Tesla Motors Brand Marketing Communications

Executive Summary

Tesla Motors considers its future performance to oscillate around the better placement of Model S in the marketplace. Currently, it employs an excess of 2000 people across all its fully owned subsidiaries that are situated in Asia, North America, and Europe. It also opened a new outlet in Toronto in 2012 in a bid to market itself in the Canadian market. Its long-term strategic goal is not only to offer high performing automobiles to average consumers but also vehicles that have zero emissions.

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Tesla Motors remains the only organisation that offers serial produced luxury electric sports vehicles. It anticipates launching it’s Model X this year, 2014. It plans to develop a large number of recharging stations across the world whilst making significant progress in terms of innovation of battery technologies in a bid to boost the dependability of its products.

The current marketing communication plan proposes that with a budget of $45M, Tesla Motors can increase its sales from 20,000 units to 35,000 units in 2014-2015 by incorporating online and traditional media marketing communication strategies. This way, the company can clear misconceptions and doubts on the usefulness of the Model S. This strategy can help in terms of solidification of Tesla Motors’ brand equity. The objective of the plan is to increase sales, enhance Tesla Motors’ brand awareness, and/or drive potential consumer traffic into the organisation’s online communication platform.

Introduction

Founded in 2003, Tesla Motors is an American automobile manufacturing company. The development of the brand is owed to the efforts of engineers from Silicon Valley. Its headquarters are based in Palo Alto in California (Tesla Motors, 2014). The company developed its first model, Roadster, with the objective of setting the way for the development of an electric car as an alternative to gasoline propelled cars (Hardester 2010).

Since this early innovation, Tesla Motors has experienced a problem in that it sells its products on zero marketing communication budgets. Upon the adoption of communication strategies for pushing its sales higher through the creation of brand awareness, the company has an opportunity to developing brand loyalty. In fact, Tesla Motors is the only company that produces high performance and lucrative fully electric sedans in the US.

After proving that electric technology was a possible impulsion of vehicles, Tesla Motors progressed to release Model S into the market in 2012 (Karamitsios 2013). This model targeted the lucrative sedan market segment, which is also the target market segment for the proposed marketing communication plan. Tesla Motors markets its model S brand as a luxurious, technological, and high performing brand.

The organisation also engages in the design and sale of electric power trains to various automakers, including Mercedes Benz and Toyota among others. However, this paper does not focus on these product lines. Rather, its objective is on the analysis of the company and its marketing communications. It suggests online communication platform as a possible way of enhancing communication of the organisation’s brand in the effort to boost sales from 20,000 units in 2012-2013 to 35, 000 units in 2014-2015 fiscal year.

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Market Definition and Parameters

The market segment for Tesla Motors is mid-sized with highly performing luxurious sedans. The company has the capability to succeed in this market segment upon considering that its Model S is not only purely eclectic but also a high performing eco-friendly automobile (Mangram 2012). In this market, the company does not have any close parallel competitor. Indeed, the closest organisations that compete with it in the electric luxury sedan segment include Nissan through Nissan Leaf and Chevy through its product, Chevy Volt (Tesla 2013). Nevertheless, they both present low threats. They offer lower performance electric cars in comparison with Model S.

Model S particularly fits well in the mid-size luxury automobile market. Forbes magazine conducted a research on the sales of different luxurious automobiles. It reported an increase in sales volume of luxurious vehicles for a period of 5 years. As shown in appendix 1, this increase was highest in 2012 by about 20 per cent compared to 2011 (Karamitsios 2013).

This finding suggests an increasing demand for luxury vehicles, especially as the economy recovers from the aftermaths of the global financial crisis. However, amid the increment in demand, organisations that offer a brand with high performance and efficiency are likely to make more sales because of luxury products market segments value product utility and conformance to specifications while making buying decisions (Simon 2007; Yelkur 2011).

Market definition for a luxurious vehicle can perhaps be best accomplished by considering forecast for the expected sales level. Mangram (2012) forecasted a purchasing behaviour in the US for consumers with household incomes amounting to $100, 000 and above. According to him, there were downturns in 2009 and at the beginning of 2010. There were also declines in July to August 2011, which he said could be explained by uncertainties associated with debt ceiling fears and downgrading of the US credit. Upon considering that data of market dynamics in the lucrative vehicles category is forecasted for a period of 6 months, the trend line implies greater expectations for Model S.

Market Dynamics and Trends

While developing a marketing plan for Model S, it is important to consider marketing dynamics and performance trend for electric cars in the marketplace. Lim (2014) shows the potential for increased demand for greener vehicles. His data depicts the changing preferences among consumers, especially those who are environmentally conscious. Changing fluctuation in oil prices may also create a higher demand for purely electric vehicles such as Model S. In the US, this segment accounts for only 3.38 per cent in the whole industry of electric cars, including hybrid vehicles (Lim 2014).

Changing the perception among consumers in terms of their role in protecting the environment from the pollution that is associated with green gas emissions and/or the rising demand for luxury items constitutes a reliable indicator for better performance and embracement of luxury electric vehicles such as Model S. However, the success of this model in the marketplace depends on competitive forces and the capacity of the Tesla Motors to capitalise on its opportunities and strengths to overcome its weakness and threats. This claim suggests that a complete analysis of the marketing trends and dynamics requires an aggressive investigation using Porter’s five forces and SWOT analysis.

SWOT Analysis

For the viability of marketing plans, SWOT analysis for the new or existing brand is necessary with the aim of determining whether an organisation has the capacity to place the product in the market (Menon 2006). This approach calls for the strategic planning approach for evaluating the strengths, restrictions, prospects, and threats that a business establishment encounters (Hill & Westbrook 2007).

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Tesla Motors has managed to establish a strong brand that is built around the perception of high performance, reliability, and luxury. Mangram (2012) confirms that the model demonstrates how technology can be deployed in the development of alternative automobile products with high performance and high safety features. Tesla Motors also possesses incredibly devoted customers. It also has an uncompromising attitude towards its future success in terms of creativity and innovation.

Although Tesla Motors has strengths that can favour the success of its Model S brand, it has some weaknesses. It depends on external suppliers, an unknown brand, and a dynamic new technology for its operations (Mangram 2012). Model S eliminates the use of fossil fuels in the propulsion of automobiles. Apart for the brand is new in the market, implying it is not well known by all potential customers, the new technology poses the challenge of uncertainties associated with negative preconceptions about the performance of the electric vehicle in comparison with the oil or gas engines.

Opportunities include the existing external chances, which while utilised well, can make an organisation improve its performance (Hill & Westbrook 2007). One of the major opportunities for the success of the Model S encompasses the increasing number of people who are becoming cautious over the degradation of the natural environment due to high green gas emissions that are associated with the rising number of automobiles. With already developed superior features, Model S has the opportunity for unstoppable growth when fully electric car market bursts. Tesla has a capability of breaking loose any negative notions and preconceptions about electric cars. Indeed, hybrid varieties and various other eco-friendly vehicles currently in the market have performance compromises.

Incumbent automobile makers pose a significant threat to Tesla Motors. They have a well-established and protected brand, which may enable them secure higher sales even if they may resort to the production of inferior fully electric vehicles. Motavalli (2013) reveals that Audi, Volkswagen, Lexus, and BMW among other automakers are in their advanced stages of developing fully electric cars. Tesla Motors also suffers from the twin problem of introducing a new company and a new product in the market.

Strengths Weaknesses
  • Has a strong brand that is built around the perception of high performance, reliability, and luxury
  • It has devoted customers
  • It demonstrates an uncompromising attitude towards its future success in terms of creativity and innovation
  • It depends on external suppliers, an unknown brand, and a dynamic new technology for its operations
  • It eliminates the use of fossil fuels in the propulsion of automobiles
  • The new technology poses the challenge of uncertainties associated with negative preconceptions about the performance of the electric vehicle in comparison with the oil or gas engines
Opportunities Threats
  • The existing external chances, which can make the organisation improve its performance
  • The increasing number of people who are becoming cautious over degradation of the natural environment
  • Unstoppable growth when fully electric car market bursts
  • It can break loose any negative notions and preconceptions about electric cars
  • Incumbent automobile makers
  • The twin threat of introducing a new company and a new product in the market

Competitor Analysis

Industry environment is a risk to an organisation in terms of threats of new entrants, supplier and buyer bargaining powers, industry rivalry, and threats posed by substitutes. Tesla experiences high bargaining power from its competitors, as it does not purchase commodity type of goods. It depends on suppliers who are derived from different places and in different areas of specialisation to ensure sustained manufacturing processes.

Mark (2013) informs that more than 33 suppliers did business with Tesla Motors to facilitate the production of Model S in 2013. This move suggests that in case of failure of the organisation to pay a specific amount of money as demanded by a given supplier, the entire production process becomes halted. This situation disadvantages Tesla Motors since its suppliers can set their prices at higher levels without considering the unwillingness of the organisation to pay.

Buyers possess a low bargaining power. Tesla positions its Model S brand as a luxurious and high-performance product. High cost technology that is involved in its production drives the prices of Model S higher compared to gas and oil cars that have equal carriage capacity. The market demand influences the organisation’s market price due to the lower number of competitors who offer products with similar performance, technology, and luxury characteristics (Ashtiani, Cullen, Davis, Greenwald, Hardigan, Eladio, & Zimmerman 2011).

High costs that are involved in setting an electric car production system imply that Tesla Motors experiences low threats of new entrants. The demanding technology in the production makes capital requirements prohibitive to small-scale automakers. The market target segment for Model S customers encompasses people who are looking for luxurious products. Such people consider quality and performance essential attributes of product before arriving at purchasing decisions (Farris, Neil & Pfeifer 2010; Freshwater, Sherwood & Drury 2006). This observation highlights the significance of good reputation as a major component in branding luxury products. New entrants lack reputation. Hence, they suffer from incapacity to outdo those with already well-established customer loyalties.

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While the industry loyalty for Tesla Motors is high, threats posed by substitute products are low. Tesla Motors constitutes the only automobile maker that specialises in the production of zero green gas emission cars (Mangram 2012). This case implies that eco-friendly customers who also love sports vehicles have Model S as the only option. However, even though Tesla Motors is the only organisation that is currently producing EV Model, several other well-established automakers are focusing their attention on research and designs of EVs in the effort to have a share of the market in the future as trend in the adoption of the model continues to pick. Appendix 3 illustrates the extent of rivalry in the electric car industry.

Competitor Analysis

Overview of the selected Brand

Upon considering that Tesla Motors is the only organisation that produces fully electric vehicles and electric power trains, it has good opportunities for building its reputation to establish significant customer loyalties. This success depends on the ability of the organisation to establish effective marketing communication strategies. Unfortunately, Tesla had no budget for its marketing, although it had attained revenue growth of above 75 percent by 2010-2011 fiscal year and 102 percent in the 2011-2012 fiscal year amounting to $ 413m (Karamitsios 2013). Incorporating brand communication strategies can help in pushing Model S into the market.

However, without specific marketing communication budget, Tesla Motors attempts branding itself as ‘Apple automaker’ akin to its use of technology in production (Mangram 2012). Upon considering that it is a new brand, it needs building a strong brand identity. Taking the benchmark of Apple Company is perhaps an important starting point.

However, creation of consumer awareness about the brand remains significant for increased performance. This strategy needs to be accompanied by the production of more innovative products. Through budgetary allocations to initiate brand communication over new and traditional media, Tesla Motors can increase its brand identity across the globe. Perhaps, this step is the biggest strategic marketing opportunity available to the organisation.

Strategic Marketing Opportunities

In its marketing initiatives, Tesla Motors needs to consider creating strategies for managing customer relationships. Keeping potential clients up to date with information is among many methods of maintaining positive relationships with customers (Hill & Ettenson 2005; Holt & Quelch 2009).Tesla Motors needs to update its customers constantly with new features for Model S so that they can update their vehicles over the air.

Such an attempt calls for commitment of financial resources in communication. Although the strategy increases the cost of running Tesla Motors, it is justifiable in the context of Fornell’s (2002) assertion, ‘marketers are quick to recognise that the value of the customer asset is the sum of the discounted net contribution margins of the customer over time’ (p.11). The claim here is that attempting to build customer relationships comes at a cost, which Tesla Motors must be willing to incur, notwithstanding its past loss experiences.

Customers not only buy a product, but also pay for the brand image. According to Keller (1998), brand image is a ‘perception of customers when they see a brand reflected by brand associations in their mind’ (p.27). These associations are multidimensional. They contain a myriad of attitudes or dimensions, which are emotionally instigated in relation to customer perceptions on brand quality and the degree to which the brand satisfies customer needs (Zineldin 2000; Fields 2010, p.14). In case of Tesla Motors, brand image can be enhanced using the power of internet as the main approach for developing and creating awareness of the brand.

In the effort to create alertness of the existence of an organisation, social media is incredibly helpful. Such a strategy for building positive brand image is opposed to traditional approaches of brand communication in which organisations mainly focused on ‘controlling what was said about their products and brands by dominating communication channels with carefully planned messaging’ (Anbu & Mavuso 2012, p.319).

However, in the modern business environment, control of messages is immensely difficult since the ability of customers to access information through online interactions has become incredibly sophisticated (Kotler, Adam, Denise & Armstrong 2009). This sophistication entails online communication through B2B (business to customer) platforms. Therefore, Tesla Motors needs to the deploying latest developments in web 2.0 applications in enhancing communication to its market segment both cheaply and effectively.

Quantification of Marketing Objectives

The objective of engaging in both traditional media and online communication for the Models S is to achieve a sales target of 35, 000 units over 2014-2015 fiscal year. This sales level is achievable upon considering that the company receives more than 1 million people who visit its stalls in 2013, with 25 percent of them testing Model S (Karamitsios 2013). This observation suggests that with increased promotion of the product, it is possible to increase the number of people who visit the stall either physically or through online platform, later making purchasing decisions.

Tesla Motors can currently produce 20, 000 cars at 20 percent capacity utilisation (Karamitsios 2013; Roth 2008; Saxena 2012; Rust, Zeithaml & Lemon 2004). This observation implies that initiating a marketing communication plan for marketing 35, 000 cars annually is achievable within the range of the available resources. Indeed, increasing production potential can help the organisation take the advantage of economies of scale to lower costs, which in turn increase its profitability levels.

The overall objectives of the marketing communications plan are increasing sales, enhancing Tesla Motors brand awareness, and/or driving potential consumers to access the organisation’s online communication platforms. Sales target of 35,000 units per year is feasible upon consideration of the past sales level of the organisation. Tesla (2013) data indicates that when customers receive their ordered car, the organisation acquires 3 more reservations from each customer. In this extent, verbal communication has proved that communication can aid in boosting the sales levels of Tesla Motors.

Financial Analysis

To achieve the objectives of the marketing communications plan, $45M is required. The organisation has a financial resource to funds such as the marketing communications initiative. In 2013, it sold 20,000 units at $75,000 (Karamitsios 2013). This figure translates to $1500. The market communications budget will only cost 3% of the total sales in 2013. From the paradigm of cost benefit analysis, commitment of these resources is a viable decision upon considering that it will yield an increase of 15, 000 automobile sales in 2014-2015 fiscal year.

Selling the vehicles at $75,000, Tesla will make sales amounting to $2625M. Therefore, at end of the fiscal year, a $45M communication budget will represent only 1.7% of the total sales. This finding shows long-term gain in investing in communication to drive the sales potentials for the organisation until it produces at full capacity. Table 1 below summarises the financial requirements for implementation of the marketing communication plan.

Table 1: Financial Requirement and Expenditure

Budget for the Proposed Marketing Communication Plan

Item Cost in US $ (000)
Branding
Print advertising 4,000
Website takeovers 3,000
Popping–up events 600
Raising Website Traffic
Tesla films 16,000
TV advertising 20,330
Monthly contest awards 70
Increasing Reservations
Ownership events 1,000
Total Expenditure 45,000

Appendices

Appendix 1: Total Sales of Mid-sized Luxury Sedans in Units in the US

Year Total sales
2008 309,370
2009 297924
2010 308,351
2011 321,584
2012 388,700

Appendix 2: Model S Sales and its Major Competitors (Table and Excel Graph)

Year and
Quarter
Brand
Tesla Panamera Audi-A7 BMW-5-series
2011 Q1 0 1700 0 12153
Q2 0 1882 1992 12234
Q3 0 1692 2105 12709
Q4 0 1695 2173 13495
2012 Q1 0 1867 2025 12709
Q2 0 2224 2224 15042
Q3 0 1879 2002 12377
Q4 2650 1630 2342 28470
2013 Q1 4900 1384 2083 12139
Model S Sales and its Major Competitors
Source: Lim (2014, p.23)

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