________________________________________________ Page 18 of 20  Highways England Company Knowledge Compendium (2015), Preparing the Strategic Road Network for electric vehicles, http://www.highways.gov.uk/knowledge/projects/preparing-the-strategic-road- network-for-electric-vehicles/, Access 20th Dec, 2015  Peter Yared (2014), BMW Vs. Tesla: A Real Live Innovator’s Dilemma, http://techcrunch.com/2014/07/26/bmw-vs-tesla-is-a-real-live-innovators-dilemma- battle/, Accessed 20th March, 2016  Bill Fleming (2013), Electric Vehicle Collaboration – Toyota Motor Corporation and Tesla Motors, IEEE Vehicular Technology Magazine  Paul Flowers (2008), Underdog Advertising: Proven Principles to Compete and Win Aginst the Giants in Any Industry, Brown Books Publishing Group  The Economist (2014), Tesla’s electric man; Brain scan, The Economist Intelligence Report  Alex Davies and Mike Nudelman (2013), Here’s how Tesla’s Model S Compares To Other Top Electric Cars, http://www.businessinsider.com/electric-car-comparison- chart-2013-8, Accessed 30th March, 2016  The Economist (2015), Death of a car salesman; The motor trade, The Economist Intelligence Report  QMAC (2016), Tesla’s Marketing Accelerating the World into Sustainable Transport, http://www.qmac.ca/teslas-marketing-strategy-accelerating-the-world-into- sustainable-transport/, 6th March, 2016  Peter Valdes-Dapena (2013), Tesla sales beating Mercedes, BMW and Audi, http://money.cnn.com/2013/05/13/autos/tesla-sales-bmw-mercedes-audi/, Accessed 30th March, 2016  AdvertisingAge (2013), Tesla Generates Small Sales, Big Buzz Without Paid Ads But Can Electric-Car Company Overcome DeLorean Flashbacks?, Crain Communications  Adam Hartung (2013), Why Tesla Is Beating GM, Nissan and Ford, http://www.forbes.com/sites/adamhartung/2013/06/28/why-tesla-is-beating-gm- nissan-and-ford/#d67dc817fed6, Accessed 15th March, 2016  Ksenia Udovitskaya (2015), Tesla Positioning/Positioning Product, http://www.slideshare.net/kseniaudovitskaya/tesla-positioning-positioning-a-product, Accessed 29th March, 2016
Ahmed Elsayed Elrayes – 15024408 ___________________________________________________________________________ Page 19 of 20  Tom Randall (2016), Tesla’s Model 3 Lives Up to the Hype, http://www.bloomberg.com/news/articles/2016-04-01/tesla-s-model-3-lives-up-to- the-hype, Accessed 1st April, 2016  Tony Proctor (2002), Strategic Marketing, Routledge  Daniel Hecker (2005), high-technology employment: a NAICS-based update, Monthly Labor Review (128) 57-72.  United Nation Development Programme (2012), Articles and Excerpts that Illustrate Green Economy and Sustainable Development Efforts, United Nation Development Programme.  @elonmusk 2016, Token of appreciation for those who lined up coming via mail. Thought maybe 20-30 people per store would line up, not 800. Gifts on order, 2nd April, 2016. https://twitter.com/elonmusk/status/716345597712670720  Conal Urquhart, Hubrid Vehicles power ahead, Euromoney Institutional Investor PLC  TIME, The Apple Revolution: 10 Key Moments: The Return of Jobs, http://content.time.com/time/specials/packages/article/0,28804,1873486_1873491_18 73461,00.html, Accessed 3rd April, 2016.  The Economist (2016), Tesla’s mass-market ambitions: On a Charge, The Economist Print Edition 19th March, 2016  @elonmusk 2016, Definitely going to need to rethink production planning..., 1st of April 2016, https://twitter.com/elonmusk/status/715955186175459332  Richard Waters 2016, Tesla Motors upbeat on car delivery forecasts, Financial Times, https://next.ft.com/content/bf420776-d04b-11e5-831d-09f7778e7377, Accessed 29th March, 2016  Josh Suskewicz (2015), Tesla’s New Strategy is Over 100 Years Old, Harvard Business Review, https://hbr.org/2015/05/teslas-new-strategy-is-over-100-years-old, Accessed 3rd April, 2016  Karan Girotra and Serguei Netessine (2013), At Last, a New Business Model for Tesla, Harvard Business Review, https://hbr.org/2013/07/at-last-teslas-new-business- mo, Accessed 3rd April, 2016  Skye Gould and Danielle Muoio (2015), Tesla wipes the floor with the competition when it comes to how far its cars go on one charge, http://www.techinsider.io/tesla- versus-other-electric-cars-2015-9, Accessed 10th April, 2016
Ahmed Elsayed Elrayes – 15024408 ___________________________________________________________________________ Page 20 of 20  Patrick McGee (2016), Daimler shareholders worried over Tesla and electric carmakers, https://next.ft.com/content/32da3450-fc03-11e5-b5f5-070dca6d0a0d, Accessed 10th of April, 2016  Trefis Team (2016), Should Tesla Be Worried About Competition?, http://www.forbes.com/sites/greatspeculations/2016/01/04/should-tesla-be-worried- of-competition/#3537efcb3415, Accessed 10th of April, 2016  Print Edition (2014), Fully Charged: Tesla gains new admirers as it heads towards the mass market, http://www.economist.com/news/business/21597893-tesla-gains- new-admirers-it-heads-towards-mass-market-fully-charged, Accessed 10th of April, 2016 Bibliography  Highways England Company, Feasibility study: Powering electric vehicles on England’s major roads, Highways England Company, Publication Code PR42/15, July 2015  Ian Kenney (2015), How do Hybrid Cars Affect the Economy?, http://www.livestrong.com/article/141175-how-do-hybrid-cars-affect-economy/, Access Date: 3rd Dec, 2015  UK Government Press Release (2015), Off road trials for “electric highways” technology, https://www.gov.uk/government/news/off-road-trials-for-electric- highways-technology, Access 20th Dec, 2015.  Dareene L. Hackler (2006), Cities in the Technology Economy, M.E. Sharpe, Inc.  Robert B. Richardson (2013), Building a Green Economy: Perspectives from Ecological Economics, Michigan State University Press  John K. Dagsvik *, Tom Wennemo, Dag G. Wetterwald, Rolf Aaberge, Potential demand for alternative fuel vehicles, Transportation Research Part B 36 (2002) 361– 384

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Tesla Marketing Strategy

  • 1. Table of Contents 1. PREAMBLE.......................................................................................................................2 2. INTRODUCTION ..............................................................................................................2 3. SUCCESS OF TESLA MOTORS.......................................................................................3 3.1. UNDERSTANDING MARKET ENVIRONMENTS................................................................ 4 3.2. COMPETITORS ANALYSIS & MARKET POSITION.......................................................... 5 4. TESLA’S MARKETING SUCCESS FORMULA...............................................................5 4.1. SEGMENTATION & TARGETING ................................................................................... 6 4.2. MARKETING MIX ........................................................................................................6  Products ...................................................................................................................... 6  Promotion.................................................................................................................... 9  Place ........................................................................................................................... 9  Price.......................................................................................................................... 10 5. CONCLUSION................................................................................................................. 12 6. FUTURE RECOMMENDATIONS.................................................................................. 13 APPENDIX 1: DETAILS ON PEEST ANALYSIS................................................................... 14 APPENDIX 2: TESLA MODEL S VERSUS COMPETITOR.................................................. 16 REFERENCES......................................................................................................................... 17 BIBLIOGRAPHY..................................................................................................................... 20
  • 2. Ahmed Elsayed Elrayes – 15024408 ___________________________________________________________________________ Page 2 of 20 Tesla Motors from a 19th century Design to 21st century and Innovators and Electrical Vehicle Leaders 1. Preamble Thinking about Electrical Vehicles (‘EV’) is like imagining the future, however, in reality EV were developed and produced in 1800s, EV dominated the steam and gasoline vehicles in 1909 reaching 30,000 registered EV in U.S. alone (Høyer, 2007). With the technology advancement in Internal Combustion Engines (ICE) and Oil revolution, it started to be more feasible and economical to shift to ICE vehicles (Høyer, 2007). The resurrection of EV production was supported by UN World Commission for sustaining the environment for better future, and the UN Green Economy initiative that aims for economics growth, resource sustainability, and preserving the environment (UNDP, 2010 and WCED (1987, cited in Høyer, 2007) this led for hidden race between automakers to deliver an environment friendly vehicle and meets the consumer needs, which was first met by Toyota Prius in 1997 (Høyer, 2007). Tesla Motors is the 21st century market success story in EV automaker industry, this report aims to analyze the marketing success factors contributed to Tesla’s success, Tesla’s utilizations of marketing mix, and highlights key recommendation for Tesla’s future. 2. Introduction Tesla Motors (‘Tesla’) was founded in 2003 by Silicon Valley inventors with an aim of producing pure electrical vehicles, based on original 1888 Nikola Tesla electrical motor, Tesla’s mission is “To accelerate the world’s transition to sustainable transport and bring mass market electrical cars to market as soon as possible” that makes Tesla not only a car manufacturing company, but also a technology and energy innovation company. (Tesla Motors, 2016). Maneuvering in a very competitive market with high barriers of entry that requires strong financial and infrastructure support (The Economist Intelligence Unit, 2012), just after 16 years, Tesla managed to re-define the automaker industry with successful launch of its main stream model 3, achieving the biggest marketing and financial success in the history of any industry, recording $ 7.5 Billion U.S. dollars worth of pre-orders in just 24 hours (The Economist, 2016 and Randall, 2016). Tesla is the anomaly that survived the market high
  • 3. Ahmed Elsayed Elrayes – 15024408 ___________________________________________________________________________ Page 3 of 20 entry barriers compared to its peers/startups with successful strategies, business model and marketing approach lead by Tesla’s CEO (Muller, 2013). 3. Success of Tesla Motors “For Marketing strategy to be developed successfully, it is necessary to understand an organization’s strategic context and then to fit the marketing strategy...” (Baines & Fill, 2014). Tesla gained its success of being the zero emission automaker that successfully delivered workable production vehicles that address consumer needs (Mangram, 2012). Additionally, Tesla has gained market attention in the automaker industry similar to Apple and being ranked #1 world’s most innovative company in 2015 by Forbes (Forbes, 2015), and ranked #3 in 2013 after big players like BMW and Mercedes in selling electrical cars and #1 in electric automakers (Reynolds, 2013 and Hartung, 2013). Financially, Tesla created a success with steady increase of revenue since 2012 second quarter when Model S delivery started shown in Figure 1.
  • 4. Ahmed Elsayed Elrayes – 15024408 ___________________________________________________________________________ Page 4 of 20 3.1. Understanding Market Environments A quick PEEST analysis for EV automaker can be summarized by the following: Tesla is operating in a positive environment, which enables success of environmental friendly vehicles, Tesla’s products have the political and legislative support to achieve environmental sustainability. Consumers are looking for a suitable alternative to ICE vehicles in support of environmental issues, and to unlock the economical benefits of saving from fuel and running costs. Also, governments realized the economical benefits of adopting green vehicles as means of transportation based on the economical value to nations’ GDP and environmental sustainability. Finally, with technology advancements in long lasting batteries, and recharging networks that made governments establish platform for Tesla’s success. Refer to Appendix 1 for additional details of PEEST analysis.
  • 5. Ahmed Elsayed Elrayes – 15024408 ___________________________________________________________________________ Page 5 of 20 3.2. Competitors Analysis & Market Position Tesla is taking advantage of big companies’ slower movement to capture new profit opportunities, and focus on what they do best and trying to shift to make EV (Flowers, 2008). Tesla has chosen a niche market segment of providing luxury, stylish, long range EV on a single charge and more horsepower with no direct competitors (Tesla Motors, 2016 and Gould and Muioi, 2015). In addition, when Tesla launched the Model 3 for mass-market, it gained the competitive edge over other automakers with supercharged stations across U.S. and Europe and functions that meets consumers’ needs, making Tesla the lead competitor for giant automakers to be aware of, adding the past success of Tesla being ranked #1 in EV sales in 2013 operating with almost no direct competition (McGee, 2016 and Hartung, 2013 and The Economist, 2016). 4. Tesla’s Marketing Success Formula A strong marketing strategy will ensure success, which is the fault of many start ups tend to forget and focus on operational aspect of the organization (Flowers, 2008). Tesla didn’t focus on lavish marketing approaches to succeed, but focused on understanding consumers’ needs, and establishing loyal consumers by focusing on the Tesla EV ride experience and functionalities. Moreover, Tesla way of selling is by itself a differentiator from other competitors, by reinvented the sales channels and cutting the car dealership methods, reducing the overhead costs (Trefis Team, 2016 and Reynolds, 2013 and Gould and Muioi, 2015).
  • 6. Ahmed Elsayed Elrayes – 15024408 ___________________________________________________________________________ Page 6 of 20 4.1. Segmentation & Targeting Tesla aims to contribute to cleaner environment and by changing the transportation means to be cleaner and efficient use for every consumer (Tesla, 2016). Realizing this mission requires Tesla to adopt multi-level approach in marketing their products (Mangram, 2012): a. B2B Market: Tesla encourages the partnerships with other automakers by having its technology patents open for use, by this enables Tesla achieve its mission of sustainable transportation (Tesla, 2016). Tesla partners with big automakers and sells the drivetrain and battery technologies to automakers to produce their models, such as, the Toyota 2012 RAV4 EV (Fleming, 2013) and German automaker giant Mercedes-Benzes (Yared, 2014). b. B2C Market: Tesla targets the consumer by three main models, the luxury sedan Model S, the family SUV Model X, and the mass market Model 3. In addition to the complimentary products (Tesla Motors, 2016) 4.2. Marketing Mix A successful implementation of organizational strategy requires efficient and effective utilization of the marketing mix, enabling the organization to communicate successfully with consumers (Proctor, 2002). Tesla is not only considered a technology innovator or electrical automaker, Tesla redefined the industry business model and the utilization of the marketing mix to achieve its strategic goals. Tesla re-invented the automakers approach in selling its products and distributed the market (Reynolds, 2013 and QMAC, 2016). Examine Tesla’s Marketing Mix components as follows:  Products  Targeting automakers, Tesla sells its drive-train technologies and lithium-ion batteries to automakers, because of reduced cost and long lasting duration of batteries (Fleming, 2013 and Yared, 2014). With increasing demand of EV batteries, Tesla partnered with Panasonic to build “GigaFactory” to be ready by 2017 to meet Tesla’s own demand for its EV and their clients (Economist, 2014).
  • 7. Ahmed Elsayed Elrayes – 15024408 ___________________________________________________________________________ Page 7 of 20  Targeting consumers, Tesla focus in making the suitable car for consumers considering all aspects of their needs, such as, environmental friendly, long distance travel on a single charge, horsepower, loaded with useful latest technologies and gadgets, high level of road safety, and the key element is the modern stylish design of Tesla’s models, in contrast with regular automakers and EV startups tend to design and build either futuristic cars or small compact cars to resolve some of the issues related to electricity consumption, which don’t appeal to consumer making (The Economist, 2014 and QMAC, 2016). “A Tesla is a more stylish way of displaying environmentalist credentials than a lumpen Toyota Prius and more practical than a Ferrari—putting two child seats in the back boosts the capacity to seven passengers” (The Print Edition-the Economist, 2014). Appendix (2) compares EV models and clearly shows Tesla Model S is taking the spot lights (Davies and Nudelman, 2013)
  • 8. Ahmed Elsayed Elrayes – 15024408 ___________________________________________________________________________ Page 8 of 20  Complimentary products, Tesla builds Supercharger stations across the world, enabling Tesla’s vehicles and other electrical vehicles to utilize those supercharger stations. Tesla’s Supercharger stations more efficient and effective in battery charging, and in less time that regular charging technologies which gives them a competitive edge over the market. (Girotra and Netessine, 2013 and Trefis Team, 2016 and Tesla Motors, 2016). Tesla provides “Powerwall” a home battery to utilize with solar power for storing energy, providing efficient use of home electricity even at night, with more than 1,000 consumers utilizing Tesla’s Powerwall alongside Solar Panels to store electricity (Economist, 2014).
  • 9. Ahmed Elsayed Elrayes – 15024408 ___________________________________________________________________________ Page 9 of 20  Promotion In just 24 hours from launching Model 3 prototype, Tesla recorded a 198,000 reservation orders of a vehicle that would start production in late 2017, this shows how Tesla’s promotion strategy is effective in reaching its consumers (Randall, 2016). Tesla succeeded without spending on mainstream promotions and no plans of hiring an advertisement agency, Tesla focuses on communications through its website, stores and social-network capturing client’s experience driving a Tesla (AdvertisingAge, 2013). In addition, Having Tesla’s CEO as the face of the company with over 2 million followers in social media updating the world of Tesla’s mission, products and stories (QMAC, 2016).  Place Tesla is all about the consumer experience, exclusivity and modernization from establishing interest of buying a Tesla model to even aftersales services. Tesla
  • 10. Ahmed Elsayed Elrayes – 15024408 ___________________________________________________________________________ Page 10 of 20 reinvented the purchasing experience of a vehicle, Tesla removed the “middleman” traditional dealership approach by directly selling to end consumer. It didn’t stop at channel selection but also carefully opening Tesla stores at shopping malls with no stock of cars, consumers go to Tesla’s shops for the experience and learning more about Tesla’s technologies, mission and exclusivity of being each purchased car customized for its owner (QMAC, 2016 and The Economist, 2015). Another sales channel is Tesla’s interactive website ordering applications that provides full control to the consumers to make the purchase, while understanding all aspects of the products and number of varieties of customization (QMAC, 2016 and The Economist, 2015). Even aftersales support is completely managed by Tesla ensuring quality of service and enhanced customer experience, as most of the vehicle services are software update, Tesla provides over the internet update to its models without the need of visiting a service center (QMAC, 2016)  Price Currently, Tesla is classified against luxury automakers segment as Tesla’s current models are compared to Mercedes S Class, Porsha, BMW…etc. So far. Tesla Model S starts at 70,000$ which is highest of EV cars, but still Tesla sold
  • 11. Ahmed Elsayed Elrayes – 15024408 ___________________________________________________________________________ Page 11 of 20 more cars in Q1 of 2013 than Mercedes or BMW similar models (Valdes- Dapena, 2013). Tesla strategy to produce mass market EV (Model 3) at a range of 35,000$ and lower, this can be achieved by completing of “Gigafactory” and advances in battery technologies, giving Tesla the competitive edge over the EV market (The Economist, 2015 and Davies and Nudelman, 2013).
  • 12. Ahmed Elsayed Elrayes – 15024408 ___________________________________________________________________________ Page 12 of 20 5. Conclusion Tesla achieved its mission of successful delivery of environmental friendly cars to consumers, whither through Tesla’s top of the range vehicles or through Tesla’s innovative technologies that are open for other firms to build on. It’s true the market macroeconomic environment provided the required infrastructure and demand enabling Tesla to successes, but Tesla’s success came from its strategic business model, which is built around Tesla delivering what is the consumers need. Tesla succeeded in building loyal consumers base by actively communicating with consumers to understand their needs, experience and delivering the right products. Tesla’s adopted business model outcomes were tangible during the launch of Model 3 recording over 800 individuals in single Tesla store to place their advanced reservation amount (@elonmusk, 2016).
  • 13. Ahmed Elsayed Elrayes – 15024408 ___________________________________________________________________________ Page 13 of 20 6. Future Recommendations Moving ahead Tesla will definitely have a continuing demand for its products and technologies, and playing a major role as innovators for sustainable transportation with several speakers and articles predicting that the near future transportations won’t be based on ICE vehicles (Urquhart, 2013). It is important to sustain Tesla’s position in the market for future the success established by Tesla’s market, key recommendation raised from conducted research are:
  • 14. Ahmed Elsayed Elrayes – 15024408 ___________________________________________________________________________ Page 14 of 20 Appendix 1: Details on PEEST Analysis  Political/Legal: Governments are supporting the UN’s green initiative and working to reduce carbon footprint, with setting target to achieve a certain CO2 emissions levels, which creates a need for environmental friendly means of transportation, Figure 2 shows targets set by leading countries to reduce carbon footprint. (McKinsey & Company, Amsterdam Roundtable Foundation, 2014). Inline with governments’ initiative different laws/legislations were in place to support citizens shift to EV, such as tax reduction/exemptions, free parking or other means. This political/legal aspect established a demand for greener cars, for example, Toyota is planning to double its production of green flagship model Prius (The Economist Intelligence Unit, 2012).  Economic: Shifting to EV contributes positively to the economic growth, both at consumer and nation levels. Saving fuel costs and ability to spend the saved money in different items, leads to better circulation of money in economy at whole (Ozaki and Sevastyanova, 2009 and Gallagher and Muehlegger, 2008). In Addition, adopting new technologies resolves national economical issues such as, unemployment by increasing demand for different skill sets and opens doors for supporting businesses to service EV, which contributes to national GDP (McKinsey & Company, Amsterdam Roundtable Foundation, 2014 and Hecker, 2005).
  • 15. Ahmed Elsayed Elrayes – 15024408 ___________________________________________________________________________ Page 15 of 20  Ecological: The political aspect is highly linked with ecological aspect of this analysis, as mentioned in point 3.1.1, there is strong push started in 1986 by WCED and UN to reduce carbon footprint and preserve the environment WCED (1987, cited in Høyer, 2007). In support of environment preservation, California State placed zero emission regulation in 1990s, which started the race again for research and development of EV and home of Tesla Motors (Høyer, 2007).  Social/Culture: Consumers’ buying behavior are strongly linked with economical benefits of long- term saving, and contribution of preserving the environment (The Economist Intelligence Unit, 2004), Figure 3, shows top motivation for customers to purchase EV (Ozaki and Sevastyanova, 2009)  Technological: The EV history started with advances in battery technologies, and passing the 60 mile range limitation (Høyer, 2007), Governments are supporting EV automaker by investing in new technologies that motivate the consumers to buy alternative vehicles than ICE, such as the smart roads in UK that aims to recharge the vehicles while it moves. (Highways England Company Knowledge Compendium, 2015).
  • 16. Ahmed Elsayed Elrayes – 15024408 ___________________________________________________________________________ Page 16 of 20 Appendix 2: Tesla Model S versus Competitor Tesla models are packed with major horsepower over competitive that allows Tesla’s vehicle compete with traditional cars in driving experience and acceleration. Most importantly, Tesla cars travels double the range of existing electric car on single charge. Finally, Tesla cars looks modern, pragmatic and loaded with functionalities that meets consumers’ needs. Source: http://www.techinsider.io/tesla-versus-other-electric-cars-2015-9
  • 17. Ahmed Elsayed Elrayes – 15024408 ___________________________________________________________________________ Page 17 of 20 References  Karl Georg Høyer (2007) The history of alternative fuels in transportation: The case of electric and hybrid cars, ScienseDirect (2008) 63 71  Economist Intelligence Unit (2012), Agent of Change: The future of technology disruption in business report, The Economist, The Economist Intelligence Unit N.A., Incorporated.  Tesla Motors (2016), About Tesla, https://www.teslamotors.com/about, Access 28th Mar, 2016.  Myles Edwin Mangram (2012), The globalization of Tesla Motors: a strategic marketing plan analysis, Journal of Strategic Marketing (2012) 289-312  Forbes (2015), The World’s Most Innovative Companies, http://www.forbes.com/innovative-companies/, Access 6th of Mar, 2016  Joann Muller (2013), The Real Reason Tesla Is Still Alive (And Other Green Car Companies Aren't), http://www.forbes.com/sites/joannmuller/2013/05/11/the-real- reason-tesla-is-still-alive-and-other-green-car-companies-arent/#4d641b5c239c, Access 10th Mar, 2016  Siimon Reynolds (2013), Why You Should Copy  Tesla's Way of Marketing, http://www.forbes.com/sites/siimonreynolds/2013/09/01/why-you-should-copy- teslas-way-of-marketing/#50bb40453c51, 10th Mar, 2016  Paul Baines and Chris Fill (2014), Marketing, 3rd Edition, Oxford University Press  Tesla Motors (2016), Forums, https://forums.teslamotors.com/forum/forums/tesla- timeline-0, Access 25th Mar, 2016  McKinsey & Company and Amsterdam Roundtable Foundation (2014), Electric vehicles in Europe: gearing up for a new phase?, Amsterdam Roundtable Foundation.  Ritsuko Ozaki and Katerina Sevastyanova (2009) Going hybrid: An analysis of consumer purchase motivations, Energy Policy 39 (2011) 2217–2227.  Keey Sims Gallagher and Erich Muehlegger (2008) Giving green to get green? Incentives and consumer adoption of hybrid vehicle technology, Journal of Environmental Economics and Management 61 (2011) 1-15  Economist Intelligence Unit (2004), Why the future is hybrid, The Economist, The Economist Intelligence Unit N.A., Incorporated.
  • 18. Ahmed Elsayed Elrayes – 15024408 ___________________________________________________________________________ Page 18 of 20  Highways England Company Knowledge Compendium (2015), Preparing the Strategic Road Network for electric vehicles, http://www.highways.gov.uk/knowledge/projects/preparing-the-strategic-road- network-for-electric-vehicles/, Access 20th Dec, 2015  Peter Yared (2014), BMW Vs. Tesla: A Real Live Innovator’s Dilemma, http://techcrunch.com/2014/07/26/bmw-vs-tesla-is-a-real-live-innovators-dilemma- battle/, Accessed 20th March, 2016  Bill Fleming (2013), Electric Vehicle Collaboration – Toyota Motor Corporation and Tesla Motors, IEEE Vehicular Technology Magazine  Paul Flowers (2008), Underdog Advertising: Proven Principles to Compete and Win Aginst the Giants in Any Industry, Brown Books Publishing Group  The Economist (2014), Tesla’s electric man; Brain scan, The Economist Intelligence Report  Alex Davies and Mike Nudelman (2013), Here’s how Tesla’s Model S Compares To Other Top Electric Cars, http://www.businessinsider.com/electric-car-comparison- chart-2013-8, Accessed 30th March, 2016  The Economist (2015), Death of a car salesman; The motor trade, The Economist Intelligence Report  QMAC (2016), Tesla’s Marketing Accelerating the World into Sustainable Transport, http://www.qmac.ca/teslas-marketing-strategy-accelerating-the-world-into- sustainable-transport/, 6th March, 2016  Peter Valdes-Dapena (2013), Tesla sales beating Mercedes, BMW and Audi, http://money.cnn.com/2013/05/13/autos/tesla-sales-bmw-mercedes-audi/, Accessed 30th March, 2016  AdvertisingAge (2013), Tesla Generates Small Sales, Big Buzz Without Paid Ads But Can Electric-Car Company Overcome DeLorean Flashbacks?, Crain Communications  Adam Hartung (2013), Why Tesla Is Beating GM, Nissan and Ford, http://www.forbes.com/sites/adamhartung/2013/06/28/why-tesla-is-beating-gm- nissan-and-ford/#d67dc817fed6, Accessed 15th March, 2016  Ksenia Udovitskaya (2015), Tesla Positioning/Positioning Product, http://www.slideshare.net/kseniaudovitskaya/tesla-positioning-positioning-a-product, Accessed 29th March, 2016
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