Part One: Global Marketing

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Jan 22, 2018 - In 2008, when Tesla Inc released its first model of electric vehicle (later called in this study as EV) in the form of a light sport car no one could ...
Term Paper at the International School of Management

Tesla: Case study

First name

Shayan

Last name

Salimi

Matriculation

3101005171

Master degree course

MA / IB

Course semester

2

Module:

T-MP2 International Marketing Winter semester 2017-18

Lecturers:

Prof. Dr. Eyden Samanderu – Prof. Ralph Brickau

Submission: 22.01.2018 ISM Campus Dortmund

Table of Contents PART ONE: Global Marketing

Introduction ................................................................................................................ 4 Chapter One: Strategic Mindset ................................................................................... 5 Chapter Two: Resources &Capabilities…………………………..…..………………………………………6 I)

Innovative operating model.……………………….……………………….…………………..............6

II)

Technological leads…………..……………..…………………………………………….…...………………6

III) IV) V) VI)

Strategic Alliances…………………….…………………………………………………………..……….…….7 Market capitalization capability.…………………………………………………………………….……8 Agility……………………………………….…………………………………………………………………….…...9 Resource development paradigm.………………………………………..……………………….……..9

Chapter Three: Structural Influencers ......................................................................... 9 I) II)

Macro-Environment Factors………………………………………………………..……...............9 Micro-Environment Factors…………………………………….……………………………………..12

Chapter Four: Innovative Business Model………………….…………………….........................14 I) II)

Value proposition canvas………………………………………………………………………………14 Operating Model…………………………………………………………………………………………..16

Discussion…………………………………………………………….…………………………………………………….16 List of References………………………………………………………………………………………………….17

PART TWO: Customer Relationship Marketing

Introduction…………………………………………………………………………………………………….21 Chapter One: Market Positioning ...................................................................................... 21 I)

Customer Segment…………………………………………………………………………………21

II)

Differentiation……………….………………………………………………………………….…..22

III)

Integrated Marketing Mix………………………………………………………………………23

Chapter Two: Customer Value Driven Strategy .............................................................. 24 Product development for customer value………………………………………………………………24 Customer Portfolio………………………………………………………….…………………..24 Customer Intimacy……………………………………………………………………………..25

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Network Development..……………….……………….……………………………….……..25 Value Proposition…………..……………………………………………………………….…….26 Management of Relationship……………………………………………………………..…27 Supporting Activities………………..……………………………………………………..……27 Integrated Customer value chain model……..……………………………………….28 List of References……………………………………………………………………………………………………….28

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Part One: Global Marketing Tesla: A Raising champion

Shayan Salimi

1/1/18

Prof Ralph Brickau PAGE 3

Introduction In 2008, when Tesla Inc released its first model of electric vehicle (later called in this study as EV) in the form of a light sport car no one could imagine that this not only will be the start of a revolution in a 150 years old industry but also the birth of a whole new business model in the automotive market which will change the way its current incumbents view the future of it. This case study is going to investigate the outstanding characteristics of Tesla and the way they associated it to enter, position, diversify, and expand into automotive market, one of the largest and most challenging global markets with a value of $ 1.184 Trillion (Market research, 2017). For this purpose, I will break down and analyze each element of the firm’s competitive advantage and their coordination with market environment. Later I will review its unique business model and marketing strategies, using BMI model and value proposition canvas. On this account the study will be divided into 4 chapters as below: 1- Chapter One: Underline Tesla’s strategic mindset using an explanatory model. 2- Chapter Two: Instead of using a traditional VIRO analysis, This study will outlining Tesla’s core competencies, resources and capabilities to provide a paradigm of the development and expansion of these resources &capabilities and the way they contribute to Tesla’s growth by using RBV model (resources based view of the firm). 3- Chapter Three: Analysis of the market environment factors which influenced Tesla’s business decisions and their further risks and opportunities using a combination of PEST factors, Porter’s 5Ps and to some extent applying a confrontation matrix. 4- Chapter Four: Eventually, demonstrating the configuration of its business model in respond to all above mentioned factors.

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Chapter 1: Strategic mindset Companies behave differently in their approach towards market and conducting their operating model depending on their resources and capabilities, basic market structural factors but initially and most importantly by their strategic mindset. (Mauborgne, 2009). Tesla’s strategic mindset can primarily examined by its investments in innovative technologies in highly competitive markets. It enters automotive/EV market in which strong incumbents such as GM and Nissan had already experienced turmoil in creating a sustainable market. However, By introducing Roadster, Tesla was the first production automobile to use lithium-ion battery cells and the first production EV with a range greater than 200 mi (320 km) per charge. (GreenCar Magazine, 2009) Additionally, Elon musk, Tesla’s co-founder and CEO understood well that Innovation cannot be achieved by bounding it within a single company’s R&D department, specifically for high-end technological products. On this account Tesla conducts its R&D activities in an open innovation basis. The model persuades inflows and outflows of knowledge and experience to accelerate innovation process and to create and expand markets for the use of those innovations. (W.Chesbrough, 2003) The company’s CEO and co-founder stated “We believe that applying the open source philosophy to our patents will strengthen rather than diminish Tesla’s position in this regard”. (Musk, 2014) On this account Tesla shared its innovative patents with investors and even competitors in good faith to develop EV technology and commercializing intellectual property (IP) rights and extending technology by interacting with the outside environment, And on the other hand enjoys the outside-in innovation flow and know-how in that regard. (Ellen Enkel, 2009) Moreover, Innovation is not only limited to product and services. In nowadays volatile and highly competitive economic and market land scape, introducing an innovative business model is a game changing factor and also a valuable and rare resource for a company. A business model consists of the combination of its value propositions and the way it configures its’s operations to deliver those value propositions (Operating model). (Ramon Casadesus Masanell, 2009) A business model Innovation (BMI) is when two or more elements of a business model reinvented to deliver value in a total new way than others. (Zhenya Lindgardt, 2009) Tesla have also aggressively reshaped both value propositions and operating model in automotive industry particularly in EV section. Outstanding increase in the travel range, vertical integration along the value chain, adopting word of mouth and referral marketing strategy, eliminating dealership and conducting online and direct sales, product ordering and reservation, all have altered the traditional business model in automotive industry which made Tesla one of its kind in the industry.

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Chapter two: Resources &Capabilities: According to the scholars of resource based view of the firm (RBV), a firms resources and capabilities which are valuable, rare, and hard to imitate are crucial for achieving competitive advantage in the market. (L.NEWBERT, 2008) On the other hand, RBV model also stresses on striking a balance between the exploitation of existing resource and/or capabilities to develop new ones and following this cycle to accelerate growth in the existing diversified markets. (WERNERFELT, 1984) Starting as a start-up company in a very capital intensive industry with a complex value chain, Tesla practiced this model very well by identifying and relying on its sole valuable, rare and difficult to imitate capability, (technologic lead in Design of EV powertrains) to develop other valuable resources and capabilities and to boost its market expansion and diversification. However this perspective will address some important issues which are pretty determining in a firms strategy according to its resources. 1-Identifying current resources and capabilities which not only can contribute to their competitive advantage but also homogenous to their business model. (L.NEWBERT, 2008) 2- Which resources should be developed through diversification, and by which sequence. (WERNERFELT, 1984) Next, I will discuss some of the resources which paved the way for Tesla’s competitive advantage in a relatively respective order. I)Innovative operating model: Tesla is the first vertically integrated energy company proposing value in all energy generation, storage and consumption markets which applies an non-conventional operating model including in-house marketing, sales, and distribution improving costs, costumer experience, and exploiting market feedback data for further improvements. (Tesla, 2016) (Zhenya Lindgardt, 2009)

II)Technological leads: An innovative idea, technology patent, skill or know-how not only can generate a firm returns but also, creates a resource position advantage over other roll-players in a specific market. Moreover, resource advantage in a technology can be exploited in several products each yielding part of the resulting return. But it is also crucial for a firm to exploit those technological resources to develop products which can sustain their PAGE 6

resource position advantage and even create more resource advantages. (WERNERFELT, 1984) Tesla have applied this model in its business. By exploiting its capability in design and engineering of electric powertrains for EVs, it not only positioned itself as a capable premium EV manufacturer, but also funded its further R&D projects in battery packing, battery cells, and clean energy storage and management technologies to maintain its technologic resource advantage and even expand vertically in OEM and clean energy market. (Tesla, 2016) For instance the many investments in battery pack and battery cell technology not only resulted in low-cost, safe, durable and high-energy density batteries for EVs but also became the step stone for company’s further technological leads in energy management and energy storage systems such as Powerwall. (Tesla, 2016)

III)Strategic Alliances: In Tesla’s growth model, strategic alliances played an implicit role mainly due to its liability of newness. (Holmberg, 2011) It helped Tesla to acquire none-marketable resources such as production capacity, various capabilities in automotive manufacturing, and many innovation and technological advancements. Moreover, According to Aggeri, Elmquist, Partnerships can be effectively used as a tool for firm’s learning; more particularly when radical technologies with uncertainty are taking place and a lot of different systems and subsystems have to be aligned with each other. (Frank Aggeri, 2009). According to Steven Holmberg (Holmberg, 2011) Tesla has engaged in three major strategic alliance types to facilitate its growth: 1-supplier alliances; 2- R&D alliances; 3-OEM alliances with other automobile manufacturers. The summery of Tesla`s strategic alliances, their types and accompanying joint benefits are demonstrated as below in Table1. (Holmberg, 2011)

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Table1: List of Tesla’s strategic alliances. (Holmberg, 2011)

Year

Strategic Alliance/PartnerLocation/s Type of Alliance

Equity/Non Equity

2005

Lotus Motors

Hethel, UK

Supplier

Non Equity

2008

Borg Warner

USA

Supplier

Non Equity

2008

Dana Holding Corp.

USA

R&D

Non Equity

2009

Panasonic

US-Japan

Supplier

Non Equity

2009

Daimler AG

Germany

OEM

Equity

2010

Panasonic

US-Japan

Supplier

Equity

2010

Toyota

USA

OEM

Equity

2011

NVIDIA

USA

R&D

Non Equity

2011

Panasonic

US-Japan

R&D

Non Equity

Germany

OEM

Non Equity

2011

Freithliner (Owned by Daimler & Toyota)

Product/Service Exchanged via Alliance/Partnership 1-Tesla licenced design, engineering and main safty saytems from Lotus Elise 2-Production facility for Roadster production 3-Access to automobile supply chain 4-Tesla as the major Supply contractor of Lotus Supply single-speed gearbox with more powerfull inverter inhancing Roadsters torque from 286 to 386 Newoton meters Design heat exchange systems to keep batteries operating at peak efficiency Supply battery cells for Tesla's Roadster Battery Packs Giving Tesla cost advantages Daimler invested $50 million (10% shares) in Tesla in return Tesla designed and integrated battery packs and charging electronincs into Mercedes Fortwo (Smart) 1-$30 million Investment in Model S Plan 2-Supply Agreement of Model S Lithtium Ion Battery Cells 1-Toyota acquired 3% equity stake of Tesla by $50 million 2-Tela developed and engineered powertrain and battery packs for its RAV4 Plug-in EV 3-Toyota assistes Tesla with production capabilities and experince for production of Tesla model S 4-Trough partnership Tesla guranteed the acquisition of its first Manufacturing facility in Fremont California, Previously owned by jointly GM&Toyota Design&Development of Onboard suppercomputer for autonomus driving systems in Tesla S and X Development of next generation battery cells based on Nickel chemistry for higer efficinecy and low cost battery systems Develop Powertrains, Battery packs, chargers, parts and production systems for their Freithliner Electric vans

IV)Market Capitalization Capability: Tesla’s capability to attract capital market is outstanding. By visualizing its ambitious programs, brilliant technology and design, and perfect exploitation of social media, Charismatic CEO Elon Musk have managed to raise approximately $250 million until 2009 in multiple investment rounds in which company’s such as Daimler AG, Toyota, and Google have equity stakes in. Additionally, By launching Initial public offering (IPO) in 2009 in NASDAQ Tesla becoming the first EV manufacturer going public and managed to capitalized market by $49.30 billion slightly behind GM and ahead of Ford and other competitors, the second biggest capital holder in US automotive market by 2016. (Matthew Debord, 2017)

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V) Agility: Due to its small unique operating model, small size comparing to other automotive companies and strategic mind-set Tesla has the capability to move fast between different markets and respond to changes and needs of markets and a faster pace, this capability gives Tesla to be the first to mover into new markets such as EVor home energy management.

Market Diversification

Tesla`s resource &capabilities development and respective market diversifications can be visualized in Exhibit1. (Author)

2003-2006

2006-2009

Patent Holder

Patent holder and EV Manufacturer

2009-2015

2015-2017

Patent holder, EV manufacturer, and equipment supplier

Patent Holder, EV manufacturer, OE Supplier, and Clean energy solution provider

Clean energy solution provider Electronic Vehicle (EV) Manufacturer Patent Holder

Resource &Capabilites development and diversification

Original Equipment Manufacturer (OEM)

1-Powertrain patent

1- EV Desing and drive systems Know-How

2-St.Alliance Lotus Motors

2-Cash inf-flows from Raodster

3-Investments round A,B

3-Tech-leads on Lit-Ion Battery packing 4-St.Alliances: Google

1-Lean production& Additional capacity Tesla factory (Economies of scale) 2-Tech-leads on Navigation and IT systems 3-Tech-leads on Nickel battery cells

1-Battery large production capacity- Gigafactory 2-Power storage and ditribution solutions 3-Clean energy solutions/Acquisition of SolarCity

4-Market capitalization up to $31.84 Billion (Macrotrends.com)

Daimler-3% Equity Toyota - 10 Equity Panasonic: 1-Supplier agreement 2-Direct Investment 3-R&D Alliance

Exhibit1: Tesla resource development and market diversification paradigm. (Author)

Chapter three: Environment Influencers Market structure can influence a firm’s competitive advantage and consequently its growth model. Although according to strategy scholars, a firm can also be capable of changing industry structure, however, it is still an important factor for a firms strategic decisions. On this account main Macro and Micro structural influencers of Tesla’s business will be underlined. Macro-environment factors: I)

Political &Legal factors: Political winds tends to be a lot in favor of Tesla and other EV manufacturers as many supportive and Incentive programs are considered for growth of low or zero emission car manufacturers. Countries such as Norway,

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Germany and China have adopted policies of paying subsidies and finances on purchase of EVs. (Holmberg, 2011) A list of these legislation provided in Table2. Also in US a federal $25 billion loan is considered for this purpose. Table2: Incentives on electric vehicles (ASSOCIATION, 2017) Norway

exempttion from all non-recurring vehicle fees, including purchase taxes,Zero VAT on purchase, Free public parking spaces, Free access to road ferreis,

AUSTRIA

Electric vehicles are exempt from the fuel consumption tax and from the monthly vehicle tax. Since January 2016 a deduction of VAT is also applicable for zero‐CO2 emission cars (eg electric and hydrogen‐powered cars).

BELGIUM

In the Brussels‐Capital Region, financial incentives apply to companies which purchase electric, hybrid or fuel‐cell vehicles. In the Flemish Region, electric and plug‐in hybrid (emitting no more than 50g CO2/km) vehicles are exempt from registration tax.

FRANCE

Under a bonus‐malus system, a premium is granted for the purchase of a new electric vehicle (from 1 January 2017, For a vehicle (car or LCV) emitting between 21 and 60g CO2/km, the bonus amounts to €1,000. ‐ For a vehicle (car or LCV) emitting 20g CO2/km or less, the bonus amounts to €6,300. An incentive scheme grants €10,000 to electric vehicle buyers when they scrap an old diesel‐powered vehicle.Electric vehicles are exempt from the company car tax.

GERMANY

Electric vehicles are exempt from the annual circulation tax for a period of ten years from the date of their first registration. From July 2016, the government granted an environmental bonus of €4,000 for pure electric and fuel‐cell vehicles and €3,000 for plug‐in hybrid and range‐extended electric vehicles.

IRELAND

Until December 2021, electric vehicles benefit from VRT (vehicle registration tax) relief up to a maximum of €5,000. In addition, electric and plug‐in hybrid vehicles receive a grant of up to €5,000 on purchase (until December 2021 for EVs and 2018 for PHEVs). Electric vehicles also pay the minimum rate of the road tax (€120).

ITALY

Electric vehicles are exempt from the annual circulation tax (ownership tax) for a period of five years from the date of the first registration. After this five‐year period, they benefit from a 75% reduction of the tax rate applied to the equivalent petrol vehicles.

NETHERLANDS

Electric vehicles are exempt from the registration tax BPM. As of 1 January 2017, a special BPM rate is applied for all new plug‐in hybrid vehicles sold. Passenger cars with zero CO2 emissions are exempt from motor vehicle tax up to 2020. A discounted income tax (4%) is levied on fuel‐efficient cars (ie with zero CO2 emissions).

SPAIN

SWEDEN

Main city councils (eg Madrid, Barcelona, Zaragoza, Valencia etc) are reducing the annual circulation tax (ownership tax) for electric and fuel efficient vehicles by 75%. Reductions are applied on company car taxation for pure electric and plug‐in hybrid vehicles (30%), and for hybrids, LPG and CNG vehicles (20%). A premium (Supermiljöbilspremie) is granted for the purchase of a new electric or hybrid electric vehicle: SEK20,000 for cars with CO2 emissions between 1 and 50g/km (plug‐in hybrids) ‐ SEK40,000 for cars with zero CO2 emissions (electric cars) A five‐year exemption from annual circulation tax applies for green cars. 40% reduction is applied on company car taxation for electric cars and plug‐in hybrids.

Electric vehicles (with CO2 emissions up to 100g/km) are exempt from the annual circulation tax, while other UNITED KINGDOM alternative fuel cars receive a £10 discount on the paid rates. Pure electric cars are exempt from the company car tax, while all cars with CO2 emissions lower than 50g/km pay 5% for the tax year 2015/2016.

II)

Economic factors: According to latest world bank report global growth is projected to strengthen to 2.7 percent in 2017 and 2.9 percent in 2018-19, broadly in line with previous forecasts. Global manufacturing and trade have firmed, financing conditions remain benign, and commodity prices have generally stabilized. (World-Bank-Group, 2017) also outstanding increase of total GDP value in the US, and BRIC countries creates a promising market for selling high-end products like Tesla`s (Diagram2).

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Exhibit 2: GDP Abs. value 2008-2017 (WorldBank, 2017)

Social factors: Social factors are growing more in favor of green transportation solutions. Being a responsible consumer is now a buzzword and a value in today’s various markets. This can also be boosted by IT& Social media developments and also the emergence of educated middle class society specifically in BRIC and other emerging countries. Moreover, green movements are getting more into the administration across the world and gaining more social and political influence.

Technological factors: Rapid growing of cross-science technologies are facilitating innovation process in firms. By exploiting these technologies, companies are more capable of introducing new values in their product/service to customers. Many of the technologies used in Tesla EVs are also rooted in these cross-science techs, Particularly IT and computer technologies which not only helped Tesla to increase value to customers but also created a gap between Tesla and other car manufacturers which are not traditionally expert in these fields. (Holmberg, 2011) Some examples of these technologies and their application in Tesla products are delivered in table3. are delivered in Table3.

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Table3: Technological advancements used in Tesla products. (Author) Technology Implied

Application in products

Battery cell Nickel chemistry & form factor Upgrade batteries 100 kWh with almost half price Power Electroninc

Generating simontainously high density power for torque and charging battery

software algorithms enable the vehicle to mimic the “creep” feeling which drivers expect from an internal combustion engine vehicle without having to apply pressure on the accelerator. Drivers use the information and control Vehicle Control and Infotainment Software systems in our vehicles to optimize performance, customize vehicle behavior, manage charging modes and times and control all infotainment functions Autonumous driving along with over-the-air firmware updates and field data feedback loops from the onboard camera, radar, ultrasonics, and AI computing platform, NVIDIA PX GPS, enables the system to continually learn and improve its performance.

Micro-environment factors : Inspired by the model introduced by Michel E. Porter of Harvard University and confrontationMatrix This study will outline important characteristics of some micro environment factors in EV automotive market in table4 and its relative positive or negative impact on Tesla’s business accordingly.

Table 4: Micro environment factors. (Author) (Tesla, 2016)

Competitors :

Costumers :

Relatively larg number of competitors

-

competitors strong position in terms of resources & capabilities Equally small market share. (Exhibit2)

-++

Competirors liabiliy of newness in EV manufactuing and IT capabilities (Holmberg,2011)

++

Competitors low-cost leadership strategy, Positioning for small&cheap city Evs

Buyers multiple concerns about switching to EVs(Exhibit3) Existance of vast substitude products. e.g Hybrids,Gasolin based cars Low backward switch costs Low price sensitivity in early adopters and affluent buyers

+ -++ 0

++ +3 Industry specifications : (Barriers and attractvieness)

Supplier&Distribu tion channels :

Mostly high diffentiated inputs with few substitutes. -Majority single source suppliers. -Many foreign suppliers increase the risk of exchange rate flactuations Strong and traditional dealership distribution channel -6

High technology/Knowledge intensive market High political push and incentives Production capabilities and economies of scale Capital intensive

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++ 0 + +2

Exhibit 2: U.S Plug-in Electric Vehicle market share by Model demonstrating approximately close market shares in EV market. (Hybridcars.com, 2017)

Exhibit 3: Barriers for switching to EVs. (Author)

All in all, Although general environmental factors in Electronic Vehicle business are promising, However, the market structure and its micro factors appears to be challenging for a relatively small start-up like Tesla. Such structural conditions demands a disruptive business model to turn the market landscape in a way that the company can maintain its competitiveness.

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Chapter Four: Innovative business model When a market structure is characterized with high competition, complex supply chain and low profit margins, A company should adopt a reconstructionist approach and build a strategy that reshapes market structure. (Mauborgne, 2009) This can be achieved by differentiating the elements of a firms business model (Exhibit4). (Zhenya Lindgardt, 2009) Exhibit 4: Elements of a business model. (Zhenya Lindgardt, 2009)

Value Propositions Taregt, Segment

Product/Service offering

Revenue model

Business Model

Operating Model Supply Chain

I)

Cost Model

Organization

Value propositions: Considering its resources and capabilities and structural factors, Tesla have differentiated its target segment and value proposition from other incumbents in automotive/EV market. By this, it not only skipped direct competition with many old, strong, and well positioned competitors but also curved its own Niche in the market. To demonstrate this strategy, this study utilizes the value proposition canvas framework and the fit between its two main parts: 1. Costumer profile/Segment, Containing costumer characteristics of target segment, it wants, needs, and concerns. (Exhibit5) 2. Product/Service Offering, Consist of products and services to best fit costumer profile. (Exhibit 6)

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Exhibit 5: Value proposition canvas-Target segment/Costumer Profile. (Author)

Exhibit 6: Value proposition canvas-Product &Service offering. (Author)

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II)

Operating Model: In order to reshape market structure Tesla have also intended to simultaneously adopt low-cost and differentiated strategy. In order to do so, Tesla have changed parts of its value chain to deliver its differentiated offerings in profitable manner. It has 1) Production: Majority proportion of an EV cost structure consists of its Battery pack and powertrain system. Unlike other traditional manufacturers Tesla have vertically integrated into its supply chain towards domesticating design and production of these main components (80% by 2016). By heavy investment in R&D and strategic alliances, Tesla have achieved In-house capability of producing low-cost and efficient battery packs and powertrain systems which not only optimized its cost and made it competitive but also positioned the company as a strong OEM for other manufacturers and opened a new revenue stream to it. (Yurong Chen, 2017) 2) Sales &Distribution: Tesla have internalized the process of marketing, sales and distribution of its products. Refusing to spend any money on advertising yet, Tesla has historically relied heavily on already existing social network platforms like twitter as a word-of-mouth marketing model to create market pull and increase sales. (Spark, 2016) Moreover, By eliminating the traditional dealership network, and using an online sales platform it paved the way for a value pricing strategy for its premium products Model S and Model X. Also expanding its own chain of attractive showrooms and galleries in glamorous shopping malls and fashion streets, Tesla have created an outstanding costumer experience further used to boost its sales, customer information, and also the chain of the word-of-mouth advertising strategy.

Discussion: Tesla is good example of effective exploitation of a firms core competencies and successful marketing decisions. Relaying on its technological leads to draw resource barrier in a pre-mature market helped tesla to create a trade-off between commercialization of existing resources and capabilities and developing new ones. Moreover, This study outlined the different decisions and their related timing of marketing strategies: Adaptation of differentiation strategy, positioning in a premium segment and applying value pricing strategy at its early stages gave Tesla the opportunity to overcome its resource shortages, underpin its brand equity and more importantly avoid

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direct competition with strong incumbents in the market. Further, by adoption of a Waterfall-Sprinkler strategy and using strategic alliances, Tesla exploited the market environment opportunities in one product/service cluster while taking its time to use its inflows to invest and enter the next cluster in more vast segments. Additionally, Tesla identifies and considers general market environmental pulls in its internationalization strategy, Demonstrating it by expansion in highly potential and environmentally friendly markets such as EU to expand its operations. Last but not least, Application of innovative methods not only in its products but also in its business model helped Tesla to change the market landscape. From which this study have referred to creating a fit between value proposition and costumer w vertical integration in value chain as an OEM and also internalization of its marketing and distribution activities which not only decreased the bargaining power of suppliers but also creates an effective costumer relationship.

References (2009, 7 12). Retrieved from GreenCar Magazine: https://web.archive.org/web/20090712014848/http://www.greencarmagazine.net/2 009/07/tesla-motors-moving-quickly-to-commercialization-of-an-electric-car ASSOCIATION, E. A. (2017). OVERVIEW ON TAX INCENTIVES FOR ELECTRIC VEHICLES IN THE EU. Brussels : EUROPEAN AUTOMOBIL MANUFACTURERS ASSOCIATION. Author, D. b. (n.d.). Brown, A. (2016, 3 30). Business Insider. Retrieved from Business Insider: http://www.businessinsider.com/tesla-roadster-history-2016-3 Ellen Enkel, O. G. (2009). Open R&D and open innovation: exploring the phenomenon. R&D Management, 311-316. Frank Aggeri, M. E. (2009). Managing learning in the automotive industry - the innovation race for electric vehicles. International Journal of Automotive Technology and Management, Inderscience, 123-147. Greg Kumparak, M. B. (2015, 7 28). Techcrunch.com. Retrieved from Techcrunch.com: https://techcrunch.com/gallery/a-brief-history-of-tesla/

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Holmberg, S. (2011). EMERGING GREEN-TECHNOLOGY ENTREPRENEURS: ENTREPRENEURIAL PATHWAYS TO GROWTH IN THE. ICSB World Conference Paper (pp. 19-27). Stockholm: ICSB World Conference Paper. Hybridcars.com. (2017, 12 21). U.S. Department of Energy. Retrieved from U.S. Department of Energy: https://www.afdc.energy.gov/data/10567 L.NEWBERT, S. (2008). Value,Rareness,Competitive advantage, and performance: A conceptual level empirical investigation of the resource based view of the firm. Strategic management, 1. Market research. (2017, 12 12). Retrieved from http://www.marketwired.com/pressrelease/automotive-manufacturing-industry-to-reach-17-trillion-by-20151544352.htm Matthew Debord, A. K. (2017, 4 22). Business Insider.com. Retrieved from Businessinsider.com: http://www.businessinsider.com/chart-tesla-history-stock2017-4 Mauborgne, W. K. (2009). How Strategy shapes structure. Harward business review, 1,2. Musk, E. (2006, 8 2). Tesla.com. Retrieved from Tesla.com: https://www.tesla.com/blog/secret-tesla-motors-master-plan-just-between-youand-me Musk, E. (2014, 6 12). Tesla.com. Retrieved from Tesla.com: https://www.tesla.com/blog/all-our-patent-are-belong-you Ramon Casadesus Masanell, J. E. (2009). From Strategy to Business Models and to Tactics. Business harvard review, 2-3. Spark, D. (2016, 05 31). The Motley Fool. Retrieved from The Motley Fool: https://www.fool.com/investing/2016/05/31/tesla-motors-inc-continues-bettingon-word-of-mout.aspx STEEN, E. V. (2015). Tesla Motors. Harvard Business School, 1-25. Tesla. (2016). Annual Report 2016. Palo Alto: Tesla Inc. W.Chesbrough, H. (2003). Open Innovation: The New Imperative for Creating and Profiting from Technology. Business Harvard review. WERNERFELT, B. (1984). A Resource-based View of the Firm. Strategic Management Journal, 171-180. Wikipedia. (2017, 12 12). Retrieved from Wikipedia: https://en.wikipedia.org/wiki/Nissan_Leaf

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WorldBank. (2017, 12 19). tradingeconomics.com. Retrieved from tradingeconomics.com: https://tradingeconomics.com/ World-Bank-Group. (2017). Global economic prospect: A fragile recovery. Washington DC: World Bank Group. Retrieved from worldbank.org. Yurong Chen, Y. P. (2017, 12 20). Business Model Design: Lessons learned from Tesla Motors. Gerpisa International conference (pp. 12-15). Cachan: ResearchGate. Retrieved from ResearchGate. Zhenya Lindgardt, M. R. (2009). Business model innovation. Boston consulting group (BCG), 2.

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Introduction

Recently, Business intelligence solutions are frequently emphasized on the creation of a customer-centric strategy. (Roger Buehrer, 2002) Tesla Inc, A silicon valley start-up company which succeeded to edge strong incumbents of the automotive industry in market capitalization and sales of electric vehicles (later abbreviated in this study as EV) has most definitely relied on its customer-driven marketing strategy and innovative business model to practice market growth and profitability. In order to break down this customer-driven strategy, this case study will be divided into two parts.

1) Inspired by various marketing concepts, this part will critically investigate how Tesla curved its own position in EV market and the minds of consumers as an iconic luxury brand. 2) By application of Customer Value Chain Model, we will analyze value propositions and other basics which leads to strong long-term and profitable customer relationship between Tesla and its current and potential customers.

Chapter One: Market Positioning Market positioning helps a firm to direct its product and services towards maximum satisfaction of its consumers and also gives the consumer the understanding of how different a firm's offerings are from others. (Kotler & Keller, 2012) For a successful positioning, Tesla has implicated different steps; • • •

I)

Target Segment. Differentiation Strategy. Integrated marketing mix.

Target Segment: As mentioned in the Part one of this module assignment,

Tesla has considered its core competencies and market structural factors and newness of technology to choose the most relevant segment to operate. Tesla has targeted the upper-middle-class affluent buyers and tech-freaks who are willing to take the risks of early adoption to EVs. (Enger, Spencer, Odahowski, Perez, & Shreiden, 2012)These consumers are socially responsible and care for green consumption, less sensitive to price and

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Interested in premium product and luxury prestige. Moreover, High safety standards are considered as part of their core wants. On this account, For a strong positioning, Tesla has adopted a concentrated market targeting strategy to aim its limited resources toward maximum satisfaction of this consumer segment. Additionally, the premium market in EVs has a vast market capacity since no other car manufacturer has already positioned in this market, This gives the opportunity to Tesla to achieve an outstanding market share in this segment. (Ferris, 2017)

II)

Differentiation Strategy: Tesla has relied on its technological leads in the

design of powertrain systems consumer technologies and IT to differentiate its products from other competitors in the market. (Tesla, 2016) Moreover, it has exploited strategic partnerships with battery designers such as Panasonic to deliver battery packs with an outstanding performance ahead of other EV manufacturers. Some of the characteristics that differ Tesla products from other incumbents in the market are below: • Long range recharging flexibility: Tesla batteries are using a unique technology in the level of battery cells, commutation of thousands of Lithium-ion battery cells and later form factor Nickel chemical based battery cells gives Tesla battery packs long durability lifelong, speed in charging. (Tesla, 2016)Tesla Model S is the longest range EV in the word with an outstanding range of 300 miles per charge. (Edelstein, 2017) • Competitive prices and costs of ownership: Although Tesla has aimed for value pricing, However, by exploitation of its efficient battery packs, and internalization of production of its powertrain systems Tesla has kept its prices competitive comparing to other Luxury cars in both EV and gasoline market. In order to facilitate prove this Tesla has facilitated price comparison tool of its vehicles on its website. (Tesla Inc, 2018) • High Performance without compromised design: Tesla ensures that its targeted consumers can enjoy the prestige of a luxury design and comfort of a premium vehicle along with high performance, acceleration, autopilot and navigation systems and other convenience features that give the customer a unique driving experience which has not yet offered by any other EVs. (Tesla, 2016)

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III)

Integrated Marketing Mix: Once a segment is targeted, a firm must configure

basic marketing elements to reach the target market. (Kotler & Keller, 2012) Tesla aligned its marketing mix to aim for a Niche position in EV market. •

Product: Exceptional design and implication of high-tech applications as a luxury feature along with investment on its vehicle core component (Powertrain and Battery pack) to increase its performance, lifelong, the range of travel and reliability are core focus areas for Tesla’s product strategy. Moreover, In order exceed the normal market product value proposition It has invested in power-storage systems and battery cell technology to develop a network of high performing superchargers and destination charging stations. This indirect way increases the range of travels. Online updates and debugging software, Limited warranty, maintenance and extended service plans are also parts of product and service plan. (Tesla, 2016)



Price: Tesla configured its pricing strategy towards maximum profitability. (Enger, Spencer, Odahowski, Perez, & Shreiden, 2012) Value pricing strategy is common among new technologies and high-end products, it allows the firm to retrieve from high R&D and product development costs. Moreover, This will assist to develop costumer’s perceived value of the product and brand. However, Tesla has also intended to keep a competitive pricing against other luxury cars in Gasoline and Hybrid market to make the switch to fully EV market more valuable for consumers.



Place: In order to make its product efficiently available to its costumes and decrease dealership costs, Tesla is the first automotive company that decided to sells its products directly via its company-owned showrooms or online. Most importantly, This strategy changes the touchpoint view of the distribution function and creates a uniquely designed journey to develop customer experience and a 360 view of the business. (Maechler, Neher, & Park, 2016) Using its glamorous showrooms, galleries and sales events gives consumers the brand perception that Tesla intends to create.



Promotion: Promotional activities consist of all forms of marketing communications, they represent the voice of the company and its brands, they are the means by which the company can establish a dialog and build a relationship. (Todorova, 2015) These activities include sales promotions and advertisement. Considering markets few price sensitivity for high-end products, Tesla has not focused on this phase. However, it offers financing options, loans, and federal tax rebates up to $7,500 to its customers. (Tesla, 2016) On the other hand, Tesla has emphasized on direct communication to its targeted audience via social media platforms, flashy sales events and specialized media like magazines. By adopting a referral marketing program Tesla makes itself independent from traditional dealership network. It encourages and rewards its satisfied customers to promote the product on their social network and offer to their

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friends. This is the best way to create awareness for new potential customers, enlarge the word of mouth scale and tighten the loyalty of the existing customers. (Chan, 2016) Moreover, Tesla exploited premium magazines such as Forbes and BusinessWeek to open up a channel of communication to its upper/upper-middleclass consumers.

All in all, Tesla have considerably selected its market segment, Identified its characteristics, and different risk and opportunities eclipsed with it. It has marshaled its resources and capabilities to create a custom view of the firm different from others in the market. By directing its core marketing factors towards costumer segment characteristics it has achieved to create a win-win relationship which not only does not end with sales transactions but in fact, starts a new phase of two ways value creation which both company and costumer create value for each other in long-term.

Chapter Two: Costumer Driven Strategy

Product Development for customer value: For a start-up company with few experience the

product development phase is the most tricky and game-changing task. Many previous cases have shown that inappropriate product design/attributes, late market entry and lack of product profitability has led to a firm’s early marginalization in the competitive market. (Lightman & Patterson, 1993) Moreover, according to Ishii (2001), the product definition is key to providing high value to customers. However, a product design team must be fully clarified of the major stakeholders and their relationship in the business. On this account, Customer value chain model is a useful roadmap to illustrate the interaction of all stakeholders and stages leading to customer value and profitability. Inspired by this model, Here I suggest these steps as the roadmap to establish a long-term and profitable customer relationship and successful business development.



Customer Portfolio: Selecting strategically significant customers means to identify

customers which can be acquired considering a firms resources and capabilities and their long-term profitability is achievable by the firm. Costumer portfolio is considered in the sector, segment, and individual level. However, a segmentation approach is also common to Identify the right group of customers to serve. In Tesla case, I refer to the descriptions in Chapter one of this study "Target Segment".

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Customer Intimacy: Customer intimacy can be thought of as an advanced form of

customer-centric business. It involves learning as much as possible about your customers, either as individuals or as very small segments of your market, and meeting their specific needs. (Manktelow, et al., 2018) By analyzing segment’s demographic, geographic, sociographic, psychographic and behavioral characteristics, a firm can reach a customer 360' perspective which can be exploited to elaborate offerings which fit customers, best suffice their needs, answer their desires and creates more value to them. Moreover, Having a clear understanding of customer characteristics also will prevent the firm from unnecessary investments in irrelevant areas to the customer segment. In Tesla case application of its digital marketing initiatives and internet data mining can give the firm a solid customer outlook which can be used to analyzing customer segment. Additionally, Tesla can exploit its outside firm networks, particularly its valuable partnerships with other strong and experienced automotive manufacturers Toyota and Daimler AG to access a vast amount of customer knowledge.



Network Development: Considering no single company holds the sources of value

creation, In today's business landscape business networks, are pretty determining in firms performance. Some scholars believe that companies do not compete against each other rather it is their networks who are competing and having strong business network considered as a source of competitive advantage to deliver value to a chosen group of customers. A firm must develop its network by two main consideration; 1.Firm's resource position, capabilities, and operational structure. 2.Customer requirements, characteristics, and perceived value. A firm must manage various Networks such as Supplier Networks, Investors Networks Employee networks Distribution Networks and etc. However, Considering that such a network development for a newborn start-up company would be way much more costly and time-consuming that the firm can tolerate Tesla should have adopted a more practical and effective way for Network development, Strategic Alliances. According to Steven Holmberg (Holmberg, 2011) Tesla has engaged in three major strategic alliance types to facilitate its growth: 1-Supplier alliances; To provide on-time premium quality components for Tesla products.

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2- R&D alliances; To break in cutting-edge technology in the field of EV and particularly energy management and battery systems. 3-OEM alliances with other automobile manufacturers; Aside from its different business unit and revenue stream, The opportunity to use strong car manufacturers’ non-marketable resources, experience provides a unique opportunity for Tesla to overcome its liability of newness in the market.

Value Proposition Development: A firm must convince its customers on how its

products and services solve their problems or improve their situation, delivers specific benefits (quantified value), tells the ideal customer why they should buy from the company and not from the competition (unique differentiation). By understanding customer segment strategic marketing team must enlist the activities that a potential customers undertake in the field of the company activity (Jobs/Tasks), the benefits it expects to achieve by choosing our product against other options in the market (Gains), and the pains that interfere with aforementioned jobs/tasks which makes the customer reluctant of buying a similar product/service (Pains). Then to define and offer product/service which best fits those Jobs/Tasks resolve their pains and provide their expected gains. Exhibit1 presents the general value proposition of Tesla in EV market.

Exhibit 1: Tesla EV value proposition canvas. (Author)

Pain Relievers

Network of Superchargers

Low-cost battery

Model S & X

Roadster 100KwH Battery Pack

Powerwall I&II

High Saftey Standards ServiceLocations and Online diagnostics

Pains Lack of charging stations Low travel range Unconfortable and ugly design

Expensive battery unit Difficulties in maintanance Unsafe for Family

owner, a vew of success

Online diagnostic application

4yrs Limited 50T Km Warranty

Short-Medium Commut

Service Plus locations

RangerMobile

Safe travel for family Presenting a prestigious view of the

High-Tech Control Panel

High Acceleration, 0-100 in 6sec Autonomous Driving Destination Charging Network

Long Travel Range High-Tech IT infrastructure

Zero carbon footprint Different from Others

Cuting edge navigation systems High Performing Battery cells used in Powerwall and Packs

Appealing to others as an Intellect consumer

Fully recyclable body interior and Battery

Gains Gain Creators

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Jobs/ Tasks

Appealing Design 300Miles battery duarabily

Product & Service



Management of relationship: Integrated activities such as customer acquisition,

retention, and development plan are firms roadmap on the way it conducts its relationship with a specific group of customers. This requires to design customeroriented organizational structure and culture, train and motivate employees, empower firms information systems for further analysis accordingly. Moreover, Social media provides a cheap, effective, and analyzable platform to access the vast amount of audience. A company with High-end product and cutting-edge technology can exploit the word-of-mouth strategy by connecting its early adopters, providing the best customer experience, empowering them via constant relationship trough customers loyalty and VIP clubs, news updates. Additionally, incentivizing existing customers collaboration in firms social and advertising activities (Referral program) will tighten the bond with the firm's loyal customers and turning them into evangelists promoting their product among others which tends to be even more effective than other forms of advertising.

Supporting Activities: Nevertheless, As aforementioned earlier, a firm must coordinate its cross-functional activities to be aligned with its customer-driven strategies. R&D: For its growth strategy, Tesla has mostly relied mostly on its innovative approaches to both product/Service and processes. However, Innovation is not bounded inside the borders of a firms R&D department, By the use of purposive inflows and outflows of knowledge to accelerate internal innovation, and to expand the markets for external use of innovation, respectively. (W.Chesbrough, 2003) Therefore, Exploitation of all internal and external sources of knowledge is crucial for the process of innovation. HR & Organization: In order to respond to its liability of newness and young history Tesla needs to form a learning organization structure. This requires less top-down vertical management particularly in R&D management, shared information among organization and empowering the roles of employees. Moreover, It is now well-known that open systems are more adaptive to the environment and more likely to be flexible for customer-driven strategy. This may cause extra costs for transactions and coordination and also the risk of mistakes, However, an effective information system can exploit these costs for further improvements.

In a nutshell, In order to create a customer-driven strategy a firm must coordinate a set of activities aiming to understand a group of people who tends to serve with its products and

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services, define value for them and identify the ways of value creation with its internal functional activities to align together towards a long-term successful customer relationship. This model as explained above can be visualized in Exhibit 2.

Exhibit2: Customer Base Value Chain Model.

Human resources

Value proposition development

Managment of relationship

Research and Development

Long teram, profitable customer relationship

Organization

Network development

'

Customer Intimacy

'

'

Custopmer Portfolio

References Chan, W. (2016, 9 22). Inc.com. Retrieved from Inc.com: https://www.inc.com/walterchen/how-teslas-referral-program-generates-more-than-40x-roi.html Edelstein, S. (2017, 9 20). Greencarreports. Retrieved from Greencarreports: https://www.greencarreports.com/news/1107455_2017-electric-cars-with-morethan-100-miles-of-range Enger, C., Spencer, L., Odahowski, D., Perez, A., & Shreiden, A. (2012). TESLA MOTORS; Marketing the model S. Tesla Inc. Ferris, R. (2017, 6 29). CNBC.com. Retrieved from CNBC.com: https://www.cnbc.com/2017/07/28/as-tesla-goes-mainstream-luxury-carmakersplan-rivals.html

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Holmberg, S. (2011). EMERGING GREEN-TECHNOLOGY ENTREPRENEURS: ENTREPRENEURIAL PATHWAYS TO GROWTH IN THE. ICSB World Conference Paper (pp. 19-27). Stockholm: ICSB World Conference Paper. Kotler, P., & Keller, K. (2012). Marketing Management. Upper Saddler River: Prentice Hall. Lightman, S., & Patterson, M. L. (1993). Accelerating Innovation: Improving the process of Product Development. Wiley. Maechler, N., Neher, K., & Park, R. (2016). From touchpoints to journeys: Seeing the world as customers do. McKinsey&Company. Manktelow, J., Cook, L., Bishop, L., Ian, M., Jackson, K., Edwards, S., & Pearcy, E. (2018, 1 8). Mindtools.com. Retrieved from mindtools.com: https://www.mindtools.com/pages/article/customer-intimacy.htm Roger Buehrer, C. D. (2002). Approach to overcoming existing limitations for CRM implementation. ECIS (p. 151). AIS Electronic library. Tesla. (2016). Annual Report 2016. Palo Alto: Tesla Inc. Tesla Inc. (2018, 1 3). comparison.Tesla.com. Retrieved from Comparison.Tesla.com: https://comparison.tesla.com/en_GB Todorova, G. (2015). MARKETING COMMUNICATION MIX. Trakia Journal of Science, 368-374. W.Chesbrough, H. (2003). Open Innovation: The New Imperative for Creating and Profiting from Technology. Business Harvard review.

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