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Daewoo Cars: Changing the Rules About How To Compete

Consider what it is like to buy a new car. We travel to the distributorship for the car we like - usually in an unpleasant part of town. As we enter the showroom a salesperson attaches to us, and stays with us. He (normally) will make the effort to separate us - the female partner is sidelined, while sales pressure is applied to the male partner. We explain what we want - this is a waste of time because the salesperson clearly is not interested in what we think, only closing the deal and selling as many add-ons to the product as possible. By now we are talking about the car the salesperson wants to sell, not the one we came in to see. Of course, we have to make our minds up quickly - for there are many others who want "our car" - usually not in evidence in the showroom, or probably outside the salesperson's imagination. Our objections to the vehicle being sold are systematically and skilfully overcome, our attempts to negotiate on price lead to a meeting with a senior salesperson who is even ruder and more aggressive than the first and who squashes our pathetic attempts to get a good discount on the list price. Our attempts to get a good trade-in price on our current car are met with barely disguised derision, and we are grudgingly offered a trade-in value several hundred pounds lower than the list price, because of the numerous faults instantly discovered in our vehicle and the "impossibility" for the dealer of selling it on. Finally, we sign the contract, and commit ourselves to the expenditure. Somehow our salesperson loses interest at about this point, and we end up with a clerical worker, who explains about the two-month waiting list for the new car, and the £800 charge for number plates and delivery (which is mandatory because we are not allowed to supply our own number plates or collect the car from the manufacturer's plant even if we want to), and the charge for the extras we agreed to, and the cost of the road fund licence, and so it goes on. When we finally get the vehicle it has faults, so we take it back. Now we deal with the "service" people whose main aim is to "prove" that there is nothing wrong with the car, and if there is - it is our fault - and 'no' we cannot have a lift to work while they look at it ......
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computing. Patrick Farrell. and a marketing strategy that involved taking control of the distribution chain by dealing direct with customers . Daewoo is Korea's second biggest car maker and the world's 33rd largest business group. Initially. Farrell drove the pre-launch publicity to establish the Daewoo presence. Farrell's unique selling proposition for Daewoo was to be the most customer-focused brand in the car market. in preparing for the car launch. In common with other Pacific-Rim country corporations Daewoo has an aggressive plan for expansion and globalisation. It is not like this at all.The evidence from countless customer surveys suggests that this is what feels like buying a car (whatever people in the trade say) – and customers hate it.000 vehicles in less than two years . Daewoo's product range is vast including aircraft. by mid-1996 Daewoo announced an investment of £700 millions in setting up a car factory in Britain. construction. Daewoo. The new plant is expected to be preceded by largescale investment by Daewoo in design. development. recruited from Rover as Marketing Director.which is continuing to change many of the basic rules of how car companies compete and how they deal with their customers. produces wing assemblies for British Aerospace.eliminating dealers from the channel. but Daewoo was blocked from operating in the European car market until 1992 by a joint-venture agreement with General Motors. Starting as a textile company in 1967. Following its market entry in 1995. This thinking was based on a large-scale market research 2 . Daewoo was a name unfamiliar in the UK until the mid-1990s . if you buy from Daewoo. and marketing and sales. and joined Daewoo when it was effectively a "virtual car company". businesses now owned by Daewoo have produced cars for some 60 years and has eleven car plants in nine different countries.selling 35. banking. came from a background in market research and advertising. heavy industry. the company promoted itself in Britain as 'the biggest car company you've never heard of'. and automotive manufacture.although owners of Nokia mobile telephones and Nike trainers were already customers of Daewoo companies. Daewoo is a South Korean corporation which has entered the UK car market with a highly successful launch . shipbuilding. In fact. Lockheed and Boeing. petrochemicals. textiles. for example.

the company sold 10.programme analysing car buyers' attitudes and a highly effective creative partnership with Duckworth Finn. on the back of a £150 million investment and an award-winning £11 million advertising campaign produced by Duckworth.2% The Market The UK car market is fiercely competitive.2% Hyundai 14 years 0. a totally new approach to distribution and the customer's purchasing experience. standards of customer service are low in many areas. Daewoo told consumers that there were no commission-earning salespeople and no distributors. In fact. However.5% Kia 5 years 0. beating Proton's record of 10 years standing. the market leader in the Korean home market). Daewoo's launch was the most successful new marque launch ever in the UK market. achieving 1% of the UK car market can be put into context as follows: Brand Years in the UK Market Market Share Volvo 38 years 1.9% Proton 7 years 0. and that is why the value of the car was so high.7% Mazda 25 years 1.1995. For example. but performance has greatly exceeded this target. In short.Waters.9% share of the market in 8 months from launch. Daewoo launched its car operations into the UK market on April 1. Right from the start. is experiencing little growth and has oversupply from local production and strong import brands with more than 40 competing firms.000 vehicles in the first six months of the campaign and achieved a 0. Daewoo's market positioning is based on an innovative packaging of benefits and services around the car. and an emphasis on customer service. 3 . In spite of some industry scepticism. and becoming the 27th largest car firm in the UK ahead of companies like Chrysler and Subaru (and perhaps more importantly ahead of Hyundai.Grubb.Finn. Daewoo set an ambitious target of achieving a 1% share of the UK new car market by the end of 1997.

It is based on customer 4 . Cone and Belding suggests women car buyers (who account for more than one third of new car purchases) feel particularly intimidated and patronised by traditional car dealers and salespeople. There is some basis for this mistrust on the part of car buyers. Pre-launch research by Daewoo with 200. a similar proportion believed that the salesman usually "wins". Recent surveys show that on a £12000-£13000 new car. Mid-market launches by Hyundai and Proton. many of which were almost beyond belief . culminating in summer 1994 at the Tylney Hotel near Daewoo's Rickmansworth headquarters. writes in 1996 that "the direct response campaign we ran in January this year generated more than 125.1% of the market within 3 years. Similarly. In both cases. Some 63% of motorists found car showrooms to be intimidating places. but the other larger players have already largely closed the quality gap. Nissan and Toyota succeeded in market entry by building better cars. The company's market position does not rest on product quality. In spite of these signs of market opportunity.000 motorists found that traditional motor dealers did not make customer feel welcome. have effectively rewritten the "rule-book" for the motor trade in Britain. research from the agency Foote.000 stories of recent maltreatment by the motor trade. the company recognised that launching a new brand in the mature UK car market was going to be hard.Patrick Farrell.. the customer who haggles can get a price reduction of up to £1600. while the customer who does not haggle pays the list price for the same car. Daewoo's Marketing Director.. low price. Brain-storming sessions by Daewoo's UK management. Companies like Lada attacked the market with low prices and corresponding status. the unwary are likely to pay over the odds for the financing deal as well. and 86% said they would be prepared to travel up to 50 miles for a better buying experience.000 responses and more than 50. a significant proportion of the trade still lags behind the standards set by retailers in other industries". and people generally disliked haggling over prices and the whole purchase experience in the traditional dealer's showroom. had failed to achieve what Daewoo wanted . a "lifestyle"-based brand image or any conventional platform. as well as insulted by conventional "toys for boys" car advertising. adopting conventional market strategies.

with number plates. executive. it is the first time in history that a car company has made a "Buy One. and possibly the bewilderment of competitors is quite understandable. covering everything except the tyres.) Perhaps most significant of all to the budget-conscious consumer. and was sold in other parts of the GM world as the Opel Kadette. the Nexia was the previous model of the Vauxhall Astra (though coming into the market at a price £2000 below the basic Astra). based on old General Motors models. The Daewoo Market Strategy The Daewoo product strategy is far from sensational in itself. Then add to this the fact that the Daewoo vehicle also has a 3 year/60. Designs appear oldfashioned.service and value in the customer's terms. and a mobile phone. nervous about running costs as well as purchase price . dated mechanicals or not. with no additional charge to the owner. 3 years AA breakdown cover. (These charges have traditionally meant an additional charge to the customer of £400-600. a year's tax. and highly innovative advertising to build and sustain the image of value and customer service.the first 1000 buyers in April 1995 were promised a replacement N-registration car in August that year. Also the vehicle will be collected for servicing and a courtesy car will always be provided. or the Pontiac Le Mans. the new car buyer's nightmare that someone else will buy the same car at the same time for a better price does not exist for Daewoo buyers. However. and a full tank of petrol. security registration. Delivering these promises is based on direct selling.000 mile warranty. on top of the list price. Further industry confusion was created when Daewoo added three years fully comprehensive insurance to the package for the 1997 campaign. (In fact. In pricing. Daewoo's entry level car. This alone breaks the fundamental rules of how business is done in this market. Daewoo operates 5 . with no additional charges. Indeed. Get One Free" offer . and "people carrier" vehicles are to be launched). new Daewoo models including a supermini. a first difference is that from launch Daewoo delivered the car without the "traditional" hidden extras: the car is delivered without charge. and are. in fact. not conventional car distributorships. In fact.the sticker price of the Daewoo car includes three years free servicing.

Our philosophy is not short-term gain. total control of the sales operation. roomy. for example zero-hours contracts for distribution staff (paid only when needed for work).. The buying experience for the Daewoo customer has been described as "a car browsing environment with the hassle factor removed". Touch-screen computers allow prospective buyers to investigate 6 . friendly car shops mostly in retail park locations. We will demonstrate honesty openly and will make car buying a delightful experience". Daewoo's launch goals were: high coverage of the country... However. but long-term customer satisfaction . Daewoo has side-stepped the traditional distribution channel and does not employ a franchised dealer network. just perfection in attention to detail . and lowest possible risk to capital.e.a fixed price strategy with no haggling.. There are no traditionally aggressive car showroom salespeople chasing commission . They will receive the utmost courtesy and attention when they require it. Second. The company view is that dealing direct strips out a profit tier of 30-35% of the price of the vehicle. First.. The Daewoo strategy for delivering those promises is revolutionary. but the way in which the cars are sold and distributed. Distribution is through a wholly-owned network of "Motor Shows". A company executive said at the time of launch "Customers will be treated as if they are in Harrods . given "permission" to explore. the Daewoo value strategy in services and product benefits is outstanding. and smaller "Car Centres". and left alone by staff unless help is requested. but also sidestep the costs for the manufacturer of promoting vehicles to distributors and the inefficiencies of independent car distributorships with no economies of scale in their operations. i. Direct distribution and partnerships achieve these goals.Daewoo's salespeople are paid salaries and are not allowed to approach a visitor to the store unless invited. where customers are welcomed.. the Daewoo distribution outlets are blatantly designed to react directly to specific points of customer dissatisfaction with traditional car dealers. There will be no sales pressure. The trade dislikes this approach. The main source of competitive differentiation for Daewoo cars is not the product offer or the price deal. but customers appear to prefer it and to choose fixed prices rather than endure the stress of bargaining. This saving is reinforced by the use of flexible employment terms.

The Halfords mechanics are Daewoo-trained. but when they do they will travel some distance to see the cars they want to see. New car purchases are made infrequently and for most consumers are a major investment buyers do not look at new cars often. Thirty of Halfords superstores will include Daewoo car salesrooms by the end of 1996. Unsurprisingly.its income comes from service and repair and increased customer traffic. A coffee bar provides the facility to sit and think. not the showroom. the motoring superstore chain owned by Boots. Daewoo has "unbundled" them. Daewoo relies on a small number of flagship sites to pull in buyers to see the cars. Servicing and maintenance for Daewoo cars is provided through a collaborative deal with Halfords. and used car sales. service support. The strategy here is based on partnership. The major problem is servicing.early in 1997 the Halfords' outlets were already providing 20% of Daewoo's retail sales volume. 7 . Test drives can be arranged to and from the home. where the market requirements are almost opposite to those for new car showrooms – there need to be many sites because customers do not want to travel far for service and repair. Because each of these has very different requirements. and the floors are soft enough so that high-heels do not clip and draw attention. and Daewoo staff will be present in the Halfords stores to ensure staff receive the customer service promised. and visited by 30 million people a year. reducing investment in the network. but are fitted into the network wherever this does not detract from market positioning of the new cars. The aisles are wide enough to accommodate a doublebuggy. Halfords does not earn commission for car sales . and refunds/exchanges can be made in the first month by the buyer who remains unsure about his/her purchase.choices and finance options (not competing for the computer with their children who have their own touch-screen computers to design their own cars in the supervised creche and playroom area). but they need to be small because of operational efficiencies in servicing modern cars. and all 136 branches will provide service for Daewoo cars . Daewoo's strategy also recognizes that there are three important elements to the car business: new car sales. Used car sales are important.

but which have also proved successful in selling vehicles and developing into additional showrooms. and customer perceptions of a new customer focus were growing. based in Halfords' sites.Halfords customers with other brands of car now find Daewoo literature discreetly placed in their vehicles when they are collected from servicing or repair.Grubb. and customer cynicism about motor trade promises of customer service.treating customers differently. * the Daewoo Car Centres. With a mix of direct response advertising .Waters with Daewoo were: • DIRECT . Daewoo took prompted awareness of the brand from 4% in September 1994 to 50% by the end of December that year. in 1996 Daewoo has started a joint venture with the supermarket group Sainsbury's Savacentre group.to actually listen to customers in the "Daewoo Dialogue".clear communication with the company for customers and no sales pressure and haggling. • HASSLE-FREE . compared to the highest spending car firm's 64% from a £64 millions spend. which concentrate on servicing. The resulting Daewoo network has three tiers designed around customer needs: * the Daewoo Motor Shows. to locate Daewoo showrooms in Savacentre's food and clothing sites. Indeed. The pilot outlet at Colney sold 200 cars within its first 12 months of operation. TV and press spots using the types of messages in the ads shown in the case. in the launch. • PEACE OF MIND . More recently. the flagship new car sales outlets based on retail parks. Driving the launch was the Daewoo branding and advertising strategy. smaller to gain market coverage and providing some servicing as well as new and used car sales. Daewoo faced the twin problems of the company's credibility as an import brand with no customer awareness in Britain. The "four pillars" of the brand proposition developed by Duckworth. are permanently available with every Daewoo (and Daewoo 8 . with high traffic and large catchment areas.Finn. and are traditionally expensive "extras".the features that worry customers. and * the Daewoo Support Centres. Daewoo's advertising awareness by November 1995 was 77% on the back of an £11 millions spend.

Industry Reactions As the extent of Daewoo's impact on the market has become apparent. customers would reject the lack of independent franchised dealers. This may be because Daewoo is in the process of smashing an industry structure which has developed largely unchanged over 100 years. Volkswagen and Rover followed Saab in scrapping hidden "delivery charges" and incorporated these in list prices . and • COURTESY . but with little sign of a coherent strategic response. By 1997. Daewoo was forced to withdraw advertising that exposed "overcharging" by dealers and underlining a 35% price advantage for Daewoo over rival cars. that's "Lada With Attitude"!' Most recently. In Scotland complaints to the national trade association led to the withdrawal of Daewoo ads showing a car being sliced by an electric saw with the caption "The dealer's slice .. the reactions of competitors have evolved along the following lines. Initial industry surprise and skepticism about Daewoo's strategy developed into criticisms of the company for being too aggressive and arrogant.huh.stays in touch with the buyer throughout purchase and use in the "Daewoo Contact Wheel" with members of the "Daewoo family"). and independent servicing would not work. Competitors' denial has evolved into bewilderment and now hostility..by openly respecting customer needs and preferences throughout the purchase and use process. industry analysts were saying that conventional franchised dealers were doomed to 9 . industry views were that the Daewoo strategy would not work . Daewoo has been subject to a variety of "dirty tricks" and attacks: being banned from one local motorshow and threatened with exclusion from others as a response to the Daewoo advertising campaign.after-sales service would be too expensive to fund. Initially.". and attempts to discourage national newspapers from running Daewoo advertisements. Certainly by mid-1996. One industry analyst commented: "Daewoo .one of the Daewoo strategies which competitors had criticised from the outset. accompanied by rumours in the motor press that car buyers would lose because trade-in prices would be depressed (perhaps deliberately devalued by dealers).

D. By mid. Powers .. Sunday Business.1997. and injecting some 'emotion' into what is currently a very rational brand proposition. Currently. launching a new range of cars. "Buy A Car. Early in 1997.disappear . and finance and insurance. Currently. The Future? Daewoo's spectacular launch strategy has earned a number of prizes and accolades for the company and its Marketing Director Patrick Farrell. This year the marketing effort will focus on growing the number of retail outlets. Rover announced a 25% reduction in its dealer network. The Times..25 billions of surplus inventory . Daewoo had been rated number 4 in the top car makers list in a customer satisfaction survey by BBC TV’s Top Gear programme and the US motor industry analysts J. “Daewoo Plans Flexible Contracts". there is no sense of complacency at Daewoo . Jane Simms. Sources: *This case has originally been prepared by Professor Nigel Piercy. Professional Engineering. "A Driving Force". parts. Financial Times. “Car Dealers Must Adapt Or Die”. Daily Mail.executives know that this is only the beginning. they will next lose control of the provision of the vehicle.8 on a 4-point scale.they have what is not selling in abundant supply. By mid-1997.having lost control of service. April 1 1995. February 1997. April 13 1997. car dealers in Britain hold £1. and Ford was looking at the same kind of overhaul. April 10 1997. However. “Daewoo Overtakes Other Importers". WBS. the company’s customer satisfaction scores are running at 3. Farrell says "in a sense we are still in launch mode .this achievement should be put in the context that Daewoo is a new supplier with little product innovation in the market. "Adding Drive to the Weekly Shop"." It remains to be seen what strategic responses will emerge from the other 42 car manufacturers operating in the UK. August 29 1996. Get One Free". Marketing Business. June 19 1996. “British Cars Limp Into the Lada League”. Financial Times. September 7 1995. and how the distribution channels for cars will further develop. 10 .

“Daewoo To Sell Through Halfords". The Independent on Sunday. July 16 1995.what other sectors may be open to an entry of this kind (insurance? travel?)? 6. November 28 1995.“Daewoo Pronounces Death of the Salesman". November 28 1995. April 8 1997. What are the brand extension possibilities for Daewoo associated with the successful launch of the cars? 11 . Patrick Farrell. The Guardian. “Halfords Open Doors to Daewoo". which have been the most effective in achieving market share? What has Daewoo "sensed" about this market that has been ignored by the established firms? 3. "Dealer System is Collapsing". The dilemma facing the motor industry is . “Koreans Drive Hard for Market Share". Financial Times. “Fantasy Fleet" Business Age. April 9 1995. Marketing Business. February 24 1997. May 1996. “Sacred Cows". October 11 1994. The Independent. Questions 1. If Daewoo can attack an industry as competitive as the car sector through a value and customer service strategy . Motortrader. December 3 1995. “Daewoo to Set Up Its Own Car Supermarkets". “Westward Ho for Korean car Makers". The Observer.how can we respond positively and effectively to the competitive challenge from Daewoo? 2.The Daily Mail. Daily Mail. Of the innovations associated with the Daewoo launch. “How to Woo the Daewoo Way". “Koreans Offer A Creche Course in Customer Care". The Observer.how many of its competitive advantages are likely to be enduring? 5.why have the established car firms failed to innovate in a customer-focused way? 4.May 2 1995. “How A Car Buyer Can Go From 0 to £1600 In Eight Minutes”. Financial Times. October 11 1994. October 1 1995. There is little in the Daewoo market research findings that has not been known for years . What will Daewoo have to do to sustain its market performance .