The aim of this report is to critically evaluate the Daewoo’s 1995 UK automotive market entrance. After entering the highly competitive British car industry, Daewoo managed to achieve a competitive advantage by focusing on delivering effective customer service. We seek to understand why established car firms did not respond to customer needs prior Daewoo’s entrance and what strategies they could possibly adopt to outperform Daewoo presently.
The report also takes a look at the innovations associated with the UK entry of the Korean car manufacturer and how they could sustain these innovations to retain and build on their existing market share. Possible brand extension strategies will be suggested for Daewoo to follow subsequent to the successful launch of the car. We finally assess other sectors where firms could achieve a competitive advantage by applying a customer-centred strategy.
2. Analysis of the Case 2.1 Dilemma facing the car industry The industry is faced with two main choices when responding to Daewoo’s challenge. The first of which is to save resources and not respond based on the belief that Daewoo’s competitive advantage is not sustainable. Daewoo’s direct distribution strategy will incur increased customer service and logistics costs (Doyle and Stern, 2007) and the firm’s current aggressive promotional strategy will also affect their bottom line.
Furthermore, the ‘post modern’ criticism of delivering such high service levels is that it is unsustainable due to the fact that the customer will simply increase their expectations in line with improved offerings (Kotler et al, 2007). However, such a strategy would involve a high level of risk. The second option for responding to Daewoo’s challenge is to adopt defence strategies (Lambin, 2007). We feel that it is important to establish that there is no universal strategy and individual players would be advised to review whether the threat of Daewoo is relevant to their target market.
For example, high end car manufacturers such as Audi and Mercedes are highly unlikely to suffer any repercussions as they do not target the same price sensitive market. Companies that do target price sensitive customers (such as Ford, Fiat and Renault) would be advised to take a much more direct approach however. The most appropriate mode of doing this would be through a combination of ‘position’, ‘flank’ and ‘pre-emptive’ defences (Lambin, 2007). Firstly, through a ‘position defence’, it would be recommended that manufacturers utilize their existing brand equities and customer base.
Daewoo do not benefit from a long standing presence in the UK market and, as a result, protecting existing customer databases is a crucial element in defending market share. A combination of ‘Flank’ and ‘Pre-emptive’ defences would be recommended to address the threat brought about by Daewoo’s distribution strategy. An obvious way of doing this would be to imitate the strategy and meet or even exceed the standards set by Daewoo. However, this would be a costly and difficult process to implement due to the high exit barriers caused by existing distribution agreements.
Therefore, to pre-empt the next move in Daewoo’s strategy would be a more viable solution and could give the competition a first mover advantage. The growth of e-commerce and internet usage in 1998-2000 was unprecedented (BBC, 2010) and developing an online platform represents an opportunity to create an interactive and cost effective distribution strategy. Adoption of such a solution would allow manufacturers to lead digital convergence and offer further decreases in stress and intrusion into the customer’s decision making process.
2.3 Customer-focused approach According to the pre-launch research conducted by Daewoo, the overall standard of customer service in the UK car market was low. The majority of consumers suffered from unpleasant buying experiences due to apathy from dealers, inconsistent pricing and poor after-sales service. This provided Daewoo a competitive advantage by operating as a customer-focused brand. The Korean conglomerate focused on optimizing their customer services, including an exceptional showroom atmosphere (Rodgers, 1995).
Despite of this example, the industry had failed to innovate in a customer-focused manner. The fundamental reason is that as the UK car industry structure had remained unchanged for one hundred years. Conventional innovation approaches include building high quality cars (Volkswagen and Toyota) or offering low prices as (Lada). However, they did not break the tradition by investing in an innovative, customer-focused strategy.
An additional cause could be that UK automobile manufacturers were highly conservative. According to Whittington (2010) customer centric strategies are so complex that requires the company not only analyse the problem from the market researches, but also develop an objective view to consider financial and operational issues. We feel that, that on consideration of the financial and operational investment required, manufacturers denoted the risk of following such a strategy was too high risk.
The last possibility is that the market did not believe this kind of customer-focused innovation was feasible and underestimated the importance of after-sales services and the ever-changing customer trends. The opportunity was clearly shown through market research data, however we feel it was ignored and the market change adverse. Ironically, they failed to anticipate a market entrant could identify and achieve a competitive advantage through customer-focused innovation. Daewoo’s successful launch strategy taught the market a bitter lesson.
2.4 Sustainable competitive advantage Daewoo has achieved its aim of gaining circa 1% share of the UK new car market. A challenge the company now faces is to sustain this position and improve it further in the future. As highlighted in 2.1, it can be argued that Daewoo’s competitive advantage is not sustainable. It could, therefore, be easily imitated by competitors, substituted by rivals’ offerings and as a result lose their rarity and be less valued by customers in the longer-term (Barney, 1991; Srivastava et al, 2001; Kotler et al, 2009). In order to avoid such a fate, the company should undertake a number of steps. Firstly, it should improve the quality of cars to be able to compete more effectively with competitors when they inevitably counter act Daewoo’s strategy.
High quality cars combined with the brand’s positive image and reputation gained during the launch stage will help to retain customers. Secondly, it should conduct market research regularly to collect information about customers’ needs. This will ensure the company will continue tailoring its products and services to meet these needs better than competitors. Moreover, the company should continue innovating customer services to endure a competitive advantage. It should constantly seek new ways for the whole experience of buying a car, so that it can offer something else when competitors copy its current innovations. For example, Daewoo might launch a website where customers are given an option to co-create a car by adding features or add/exclude services.
Finally, the company has been emphasising weaknesses of other car makers in its advertising efforts so far. It should start to focus more on its own strengths communicate them in an effective manner. It will be problematic and expensive to attract customers and raise awareness with the current advertising when competitors improve their services. It is important to bear in mind that it will take some time for competitors to match Daewoo’s critical success factors as they might need to go through cultural, structural and operational changes (Woodruff, 1997). Daewoo has an invaluable opportunity now to build further on its existing capabilities to sustain its market position and become a stronger competitor in the future.
2.5 Other sector options Customers today are strongly value oriented. Knowing where value resides from the standpoint of the customer has become extremely critical for managers, because greater levels of customer satisfaction lead to greater levels of customer loyalty and retention, positive word-of-mouth, a stronger competitive position and ultimately, higher market share (Kotler et al, 2009). Daewoo attacked an industry as competitive as the car sector through a value and customer service strategy. Successful companies manage to invert the traditional organisation chart by placing customers at the top of the pyramid as opposed to managers who believe that the customer is the company’s only true profit centre (Kotler et al, 2009).
Customer-centred companies such as Amazon.com are in a strong position to identify new opportunities and set a course that promises to deliver long term profits due to its customer orientation (Kotler et al, 2009). A firm can achieve competitive advantage in other industries such as travel, banking, insurance, airlines, retail and fast moving consumer goods by employing a customer-focused strategy. The illustration of how Southwest Airlines achieved a distinct advantage in an extremely competitive industry such as the airline industry by focusing on delivering higher customer value bears testimony to this.
Customers place high value on Southwest’s frequent departures, on-time service, friendly employees and very low fares (Heskett et al, 1994). However, it is imperative to understand the fact that not all firms are able to achieve a competitive advantage through superior customer service (Lambin, 2007). A company should have the internal capabilities and resources to adapt to ever changing customer needs. The service level provided must also be appropriate to the target market in order to exceed customer expectations. 2.6 Brand extension
Marketers must judge each potential brand extension by how effectively it leverages and contributes to brand equity. With the right product ‘fit’, the customer’s perception of the parent brand can reduce perceived risk within numerous consumer or B2B decision making processes (Kotler, 2009, Webster, 1991). The Daewoo brand has become synonymous with exceeding customer expectations. This creates numerous brand extension opportunities.
As in 2.5, Daewoo should however ensure that this is related to their core competencies to maximize the likelihood of success. We feel that an ideal opportunity comes in the form of extending the Daewoo brand to the commercial vehicle segment. This would not require the company to re-plan their entire marketing strategy as this would hold true for targeting small to medium business (SMB’s) markets as well as consumer. Furthermore, Daewoo would be able to leverage their partnership with GM to reduce research and development costs by re-branding other Vauxhall/Opel models such as the ‘Corsa’ van. An increasingly diversified, yet viable option would be to extend the Daewoo brand to motorcycles.
This would again enable the company to leverage its brand equity and distribution networks; however the product and market is outside their existing knowledge base. In order to overcome this lack of knowledge and competence, we would recommend that Daewoo follow a similar alliance strategy that they previously adopted with GM with a leading motorcycle manufacturer. Although this is likely to ensure that the core product will be of a high quality, Daewoo must be mindful of the fact that their existing staff will require extensive product training maintain service levels.
The final and most diversified brand extension would to utilize Daewoo’s brand equity within the Financial Services sector (motor insurance). As with the motorcycle market however, Daewoo do not currently have the knowledge or resources to compete in the market. In this instance, we would recommend Daewoo to operate a franchise partnership with a suitable insurance provider. As stated above, it is however imperative that Daewoo ensure that both the core and augmented product fit with their brand.
3. Conclusions Concluding on our evaluation of the 1995 launch of the Daewoo automotive brand into the UK market, it is clear that it was a success. The company capitalized on a weakness in the market by leveraging their knowledge base and extensive resources to provide exceptional customer service. Sceptical views of the strategies longevity are however justified. The innovative distribution strategy adopted requires additional expenditure and the company’s aggressive marketing activity will again affect the bottom line. It is clear that in order to remain stable in the market and maintain a sustainable competitive advantage, the company must continue to understand and satisfy the needs and wants of the customer.
Although brand extensions offer a lucrative growth opportunity, the company must not allow this to detract from their main competency- customer satisfaction. With regards to the market environment, Daewoo’s competitors have no one to blame but themselves. Regardless of this, they must adopt effective defence strategies to match and exceed Daewoo’s market offering in order to protect their market share from further depletion. Furthermore, to pre-empt and lead the next major development in customer satisfaction will be imperative to long term success.