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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 ......
Daewoo's product range is vast including aircraft. construction. Lockheed and Boeing. in preparing for the car launch. recruited from Rover as Marketing Director. and marketing and sales. petrochemicals.000 vehicles in less than two years . Patrick Farrell. the company promoted itself in Britain as 'the biggest car company you've never heard of'. Farrell drove the pre-launch publicity to establish the Daewoo presence.eliminating dealers from the channel. if you buy from Daewoo. Daewoo is a South Korean corporation which has entered the UK car market with a highly successful launch . by mid-1996 Daewoo announced an investment of £700 millions in setting up a car factory in Britain.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. for example.selling 35. produces wing assemblies for British Aerospace. It is not like this at all. heavy industry. Starting as a textile company in 1967. Initially. businesses now owned by Daewoo have produced cars for some 60 years and has eleven car plants in nine different countries. and a marketing strategy that involved taking control of the distribution chain by dealing direct with customers . This thinking was based on a large-scale market research 2 . banking. Following its market entry in 1995. development.which is continuing to change many of the basic rules of how car companies compete and how they deal with their customers. Farrell's unique selling proposition for Daewoo was to be the most customer-focused brand in the car market. In fact. In common with other Pacific-Rim country corporations Daewoo has an aggressive plan for expansion and globalisation. computing. textiles. and joined Daewoo when it was effectively a "virtual car company". Daewoo was a name unfamiliar in the UK until the mid-1990s . The new plant is expected to be preceded by largescale investment by Daewoo in design.although owners of Nokia mobile telephones and Nike trainers were already customers of Daewoo companies. Daewoo is Korea's second biggest car maker and the world's 33rd largest business group. came from a background in market research and advertising. but Daewoo was blocked from operating in the European car market until 1992 by a joint-venture agreement with General Motors. Daewoo. and automotive manufacture. shipbuilding.
2% The Market The UK car market is fiercely competitive.programme analysing car buyers' attitudes and a highly effective creative partnership with Duckworth Finn. Right from the start. and an emphasis on customer service. the company sold 10.Finn.1995. In fact. However.7% Mazda 25 years 1. standards of customer service are low in many areas. 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. beating Proton's record of 10 years standing. 3 . the market leader in the Korean home market). a totally new approach to distribution and the customer's purchasing experience.5% Kia 5 years 0.9% share of the market in 8 months from launch. on the back of a £150 million investment and an award-winning £11 million advertising campaign produced by Duckworth.Waters. but performance has greatly exceeded this target. Daewoo set an ambitious target of achieving a 1% share of the UK new car market by the end of 1997. Daewoo's launch was the most successful new marque launch ever in the UK market. Daewoo's market positioning is based on an innovative packaging of benefits and services around the car. is experiencing little growth and has oversupply from local production and strong import brands with more than 40 competing firms.2% Hyundai 14 years 0. and becoming the 27th largest car firm in the UK ahead of companies like Chrysler and Subaru (and perhaps more importantly ahead of Hyundai. Daewoo launched its car operations into the UK market on April 1. Daewoo told consumers that there were no commission-earning salespeople and no distributors.000 vehicles in the first six months of the campaign and achieved a 0. In short. For example. and that is why the value of the car was so high.Grubb. In spite of some industry scepticism.
a significant proportion of the trade still lags behind the standards set by retailers in other industries". many of which were almost beyond belief . a similar proportion believed that the salesman usually "wins". It is based on customer 4 . the customer who haggles can get a price reduction of up to £1600.1% of the market within 3 years. In both cases. Pre-launch research by Daewoo with 200. and 86% said they would be prepared to travel up to 50 miles for a better buying experience. adopting conventional market strategies... Companies like Lada attacked the market with low prices and corresponding status. culminating in summer 1994 at the Tylney Hotel near Daewoo's Rickmansworth headquarters. the company recognised that launching a new brand in the mature UK car market was going to be hard. had failed to achieve what Daewoo wanted . Mid-market launches by Hyundai and Proton. There is some basis for this mistrust on the part of car buyers. In spite of these signs of market opportunity. have effectively rewritten the "rule-book" for the motor trade in Britain.000 responses and more than 50. low price. the unwary are likely to pay over the odds for the financing deal as well.Patrick Farrell. Some 63% of motorists found car showrooms to be intimidating places. Similarly. and people generally disliked haggling over prices and the whole purchase experience in the traditional dealer's showroom. Brain-storming sessions by Daewoo's UK management. Daewoo's Marketing Director. writes in 1996 that "the direct response campaign we ran in January this year generated more than 125.000 stories of recent maltreatment by the motor trade.000 motorists found that traditional motor dealers did not make customer feel welcome. 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. as well as insulted by conventional "toys for boys" car advertising. while the customer who does not haggle pays the list price for the same car. Recent surveys show that on a £12000-£13000 new car. but the other larger players have already largely closed the quality gap. a "lifestyle"-based brand image or any conventional platform. Nissan and Toyota succeeded in market entry by building better cars. The company's market position does not rest on product quality. research from the agency Foote.
and highly innovative advertising to build and sustain the image of value and customer service. or the Pontiac Le Mans. with no additional charges. the Nexia was the previous model of the Vauxhall Astra (though coming into the market at a price £2000 below the basic Astra). in fact. nervous about running costs as well as purchase price . 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. a first difference is that from launch Daewoo delivered the car without the "traditional" hidden extras: the car is delivered without charge. and a full tank of petrol. and are. and "people carrier" vehicles are to be launched).) Perhaps most significant of all to the budget-conscious consumer. In pricing. Further industry confusion was created when Daewoo added three years fully comprehensive insurance to the package for the 1997 campaign. it is the first time in history that a car company has made a "Buy One. with number plates. Daewoo operates 5 . on top of the list price. security registration. Daewoo's entry level car. (In fact. with no additional charge to the owner.the first 1000 buyers in April 1995 were promised a replacement N-registration car in August that year.000 mile warranty. covering everything except the tyres. 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. Designs appear oldfashioned. Indeed. executive.the sticker price of the Daewoo car includes three years free servicing. not conventional car distributorships. In fact. This alone breaks the fundamental rules of how business is done in this market. Delivering these promises is based on direct selling. and a mobile phone. based on old General Motors models. and was sold in other parts of the GM world as the Opel Kadette.service and value in the customer's terms. However. Get One Free" offer . new Daewoo models including a supermini. Also the vehicle will be collected for servicing and a courtesy car will always be provided. a year's tax. (These charges have traditionally meant an additional charge to the customer of £400-600. and possibly the bewilderment of competitors is quite understandable. dated mechanicals or not. 3 years AA breakdown cover.
. A company executive said at the time of launch "Customers will be treated as if they are in Harrods . total control of the sales operation. This saving is reinforced by the use of flexible employment terms. Second. but customers appear to prefer it and to choose fixed prices rather than endure the stress of bargaining. and left alone by staff unless help is requested. just perfection in attention to detail . given "permission" to explore. Distribution is through a wholly-owned network of "Motor Shows". and smaller "Car Centres".e. The main source of competitive differentiation for Daewoo cars is not the product offer or the price deal. Our philosophy is not short-term gain. We will demonstrate honesty openly and will make car buying a delightful experience".. the Daewoo value strategy in services and product benefits is outstanding. roomy. i. However. where customers are welcomed. They will receive the utmost courtesy and attention when they require it. and lowest possible risk to capital. The Daewoo strategy for delivering those promises is revolutionary... Direct distribution and partnerships achieve these goals. First. Daewoo has side-stepped the traditional distribution channel and does not employ a franchised dealer network.Daewoo's salespeople are paid salaries and are not allowed to approach a visitor to the store unless invited. Touch-screen computers allow prospective buyers to investigate 6 . The trade dislikes this approach.. There will be no sales pressure.. the Daewoo distribution outlets are blatantly designed to react directly to specific points of customer dissatisfaction with traditional car dealers. 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. The buying experience for the Daewoo customer has been described as "a car browsing environment with the hassle factor removed". for example zero-hours contracts for distribution staff (paid only when needed for work). but long-term customer satisfaction . There are no traditionally aggressive car showroom salespeople chasing commission .a fixed price strategy with no haggling. friendly car shops mostly in retail park locations. but the way in which the cars are sold and distributed. Daewoo's launch goals were: high coverage of the country. The company view is that dealing direct strips out a profit tier of 30-35% of the price of the vehicle.
its income comes from service and repair and increased customer traffic. A coffee bar provides the facility to sit and think. Daewoo's strategy also recognizes that there are three important elements to the car business: new car sales. and all 136 branches will provide service for Daewoo cars . but when they do they will travel some distance to see the cars they want to see.early in 1997 the Halfords' outlets were already providing 20% of Daewoo's retail sales volume. Unsurprisingly. service support. Because each of these has very different requirements. not the showroom. The aisles are wide enough to accommodate a doublebuggy. and visited by 30 million people a year. reducing investment in the network. Servicing and maintenance for Daewoo cars is provided through a collaborative deal with Halfords. 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. 7 . and the floors are soft enough so that high-heels do not clip and draw attention. New car purchases are made infrequently and for most consumers are a major investment buyers do not look at new cars often. Daewoo has "unbundled" them. The Halfords mechanics are Daewoo-trained. The major problem is servicing. but are fitted into the network wherever this does not detract from market positioning of the new cars. Used car sales are important. Thirty of Halfords superstores will include Daewoo car salesrooms by the end of 1996. the motoring superstore chain owned by Boots. Daewoo relies on a small number of flagship sites to pull in buyers to see the cars. and Daewoo staff will be present in the Halfords stores to ensure staff receive the customer service promised. Test drives can be arranged to and from the home. and used car sales. The strategy here is based on partnership. 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.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.
based in Halfords' sites. Driving the launch was the Daewoo branding and advertising strategy. The "four pillars" of the brand proposition developed by Duckworth. the flagship new car sales outlets based on retail parks.to actually listen to customers in the "Daewoo Dialogue".Waters with Daewoo were: • DIRECT . TV and press spots using the types of messages in the ads shown in the case. are permanently available with every Daewoo (and Daewoo 8 . to locate Daewoo showrooms in Savacentre's food and clothing sites. and customer cynicism about motor trade promises of customer service. which concentrate on servicing.Halfords customers with other brands of car now find Daewoo literature discreetly placed in their vehicles when they are collected from servicing or repair. in 1996 Daewoo has started a joint venture with the supermarket group Sainsbury's Savacentre group. smaller to gain market coverage and providing some servicing as well as new and used car sales. compared to the highest spending car firm's 64% from a £64 millions spend. in the launch. and customer perceptions of a new customer focus were growing. and * the Daewoo Support Centres.Grubb.clear communication with the company for customers and no sales pressure and haggling. • PEACE OF MIND . The pilot outlet at Colney sold 200 cars within its first 12 months of operation. More recently. Indeed. with high traffic and large catchment areas. Daewoo took prompted awareness of the brand from 4% in September 1994 to 50% by the end of December that year. Daewoo's advertising awareness by November 1995 was 77% on the back of an £11 millions spend.the features that worry customers.treating customers differently. • HASSLE-FREE . * the Daewoo Car Centres. but which have also proved successful in selling vehicles and developing into additional showrooms.Finn. With a mix of direct response advertising . Daewoo faced the twin problems of the company's credibility as an import brand with no customer awareness in Britain. and are traditionally expensive "extras". The resulting Daewoo network has three tiers designed around customer needs: * the Daewoo Motor Shows.
By 1997. but with little sign of a coherent strategic response. One industry analyst commented: "Daewoo ..one of the Daewoo strategies which competitors had criticised from the outset.huh. Industry Reactions As the extent of Daewoo's impact on the market has become apparent. 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 . Competitors' denial has evolved into bewilderment and now hostility. industry analysts were saying that conventional franchised dealers were doomed to 9 . that's "Lada With Attitude"!' Most recently.stays in touch with the buyer throughout purchase and use in the "Daewoo Contact Wheel" with members of the "Daewoo family"). Certainly by mid-1996. This may be because Daewoo is in the process of smashing an industry structure which has developed largely unchanged over 100 years. and attempts to discourage national newspapers from running Daewoo advertisements. Daewoo was forced to withdraw advertising that exposed "overcharging" by dealers and underlining a 35% price advantage for Daewoo over rival cars.".. industry views were that the Daewoo strategy would not work . Initial industry surprise and skepticism about Daewoo's strategy developed into criticisms of the company for being too aggressive and arrogant. and • COURTESY .after-sales service would be too expensive to fund. accompanied by rumours in the motor press that car buyers would lose because trade-in prices would be depressed (perhaps deliberately devalued by dealers). the reactions of competitors have evolved along the following lines. and independent servicing would not work. customers would reject the lack of independent franchised dealers. 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.by openly respecting customer needs and preferences throughout the purchase and use process. Volkswagen and Rover followed Saab in scrapping hidden "delivery charges" and incorporated these in list prices . Initially.
Professional Engineering. parts. June 19 1996. and how the distribution channels for cars will further develop. and Ford was looking at the same kind of overhaul. they will next lose control of the provision of the vehicle. Rover announced a 25% reduction in its dealer network. "Buy A Car. February 1997. 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.25 billions of surplus inventory . car dealers in Britain hold £1. Sources: *This case has originally been prepared by Professor Nigel Piercy. "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. Early in 1997.8 on a 4-point scale. By mid. “Daewoo Plans Flexible Contracts". Farrell says "in a sense we are still in launch mode . Powers .having lost control of service. By mid-1997. Daily Mail. Currently. The Times. Sunday Business.they have what is not selling in abundant supply. “Daewoo Overtakes Other Importers". However. This year the marketing effort will focus on growing the number of retail outlets. 10 .1997. and injecting some 'emotion' into what is currently a very rational brand proposition. “British Cars Limp Into the Lada League”. the company’s customer satisfaction scores are running at 3. Jane Simms. Currently. “Car Dealers Must Adapt Or Die”. Financial Times. "A Driving Force". Financial Times. The Future? Daewoo's spectacular launch strategy has earned a number of prizes and accolades for the company and its Marketing Director Patrick Farrell. August 29 1996. September 7 1995. April 13 1997. April 10 1997. launching a new range of cars.disappear ..D. and finance and insurance. April 1 1995.this achievement should be put in the context that Daewoo is a new supplier with little product innovation in the market. Get One Free". Marketing Business. WBS. there is no sense of complacency at Daewoo ..executives know that this is only the beginning.
what other sectors may be open to an entry of this kind (insurance? travel?)? 6. May 1996. What will Daewoo have to do to sustain its market performance . “How to Woo the Daewoo Way". “Koreans Offer A Creche Course in Customer Care". “Sacred Cows". October 11 1994. Daily Mail. Financial Times. October 11 1994.how can we respond positively and effectively to the competitive challenge from Daewoo? 2.why have the established car firms failed to innovate in a customer-focused way? 4. The Observer. “Westward Ho for Korean car Makers". The dilemma facing the motor industry is . Patrick Farrell. “Daewoo to Set Up Its Own Car Supermarkets". "Dealer System is Collapsing". Marketing Business. Of the innovations associated with the Daewoo launch. April 8 1997. “Daewoo To Sell Through Halfords". Motortrader. There is little in the Daewoo market research findings that has not been known for years .May 2 1995. November 28 1995. February 24 1997.“Daewoo Pronounces Death of the Salesman". December 3 1995. “Fantasy Fleet" Business Age. “Halfords Open Doors to Daewoo". What are the brand extension possibilities for Daewoo associated with the successful launch of the cars? 11 . The Independent on Sunday. Financial Times. July 16 1995. 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. October 1 1995. November 28 1995.how many of its competitive advantages are likely to be enduring? 5. April 9 1995. The Observer.The Daily Mail. “Koreans Drive Hard for Market Share". “How A Car Buyer Can Go From 0 to £1600 In Eight Minutes”. If Daewoo can attack an industry as competitive as the car sector through a value and customer service strategy . The Guardian. Questions 1. The Independent.