Tesla Inc. Marketing Management Strategy
Number of words: 3442
HISTORY OF THE COMPANY
In 2003 a team of experts in engineering discipline established Tesla Inc. due to their joint desire to prove to people that there is no need for a compromise to drive electric cars. The basis for the formation of the company was that electric cars are better, fun to drive and quicker than gasoline cars. Currently, the company has 33,000 employees and also deals in the generation of clean energy and storage products. Reduction in reliance on fossil fuels and a move towards a future of zero-emission motivates the company.
Most of Tesla Inc.’s products are designed using cutting edge technology, and the process of manufacturing emphasizes a combination of performance, safety, and efficiency. For example, its Model S electric car has readjusted the car expectations of the modern day by having a range of electric vehicles (Daft 2017). In 2015, the company expanded its product line by manufacturing model X, a sports utility vehicle that is safe and quick. A year later the company introduced a low priced vehicle with very high electric volume; a model referred to as model 3. Last year, the company unveiled Tesla semi, a comfortable truck that is designed to save owners a great deal regarding costs of fuel. Its vehicle parts are made in its factory in Fremont. As the company grows, it is expected to increase to a production rate of half a million vehicles in a year.
Also, the company manufactures a set of energy solutions in its bid to create sustainable energy ecosystem. Some of the unique energy solutions that enable users to manage the generation of renewable energy, storage and consumption are Solar Roof, Powerpack, and powerwall. The company is supported in its processes by Gigafactory which plays a role in reducing battery cell costs and promoting lithium-ion batteries across the globe (Aifantis, Hackney and Kumar 2010). The in-house production of battery cells has increased the production volumes; a move is closer to the achievement of its production goals and creation of many jobs. Tesla Inc. manufactures cars that are affordable, and continues to make its products more affordable and accessible to many more consumers. Through this, the company will accelerate its quest for clean transport and energy production. The focus of the company is to create a future that combines electric cars, batteries, generation and storage of renewable energy.
Just like any other company, Tesla has a CEO, CFO, and team leaders for each team. The teams range depending on their responsibilities; for example, the factory personnel include production associates and managers. At Tesla, there is freedom of sharing information, and the processes involve members of more than one team, so passage of information is not restricted. Even though there is no bureaucracy, team members answer to their line managers and directors (Williams 2017).
Tesla faced major branding challenges in the past characterized by turning a high-end niche brand to a more appealing brand to a wider market. Tesla has a great brand, a brand with high awareness and is unique and clients value the benefit that it gives and are ready to pay for the products it provides. In 2015 it was a luxury brand for the selected few who want to make a statement because even the starting price then was not easily affordable. The sporty performance of its cars and the brand image make buyers appreciate it. The problem is that for the company to survive it has to increase production (Linxweiler 2017). This will require the introduction of new models that are affordable to the wider market and have a wider appeal. As the company expands, its current plans will weaken, and it will become less exclusive compared to three years ago. Loss of clients seeking exclusive brands is bound to happen, and Tesla Inc. through its marketing strategies needs to replace them with customers whose needs it can fulfill. It is risky to reposition a brand since it leads to loss of existing customers.
MARKETING TOOLS AND STRATEGIES
Tesla Inc. employs different marketing tools and strategies aimed at targeting the existing and potential customers. Its marketing communication tools involve the use of conventional and contemporary marketing platforms ranging from direct selling, international auto shows, service networks, social media marketing to use of word of mouth (Tansel 2016). The mix of marketing communication tools enables the company to improve its brand recognition, improve brand loyalty, popularity, and competitive advantage. The company uses the marketing communication tools selective to save on cost and to minimize any chance of any negative aspect of their products spreading fast.
The company has a sales network, galleries, and stores that greatly contribute to increasing the perception of its brands among customers (Bolland 2017). Direct selling in the company’s stores and galleries makes it possible for the company to get rapid feedback and deliver a unique experience which strengthens its relationship with its clients. However, the company limits the use of direct selling because it is slightly expensive. Participation in international auto shows has an impact in changing the attitude of clients in buying a car from the company. Direct contact with clients and test drives serves to increase demand, sales, and revenues (Tansel 2016).
Birk (2015) explains that the marketing strategies at Tesla form an important aspect of its foundation and competitiveness in the electric vehicle market segment. The company uses digital communication strategies through the use of social media platforms which are a preferred method to purchase of TV spots in a bid to boost brand awareness. The use of social media has been a significant drive in saving marketing costs and creating a direct connection with potential customers. The social media platforms promote a rapid spread of company news and enable it to increase brand recognition and loyalty.
The tweets from the CEO of Tesla Inc., Elon Musk attract attention among customers thereby boosting the company popularity, credibility, and recognition of its brand (Vance 2017). Social media marketing is important for the company as the references of its brand and product affects feelings and attitudes of customers. Also, it influences purchasing decisions of friends within the social media platforms. However, this platform involves risks for the company, for example, the recent news of a Model S catching fire spread fast, and this adversely affected its reputation (Ferrell and Speh 2017). The effect of the negative news resulted in a drop in the company’s share prices which resulted in financial losses and a reduction in the amount of money for marketing activities. Overall, social media marketing strategy has proved to be efficient in the modern globalized world as it targets and attracts more potential customers in future.
To promote its brand recognition and competitiveness, Tesla Inc. employs the use of word of mouth marketing. It is an important cost-saving factor and a very effective tool in increasing brand availability (Kramer 2015). The company is a small venture compared to its competitors like General Motors and as such has a small marketing budget. Word of mouth marketing fits perfectly in its marketing budget and also boosts demand and sales. Savings made from the use of this strategy are invested back into its production processes significant for recognition of its brand and improving its competitive advantage. It has successfully boosted sales of Model S; therefore the company has continued to rely on this strategy because it has increased sales of other car models without significant marketing costs. However, this strategy can also be used negatively which may adversely impact on the decision by potential clients to purchase the products, and this adversely affects sales and company reputation (Birk 2015).
Tesla Inc. has over 90 service locations globally, and this creates an out of ordinary customer service thereby leading to increased recognition of its brand. Brand recognition is an important aspect of the company’s reputation. The brand perception among customers improves through sales stores, networks, and galleries (Cohn and Russell 2012). The company provides repair services and makes reservations of customization of vehicles through its highly qualified service and sales staff that interact directly with customers through the stores and galleries owned by the company.
The stores and galleries provide a platform for the company to receive instant feedback which delivers a differentiated, unique customer experience and this serves to strengthen the relationship of the company with its customers. Besides, it enables the company to increasingly become efficient in operations which it could not have achieved through traditional distribution channels. It enables Tesla Inc. to have a firm grip on its control of inventory costs and to manage its pricing effectively. Direct selling is expensive because of high costs of training staff which shrinks funds available for marketing over time.
According to Kauerhof (2017), the company applies generic strategy with the aim of achieving a competitive advantage over its competitors in the industry. The company focuses on the use of advanced technologies in its products as a way of competing against other automobile manufacturers. The company achieves its competitive advantage through broad differentiation based on the manufacture of cars that differentiate the production philosophy of the company from other firms in the industry (Daim, Pizarro, and Talla 2014). Tesla Inc.’s products are competitive due to the use of environmentally friendly technology, a stark contrast to the other automobile manufacturers who use combustion engines. The use of environmentally friendly products helps in attracting potential clients who have an increasing increase in environmentally friendly products (Hamilton 2010, p.16).
Before, Tesla Inc. used differentiation technique to focus on its competitive advantage. Through this, the company stressed on the unique features of its products and concentrated only on adopting the affluent market segment for electric vehicles. The focus then was to target rich clients who tend purchasing newly introduced cars. Today, the company is more popular, and its production costs have reduced thereby shifting its competitive strategy to broad differentiation. Through increasing popularity and declining production costs, the company can target a broad market segment. The strategic objectives for the company aimed at increasing the amount invested in research and development. Through this, it can develop new products that meet the demands of the market for enhanced renewable energy solutions and broadening the market reach to generate more revenue and support brand popularity.
INTENSIVE GROWTH STRATEGIES
Tesla Inc.’s primary growth strategy is market penetration which enables growth by increasing sales in the existing markets. This is only possible through aggressive marketing which facilitates a rollout and sale of more electric cars in the home country, United States. It maximizes its revenues from the market areas where it currently operates, and this strategy is consistent with the company’s generic strategy that aims at increasing competitive advantage by increased market share. Aggressive marketing by the company has made this strategy work in favor of the car manufacturer (Clark, Miller, and Stringham 2015).
Another intensive growth strategy of the company is product development whereby the company develops by manufacturing new products to create a new revenue line. Product development manifests itself through the development of new products using technologies that have a minimal environmental impact. For example, the company produces solar panels and the Tesla Roadster using a unique technology that makes clients attracted to the products. It is an intensive growth strategy that aims at maintaining investments in development and research.
According to Birk (2015), market development is a tertiary growth strategy that involves entry into new markets to generate more sales and grow its global presence by establishing new facilities and offices. The differentiation strategy facilitates market development by creating unique products that are attractive to customers even in new markets. The strategy of the company is to grow through the establishment of alliances with other firms, a strategy used to enter new markets (Coste-Manière and Hoffmann 2013) easily.
Tesla Inc. develops, manufactures and sells fully electric cars and energy storage products. It has its network of service and sales centers to enhance the increased adoption of electric cars. Its production center is in California, Netherlands and at the Gigafactory in Nevada and it sells its products through its galleries, stores and the internet. It sells its energy storage products for use in industrial, residential and commercial places. The company markets its energy products under the Tesla energy brand (Bh̲m 2009).
Tesla has an unparalleled position in the automobile market because it is in the business to transform how people drive through its innovative technological advancements. It has dominated the market for long range and luxury cars. The electric car’s market, where Tesla operates, is different from the one for less expensive electric cars (Pahl and Richter 2009). Besides, the company has a robust sales growth that has taken place over the last few years. In 2015, its sales increased by 27% and the growth have been driven by high global demand for electric cars, specifically Model S.
The high amounts that Tesla Inc. has invested in research and technology have reduced its capital base. The burning through cash is the reason the company has snowballed over the past few years. Large cash outlays, for example, in the construction of its Gigafactory, have limited earnings and as a result, it has been forced to sell shares and raise more debt. The company has a high debt load more than 2.5 billion dollars and capital leases. The interest payment is fairly high and continues to cut into its earnings (Bryce, Godfrey and Dyer 2017). Inability to satisfy its debt obligations may lead to a reduction in capital expenditures and delayed investments that hamper future growth.
The company recently announced the release of its newest brand to the excitement of many people across the globe. The newest brand, model 3 is lowly priced. The car believed to be the safest on the road could increase the number of units produced every year. The company will need to employ strategies aimed at lowering costs to start posting profits. The company has a cost reduction initiative, a move towards reducing costs. The company is building a Gigafactory, which is manufacturing batteries at reduced prices for use in the cars. The battery company will increase capacity and Tesla Inc.’s ability to lower costs and improve economies of scale should be significant in improving the company bottom line and bringing down costs (Akdeniz 2016).
The company may not be able to finance its production processes, and this is one of the major threats to its growth. The company announced plans to manufacture up to half a million cars in 2018, and this leaves doubts on how it planned to achieve that great milestone. In 2016, the company had cash on hand of around one and a half billion dollars, but the capital outlays for the project were still much higher. The need to raise large amounts of funds through either equity offerings or debt financing arose. Tesla Inc. finds itself in a unique position despite the highly competitive nature of the automotive market (Schindeldecker 2017).
The high prices of its current models are facing stiff competition from cheaper models of cars using combustion engines. Once its low-cost model 3 hits the market, it will compete with other brands and lower the high cost of electric cars. The companies that Tesla is competing against have been in the industry for longer and had greater business capabilities.
CORPORATE AND DIVISION STRATEGIC PLANNING
The cash cow at Tesla Inc. is expected to be its model 3 which is expected to take a leading position in driving sales because of its low price. Expectations of its ability to drive sales and return on investment are high. Due to the heavy investment in research and development, the launch of model 3 is expected to bring high profitability and provide financial support to the operations of the company. Model 3 is also the star of Tesla Inc. because it has good growth prospects in the future (David and David 2016). Maintaining a steady investment in this model will transform it into a cash cow. Its main feature is the possibility of increased growth and market share. Tesla Inc. does not have products that can be referred to in the BCG matrix as question marks and dogs because of its robust production processes and marketing strategies that are consistent with the dynamic changes in the market.
Other than a generic competitive advantage, Tesla Inc. uses intensive strategies that ensure the growth of its business channels. Its growth strategies evolve with time, a reflection of its improved profitability and popularity along with robust business strengths identified through SWOT analysis. The company makes strategic adjustments over time to ensure it remains resilient despite numerous technological advancements and changes in customers’ tastes and preferences. The generic strategy gives the company a competitive edge over its competitors and attracts different opportunities in the automobile market. The growth strategies support the development of the organization based on increased sales revenue from Tesla Inc.’s current markets. The company achieves operational effectiveness of the company through joint implementation of intensive growth strategies and competitive strategies. (Leinwand and Mainardi 2016)
Tesla Inc. has grown tremendously over the years as a result of the use of environmentally friendly technology, robust marketing strategies and heavy investment in research and development. It has different opportunities for growth, and its growth strategies are capable of efficiently dealing with the threats that it faces. The plan to increase production is a good marketing move if marketing is enhanced to facilitate the sale of all the units as this will increase sales revenue and profitability. However, if not properly thought through, the large capital outlays of increasing production might adversely affect operations and profitability. The preferred mode of marketing is the use of the word of mouth because it gives the customers a unique experience and helps the company get immediate feedback on its products and services. Also, it uses social media to reach those who are in far geographic regions and the leverages on the influence of its CEO on Twitter.
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