By Harsh Pamnani
In the early 2000s, a luxury car – Volkswagen Phaeton was introduced. It was manufactured in a separate transparent glass-walled factory in Germany and had all sorts of luxury features, many of which were supreme at that time. However, only 3,354 Phaetons were sold in the United States, and the car was removed from the market in 2006. You must be wondering why this fantastic car from a famous brand couldn’t succeed in a market with a customer base for luxury products?
Wealthy people usually buy luxury offerings as a symbol of prestige. It is challenging to add prestige value to a mass brand. In the United States, buyers are very brand conscious, and Volkswagen is known for selling affordable cars. Perhaps, there was no strong reason for people to buy a luxury car from a mass brand. In the luxury car market, popular brands such as Audi, Bugatti, Porsche, Lamborghini, Bentley, Mercedes-Benz, BMW, Rolls-Royce, Ferrari, Lexus, and many others compete for the market share. You might be thinking, if the market is so competitive, no new player would have dared to enter it. But this happened!
A few years after Volkswagen Phaeton’s exit from the USA market, a start-up Tesla launched its first luxury car – Roadster. It didn’t go big in terms of numbers, but it catalyzed the electric vehicles industry. You must be thinking, how come a car from a start-up made its mark in a highly competitive car market? Now, Tesla is the world’s most valuable automaker. But when it had launched Roadster, it didn’t have resources like large automakers, then what it had to stand out? In my view, it had a great positioning strategy.
A big mistake many businesses make is that they assume positioning is just a marketing strategy. However, it is one of the foundational elements of the business strategy that could make or break a brand. Al Ries, the pioneer of positioning said, “Positioning is how you differentiate yourself in the mind of the prospect. That is, you position the product in the mind of the prospect.” The positioning gives the framework to uncover customers’ unmet needs, guides the story, and provides direction for product-market fit. Let’s look at a few questions that help prepare positioning strategy along with some examples from the early days of Tesla.
What is your product category? The position is based on the chosen category and competition already present within that category. When Tesla was born, almost every big company was focusing on making gasoline-based cars. Hence, this category was super crowded. In contrast, Tesla focused on a category that was uncrowded at that time – high-performance electric cars.
Is your market favorable? Various factors, such as customers’ attitudes, government policies, number of competitors, etc., define a market’s favourability. When it started, Tesla had no history in manufacturing cars and had no economies of scale. Further, new technology initially has a high unit cost. Hence, Tesla required a lot of funds. In the USA, the venture capital ecosystem is mature, and the government supports electric vehicles’ adoption. Along with equity-based funding from prominent venture capital firms, Tesla also got a $465 million loan from the government. The government also implemented a program that offers up to $7500 in tax credits to electric vehicle buyers.
Who would buy your product? Instead of trying to be everything to everyone, a company should focus on the audience who would be most excited by its offering. Tesla initially planned to target the high end of the market, where customers are fine to pay a premium. Tesla called its first 100 customers – Signature One Hundred, an elite circle of automotive visionaries who had chosen to reserve the world’s first high-performance electric sports car.
Why people need an alternative? Consumers would use a new product over existing ones only when that new product satisfies some burning need or aspiration. Concerns around gasoline-powered cars have been increasing due to rising fuel prices, depleting fossil fuel reserves, and harm to the environment caused by fuel emissions. Roadster proved that electric vehicles could outperform conventional vehicles while producing zero emissions.
How your brand can satisfy the need better? People buy products to get certain benefits. Some primary benefits are delivered by both you and your competitors. To drive choice in your favour, you need to focus on benefits where others are weak, and you could be strong. Roadster’s looks, feels, and drives were like many other high-end sports cars. But, it didn’t create noise. Roadster could accelerate from 0 to 97 km/h (0 to 60 mph) in less than 4 seconds, all completely silent. Charging infrastructure remains one of the biggest problems in the widespread adoption of electric cars. The Roadster was the first all-electric car to travel more than 320 kilometers (200 miles) per charge.
Who is your competition? Competitors could be businesses that offer a different product but meet the same need or businesses that provide the same product to another market segment. When Tesla started, its broader competition was the small flow of electric cars and the large flood of gasoline cars. A start-up can’t compete with everyone, so it has to define its competition carefully. Rather than entering into a large economy market, Tesla entered small luxury sports car market. Breaking the compromise between driving performance and efficiency, it succeeded in winning market share from other gasoline-powered luxury cars.
What is your point of difference? Without proper differentiation, there is no valid reason for people to choose your brand over others. When Tesla started, many automobile companies were huge in revenue, employees, suppliers, dealers, geographical reach, after-sales service, reputation, and customer relationships. Being a start-up, Tesla didn’t have any of these strengths. However, leading automakers lacked expertise in building a software car. Tesla built cars by developing software on unique hardware. Via the internet, Tesla can periodically update its vehicles. Hence, a lot of fixes and improvements could be made without customers going to a service center. As electric vehicles have fewer parts, there is less need for physical repairs. Also, the company sells directly to the public, cutting out the usual dealer networks.
Why should people believe you? To accept your claims, people need reasons. Generally, things like unique technology, awards, testimonials, seals of quality, founder’s credentials, reputed investors, etc., act as reasons to believe. Let me share one example from a technology perspective. The secret behind Roadster’s amazing acceleration and phenomenal driving range was its battery technology. Lithium-ion (Li-ion) batteries powered Tesla Roadster. These batteries are a lot better than Nickel-Metal Hydride batteries and lead-acid batteries found in electric vehicles of the past. Further, to maximize battery lifetime, the company invented a sophisticated liquid cooling system.
Positioning is not static. The future state that you are looking for and changes in the marketplace (competition, customer needs, technologies, etc.) will change the answers to the above questions and will change your positioning strategy. According to a McKinsey article, brand positioning generally has a shelf life of three to five years. Tesla started with luxury cars for the upper end of the market, but it is now bringing compelling electric cars to the mass market. When Tesla started, competition in electric vehicles was insignificant. However, with time, major automakers and disruptors such as Apple are getting active. To stay ahead, Tesla has also been making investments in various areas. It would be interesting to see how positioning of automakers evolves with time.
The writer is author of the book ‘Booming Brands’. (Views expressed are personal and don’t necessarily represent any company’s opinions)