Sandown Motor Holdings (Pty) Ltd (hereinafter referred to as SMH) is a large motor group controlling various dealerships across the country. Most notably SMH owns franchises associated with Daimler-Chrysler brands such as Mercedes-Benz, Chrysler, Jeep, Dodge and Mitsubishi.

SMH had its roots in the Gauteng Province under the guidance of its founder Mr. Roy McAlister who, to date, still actively manages the group. Through rapid acquisitions, SMH has grown to a well-respected organisation with operations that can be classified as being SMH Gauteng and SMH Western Cape.

Table 1.1: Sandown Motor Holdings (Pty) Ltd Shareholding

Daimler Chrysler (Pty) Ltd	50.1% of issued shares
Roy McAllister	9.9% of issued shares
True Class Consortium 2 (Pty) Ltd	40% of issued shares
Total	100 % of issued shares

Source: Interview with Roy Marcus, FD: Passenger Cars

In 2002 DaimlerSA purchased the majority shareholding in SMH, which makes SMH quite a rare occurrence. Manufacturers rarely become involved with dealership shareholding. 2007 saw SMH entering into a black economic empowerment deal with the TrueClass Consortium by selling 40 per cent shareholding. DaimlerSA in turn, is owned by Daimler AG, which is noted on the New York Stock Exchange (NYSE). This implies that SMH has to conform to the Foreign Corrupt Practices Act (FCPA) as is expected of all companies whose holding companies are listed in the NYSE. SMH quickly developed from an owner-managed business to a fully-fledged corporate. This transformation to becoming a corporate has not been without teething problems and has forced SMH to revise its corporate governance to stay within the regulations set forth by the FCPA and the new National Credit Act. To drive this down to the operational level, this revised corporate governance model had to set more stringent boundaries especially relating to the delegation of authority.

As can be expected by such change, middle and even senior management greatly resisted these changes. The new governance model now restricts their decision-making powers and diminishes their ability to operate quickly and decisively.

SMH has operated in the Western Cape for the last forty years and currently employs 683 people. Port Elizabeth is also included under SMH Western Cape even though it is located in the Southern Cape. Mr. Owen E. Bell acts as Managing Director for SMH Western Cape and is regarded as an icon in the Cape motor industry.

Western Cape dealerships include:

· Mercedes-Benz Century City;

· Eikestad Motors;

· Orbit Boland;

· Orbit Culemborg;

· Mercedes-Benz Claremont;

· Mitsubishi Port Elizabeth;

· Chrysler Century City;

· Mitsubishi Tygerberg;

· Paarl Motors (the most recent acquisition).

The projected annualised turnover for SMH Western Cape is R2.2 billion and can be broken down into the following business lines and their percentage contribution to turnover:

· 75% new and pre-owned vehicle sales;

· 6% parts sales;

· 10% vehicle servicing;

· 3% finance and insurance operations;

· 2% driveway sales;

· 4% other.

The above percentages clearly illustrate that SMH is largely driven by vehicle sales, which at 75 per cent of total turnover, is considered to be its core business. It therefore makes sense to assume that the Board of Directors place great emphasis on sales and that it lies at the centre of company strategy.

1.2 Management role of the author in the company

The author of this research report, Jaco van Zyl, is a 29-year old male and has been involved in the motor vehicle industry since June 2003. In January 2005, he started as a sales executive with one of SMH’s Mercedes-Benz dealerships in N1 City, Cape Town. April 2007 saw him being promoted to new-vehicles sales manager during which time he developed the strategy aimed at new-vehicle sales. Upon completion of the strategy for new-vehicle sales, he was appointed as pre-owned sales manager and this period forms the basis for the pre-owned strategy as set forth in this report.

In both the new and pre-owned sales departments of Mercedez-Benz, he was involved with the day-to-day running of the departments and interaction with customers. Further to the day-to-day management of these departments, he is also involved with advertising strategy, overall departmental strategy, budget setting and reporting these results directly to the dealer principle, Mr. Keith Steele and Western Cape managing director, Mr. Owen E. Bell.

Jaco van Zyl has the authority to make business decisions except in cases where vehicles will be sold at a loss. In such instances authorisation needs to be obtained from Mr. Steel, the dealer principle. The decision-making culture in Claremont can be considered to be collective with Mr. Steele reserving the right to make all final decisions.

From a leadership point of view, Jaco van Zyl’s biggest challenge lies in the constant motivation of the sales force reporting directly to him. Currently his pre-owned sales team consists of three highly experienced individuals and another with average experience. Sending the sales executives on the appropriate training to ‘fill the gaps’ also forms part of motivation, as a well-trained and capable sales force tends to be more motivated than untrained sales executives.

1.3 Background setting to the objective of the report

May 2008 saw the board of directors unveil Sandown Motor Holdings’ new vision: “The vision of the company is to become the finest motor group in the world.” Anyone would agree this to be quite a bold vision, but it is certainly not impossible. In 2007, SMH purchased three of the most successful Mercedes-Benz dealerships in London, United Kingdom, and therefore SMH really has no other choice than to strive toward this bold new vision. The question most observers in the motor retail industry would ask is: How does SMH plan to become the finest motor group in the world, given the current economic climate in South Africa?

On the 8th of June 2006, the South African Reserve Bank started a fierce campaign against inflation and has since consistently raised the prime-lending rate, starting from a low at 10.5 per cent prime to the 15.5 per cent prime of today (South African Reserve Bank, 2008).This has placed great pressure on all South African consumers to decrease expenditure and as a consequence has brought about a 26 per cent drop in vehicle sales in May 2008, compared to May 2007.

The passenger car segment is usually the most sensitive to any negative developments in the market relating to a decline in business and consumer confidence.

Motor groups and independents are finding it tougher to cover costs and return acceptable profits to its shareholders.

The aim of this research report is to critically analyse the environment affecting the new and pre-owned sales of Mercedes-Benz Claremont. Once analysis is complete, the research report will set forth a deliverable strategy that supports the new company vision and should be acceptable by SMH’s four, equally important shareholders, namely customers, suppliers, employees and shareholders.

In simple terms, the strategy will be aimed at keeping Mercedes-Benz Claremont, the dealership employing the author of this research report, profitable through the period of constraining macro-economic policy expected over the next 24 months.

1.4 Research Design and Methodology

SMH have only really developed from being a family-type business to a full-blown corporate in 2006 with the opening of a ‘flagship dealership’ in Century City and Daimler-SA becoming a shareholder.

These developments have necessitated change and therefore the report will focus on strategy development as the key driver of success for SMH and more specifically, Mercedes-Benz Claremont. This report will look at various models developed by leaders in the field of strategy and therefore starts off by looking at some definitions on what strategy is and why a sound strategy is crucial for survival and profitability. Michael Porter’s work is used quite extensively as he is considered to be a subject matter expert in strategy

Thereafter different tools are used to develop the individual departments’ strategies. A different model is used for each of the departments to obtain a feel for the variety of models that exist, but to also benefit from synergies between the different models. This minimises the ‘gaps’ in the different approaches and some form of cross-pollination should occur.

These strategies focus on process management to ensure consistency throughout their operations in all smaller dealerships. Managers are caught up in red tape and paperwork and are often removed from customer interaction. They have lost the continuity of staff training and creating the value inherent to customer interaction and relationship management.

SMH therefore aims to benchmark against the top companies in the industry, but in doing so they will inevitably increase their costs. How do they go about actually curbing costs without losing value for the customer?

1.5. Framework for the proposed study

Having already given a brief overview of Sandown Motor Holdings and it operations in the Western Cape, the study starts off by examining Mercedes-Benz Claremont in broad terms.

Next the focus turns towards examining the pre-owned vehicle sales department, because a strong pre-owned strategy forms the backbone of an effective new-vehicle sales department. Without the ability to trade in customers’ old vehicles, high levels of new vehicle sales cannot be achieved consistently over time. To supplement the pre-owned strategy further, the report then moves towards establishing an e-commerce platform to further support the pre-owned strategy.

Finally the report shifts its focus to the new-vehicles sales strategy by examining the environment in which new-vehicles sales are conducted and then lays down an aggressive but realistic strategy that will support the overall business strategy of SMH.

1.6 Provisional List of Sources

The scope of the research report demands sources of knowledge from both academic and experiential sources.

The National Automobile Association of Manufacturers of South Africa, more commonly known as Naamsa, is another source of industry specific information that is accurate and audited. This information is easily accessible through their website on www.naamsa.co.za.

Websites such as Statistics South Africa are also useful in spotting trends in the economy. Conversations with representatives from financial institutions such as ABSA and Wesbank also offer great insight into what the market is doing.

Online sources such as the Harvard Business Review is utilised to obtain articles relevant to strategy definition and crafting. Various books such as Changing Paradigms by Clarke and Clegg (2000) also form the basis of thoughts in the report.

Clive Howe’s C@ps model is also used as a management tool to translate strategy into practical daily activities

CHAPTER 2
DEVELOPING A STRATEGY FOR CLAREMENT PRE-OWNED

2.1 Background on Mercedes-Benz Claremont

It is important to understand how Mercedes-Benz Claremont is financially supported by its different departments. To simplify this concept, one can analyse the gross profit contributions of the different departments as it stood at the end of July 2008.

Table 2.1: Gross profit contributions by department

	%
% Total gross profit contribution: New vehicle sales	85
% Total gross profit contribution: Pre-owned vehicle sales	12
% Total gross profit contribution: Service	38
% Total gross profit contribution: Parts	15
% Total gross profit contribution: Finance & Insurance	10
Cumulative profit contribution	160

Source: Mercedez-Benz Claremont Financials, 2008.

The table illustrates that new vehicle sales is by far the biggest contributor of profit in the business with pre-owned sales contributing far less than expected. Based on this information, one needs to ask three important questions:

· Is this desirable?

· Why does Claremont new and pre-owned profit contribution differ so dramatically?

· What can be done about it?

It is not advisable to have so much of a business’ survival riding on the success of one department. Claremont is very exposed to new vehicle market risks such as factory strikes, raw material shortages, price increases or transportation risks inherent to getting the vehicles from the factory to the showroom. The reason for the large difference in profit is due to the past strategy undertaken by Claremont management.

To date, the pre-owned department was utilised in a supporting role of new vehicle sales. The following example illustrates this point: The new vehicle department has a customer wanting to trade in a high value exotic CLS500 worth R500 000. The new vehicle department will initially earn a R30 000 profit, but in reality this transaction amounts to a net cash outflow of R470 000 carried by the pre-owned department. Assuming that the floor-plan interest rate is 9 per cent and the CLS500 remains unsold for 90 days, then the pre-owned department would pay R11 250 in interest. Over time the market value of the vehicle might also have dropped dramatically and by day 90 can only be sold for R495 000. The end result is that the pre-owned department shows a loss of R11 250+5 000=R16 250 so that the new vehicle department can make R30 000 profit. Good for new sales, bad for pre-owned.

In a purely pre-owned driven business, management would have opted not to do the transaction knowing the risks inherent to trading in the CLS500. A business with its main focus on pre-owned would only do a transaction where they will profit on the vehicle sold and at worst, break even on the trade-in.

However, in the case of Mercedes-Benz Claremont, it is necessary from time to time to enter into such transactions in an effort to protect the brand image. After all, a large part of Mercedes-Benz brand loyalty stems from the perception that Mercedes-Benz vehicles hold their re-sell value better than those of other manufacturers. Mercedes-Benz Claremont management should aim to find a better balance between new and pre-owned. Careful consideration needs to be given to new vehicle transactions where high profile trade-ins are present. Tough decisions on whether or not to do certain transactions need to be taken with the longer term view in mind.

So what should be done in future to avoid being overexposed to new vehicle sales risks? The real source of advantage are to be found in management’s ability to consolidate corporate-wide technologies and production skills into competencies that empower individual businesses to adapt quickly to changing opportunities (Clark & Clegg, 2000:206). Clearly the pre-owned department is not operating at its optimum and Clark and Clegg highlight a possible reason for this. Obviously the pre-owned department management have not consolidated corporate-wide technologies such as using the customer relationship management (CRM) database on Kerridge and bulk short message service (SMS) computer systems which the new vehicle sales department have been using with great success over the last few years.

Dr. Norris Dalton, chief executive officer (CEO) of The South African Institute of Management states that a company is only as good as its management which need to understand that a company is a community of people, with independent wills of their own, and that the primary job of management is to align that group of discordant wills with the corporate will to achieve the goals of the organisation. On time results, not, excuses, is the clarion call of effective management (Dalton, 2008:23). Pre-owned sales executives have been known to be proud of being traditional and tend to reject new technology that requires initial effort to master. The ‘I have been doing this for the last fifteen years and I do not intend to change’ reflects this sentiment. This is a prime example of where management need to align the wills of the pre-owned sales executive with the corporate will of the company by making them understand that professionalism is the key driver of competitive advantage in the pre-owned business arena.

Pre-owned managers have also not been able to leverage corporate-wide production skills. Pre-owned sales executives are not being exposed to product training as do the new vehicle sales executives and are not being subjected to stringent requirements for their daily activities and can relax knowing that they are protected. In fact, this means the pre-owned department needs to find alternative ways to get rid of unwanted stock. Chapter 3 will deal with this subject in more detail, especially, from an e-commerce strategy point of view.

As mentioned, Mercedes-Benz Claremont needs to improve its pre-owned contribution by selling more vehicles at acceptable margin levels. Section 2.2 deals with this strategy.

2.2 STRATEGY DEFINED

Many definitions exist about what strategy really is and should be, but does not give a clear idea of what a company should actually do to create a strategy that fits with the particular company. Michael Porter (1996:1) argues that three key principles exist for a company aiming to strategically position itself:

· ‘Strategy is the creation of a unique and valuable position, involving a different set of activities.’

· ‘Strategy requires you to make trade-offs in competing; to choose what not to do.’

· ‘Strategy involves creating ‘fit’ among a company’s activities.’

This view from Porter suggests that strategy is a clear statement of future intent. This means that any manager looking to reach a certain goal needs to lay down a definite roadmap for his/her department. This requires that the manager needs to have an in-depth understanding of the environment in which the department operates. It is only possible to create a unique position for your own business if you know what activities are creating the value that your opposition is offering customers in that segment.

This knowledge of the environment is also crucial in deciding on which trade-offs to make. Of course part of the decision on what not to do, involves having knowledge of what trade-offs the competition are making.

Lastly, the knowledge required of the internal environment of the business, will be what allows management to create ‘fit’ among the business’ activities. Understanding the internal processes and capabilities within a large, geographically dispersed business is easier said than done, as the different functions are often located in different geographic regions and decisions around processes are made without proper consultation with all the departments or business units involved.

Porter is saying here that knowledge of both the internal and external environment of a business is necessary to craft a strategy for any business and Mercedes-Benz Claremont is no different.

These principles form the basis of the strategy for Mercedes-Benz Claremont in this research report, specifically relating to the pre-owned department. These principles illustrate that there is a difference between strategy and operational effectiveness as management often tend to confuse these two concepts.

Management of Mercedes-Benz Claremont should start by defining how they are going to position the business differently from the competition. This implies taking decisions on targeting a different market with a different type of product line backed up by a different set of activities. Note that the emphasis is on ‘different’ and not on ‘better’ just yet.

It also means that management need to decide on what customers not to target, what products not to stock and what activities not to engage in. Trading-off certain options, will help them to keep focus on what it is they intended to do and sticking to it, at least until they make a conscious decision to change their initial strategy.

Knowing exactly what they have planned in terms of strategic positioning allows them to see how to create fit amongst the company’s activities. How should the pre-owned department’s activities fit into the bigger picture in supporting new vehicle sales and how should new-vehicles sales be supporting the pre-owned effort? It also gives management an idea of why an e-commerce strategy is important and what company-wide activities can support this strategy?

Only once there is absolute clarity on these three principles, should management look at improving operational effectiveness, that is, what are the processes involved in admin, marketing, finance and sales. Then only should the questions be asked on how to do those things better, faster and at a lower cost. Certainly this does not mean that operational effectiveness should not be considered as a strategic point of reference, but it is advisable to see it as a support mechanism to solidify the strategic intentions.

Therefore Claremont’s success will be based on doing many different things well, not just a few and integrating among them. If there is no fit among them, then there is no distinctive strategy and little sustainability (Porter, 1996:15).

Realising that a new strategy is needed and then developing it is wonderful. But more important is the ability to implement it. Asbury (2008:2) notes that South African companies are often guilty of not being able to implement effective strategies and has become a source of frustration for directors, shareholders, employees and even customers. It is all well to not implement a new strategy in buoyant times, but in a downturn such as the one facing the South African economy at present, failure to do so is career-threatening for Claremont management and life-threatening for SMH itself.

2.3 ORIGIN OF CLAREMONT’S STRATEGIC POSITIONING

The strategy for Claremonts’s strategic positioning should be based on a subset of the industry’s products. The reason for this is that the Claremont management do not have the authority to start another business in another industry or related industry. A clear mandate exists from head office to keep trading in vehicles and to maintain existing customers’ vehicles. Therefore the only real activity difference can be created by targeting vehicle sales to different customers than what the competition is targeting. The easiest way to do so is through a completely different value offering as is shown in the following sections.

2.4 Product Profile

Mass customisation is the ability of a company to meet each customer’s requirements (Kotler & Keller, 2006:152). It therefore makes sense to base the backbone of any pre-owned business strategy rooted in the decision on what product to sell. Invariably this decision is influenced by the following factors:

· Buying preferences of the target market;

· Competitors; and

· Availability of certain product lines.

2.4.1 Buying preferences of the target market

Claremont is considered to be one of the most affluent areas in Cape Town with the following buyer profile:

· Relatively conservative buying habits;

· High customer service expectations: Emphasis on value and quality;

· Living Standards Measurement (LSM) 8-10;

· Financially secure;

· Highly educated and well informed about market trends;

· Well traveled; and

· Petrol engines are preferred over diesel.

It is quite easy to assume that based on the above customer profile, Claremont pre-owned should sell exotic and highly expensive vehicles. Year to date 2008, Claremont sold vehicles with an average selling price of R212 000. Compared to an average selling price of R257 000 in 2007, one could argue that the customer profile does not accurately reflect the buying habits when it comes to pre-owned vehicles. This decline in average selling price could be attributed to the economic slowdown experienced in South Africa.

Another interesting attribute of the motor vehicle industry is how customers’ buying patterns and preferences change over time. Seasonality plays a big role in cabriolet (SL, CLK and SL-Classes) sales. Cape Town has lovely sunny weather in summer which means everybody yearns to drive down Camps Bay Boulevard with the vehicle roof dropped. Conversely, cold winter months bring heavy rainstorms that last for weeks on end and as can be expected, vehicle dealers hardly receive any enquiries on cabriolets.

‘The flavour of the month’ is another phenomenon that has pre-owned dealers scratching their heads. As soon as a pre-owned dealership recognises that a certain product line is selling well, he will attempt to stock up on that particular vehicle or colour, only to discover that the trend has changed. Often these cycles last about two weeks at a time and are completely unpredictable. This drawback of the pre-owned industry compared to the new vehicle industry is something to take note of and anticipate.

2.4.2 Competitors

Although Mercedes-Benz Claremont is part of SMH, it finds its biggest competitors to be within the same group. Most notably, Eikestad Mercedes-Benz, Mercedes-Benz Century City, Orbit Pre-Owned and Paarl Motors.

Eikestad Pre-Owned has a customer base that closely mimics Claremont Pre-Owned based on its LSM levels as well as demographics. However, subtle differences do exist especially with regard to taste and usage. A large wealthy farming community exists there and they tend to drive smaller distances on a day-to-day basis. They also prefer diesel vehicles to petrol due to the fact that farmers are allowed to buy diesel in bulk and at big wholesale discounts. It is therefore essential that Eikestad Pre-owned specialise in low to medium mileage vehicles in the 40 000-60 000kms range. They also have a strong light commercial market in Stellenbosch which means that they sell quite a few Mitsubishi pick-ups; however, they have to do this at deep discounts to compete against aggressively priced Toyotas and Isuzu’s.

Paarl Motors Pre-Owned is Eikestad’s biggest competitor as they have an almost identical target market as well as the close proximity to one another. They stock and price their products with much consideration of what the other is doing and with little consideration of what the Cape Town dealers such as Claremont, Culemborg or Century City is doing. However, they are worth mentioning as Claremont should not compete with them in the higher mileage category Mercedes-Benz category.

Culemborg Pre-Owned has been set up as an outlet to sell off other vehicle brands ranging across the spectrum of South African manufacturers. It is a rare occurrence that Culemborg and Claremont compete head-to-head on the same deal as they differ completely on the market they are trying to capture.

The Century City branch is seen as the flagship dealership in the Western Cape and its strategy is to stock vehicles of very low mileage (2 000-30 000 kms). Their range varies from A-Class to the most exclusive and expensive models up to the R1.2 million mark. In doing so, they established themselves firmly in the eyes of customer as the place to go when you are looking to buy top end exotics. Customers looking to see the latest and greatest in Mercedes-Benz vehicles therefore go there to shop. Their pricing is quite optimistic and customers are willing to pay premiums just to be able to say that they buy their vehicles there. Therefore Claremont Pre-Owned should not aim to compete directly with Century City in the exotic car range.

“Where absolute superiority is not attainable, you must produce a relative one at the decisive point by making skillful use of what you have”. Von Clausewitz (1832) in his book On War made strategic sense and is even applicable to Claremont Pre-Owned. This does not mean that Claremont should never stock more expensive exotics. As market circumstances improve and pre-owned vehicle sales increases toward the end of 2009 as is expected, Claremont will be well known for its medium level profile and will have established itself a business beachhead. It will then be possible to aim the sharp end of the spear where rivals such as Century City will be uninterested in what Claremont is doing (Harvard Business School Press Books, 2006:4). By stocking and selling some high level exotics Claremont will be able to successfully move beyond the medium level beachhead for some time before the competition notices and retaliates. Figure 2.1 depicts this possible strategy.

High end

Mid range

Low end

A, B C SLK, CLK, SL

Figure 2.1: Moving beyond the beachhead: Exotic vehicles

2.4.3 Availability of certain vehicle (product) lines

Sourcing appropriate vehicles for any pre-owned sales department is certainly the most important aspect of the selling function. Aligning specific vehicle supply with an ever-changing customer demand is a fine balancing act based on experience, market predictions and a good dose of luck. Another factor to be considered is the availability of certain products. When the demand for vehicles increase, so too do the prices at which these vehicles can be sourced. This causes dealers to pay more for vehicles and more often than not this premium cannot be passed on the customer as the ‘flavour of the month’ theory lasts too short for customers to realise that that specific vehicle is in short supply in the market place. By the time they do realise it and become willing to pay the premium for the product, the flavour of the month has changed and they start searching for a different car.

2.5 Optimum stock levels

It is unlikely that a dealership such as Claremont can perform at a much higher level than 30 units per month, given its size and the current economic climate. Space constraints only allow Claremont Pre-Owned to display 25 vehicles at any given time. The targets as set out by Sandown Motor Holdings head office at 26 units per month are slightly optimistic. A more realistic figure would be to aim for 24 units per month.

Industry professionals agree that a good stock holding level would be six weeks’ worth of stock and therefore the following calculation applies:

24*6/4.33= 34 units in stock at all times which is 8.67 stock turns per year (52/6 weeks stock)

2.4 The Product Mix

Based on the previous analysis of the buying preferences of the target market, the competitors and the availability of vehicles, it is now possible to plot where Claremont Pre-Owned should be positioning itself in the marketplace in terms of its product offering. This can best be best illustrated by Table 2.2 and Figures 2.2 and 2.3.

Table 2.2: Product profile by model and rand value

Figure 2.2: Bar Chart: Number of units per model

Figure 2.3: Bar Chart: Stock value by model

2.7 Buying Policy

Further to trading vehicles in from customers, it is also possible to buy vehicles from auctions as well as other dealers. This is the ideal situation as the pre-owned manager can choose which stock to buy and at a price that is acceptable. These decisions are very strategic and often involve significant complexity and uncertainty (Coughlan, 2002:7). Will this stock sell quickly? Also to be considered is the short time frame in which decisions are to be made, especially at auctions where the air is electric and full of stimuli that diverts the buyer’s attention from making sound decisions.

Currently, Claremont Pre-Owned has surplus funds available to buy extra prime stock, but is limited by the amount of floor space it has and therefore it is not always possible to buy in vehicles on top of the ones traded in. This problem can be easily overcome by simply selling off unwanted stock to other dealers and wholesalers who are willing to pay the asking price.

2.8 Selling (wholesaling) Policy

A problem with Sandown Motor Holdings Western Cape is that it has a ‘rigid wholesaling policy’ when having to dispose of unwanted stock when that stock reaches the 60 and 90 days period. This is a much debated policy within SMH Western Cape and could easily be called the ‘The Classical Clash of Heads’.

The emotional or bullish view advocates never selling stock to the trade even if stock levels become high or even undesirable. This view believes that the market will change and those vehicles will eventually become flavour of the month. Every vehicle has profit opportunity and must not be given away.

The other view is much more conservative. Stock should be bought in at the right price where possible but in cases where circumstances necessitates paying a bit too much, then pre-owned managers must not be prohibited from dumping stock to other dealers who will make the profit on those vehicles. Claremont Pre-Owned should follow this strategy as opposed to following the bullish approach. Vehicles in stock up to 60 days should be priced bullish in an attempt to make good margins.

All stock older than 60 days should be marked-down to ensure it is sold by the 90-day mark. Thereafter the pre-owned manager should get three bids from other dealers or put it on an auction and dump the stock to make cash flow available to buy fresh desirable stock even if it results in a loss.

2.9 HUMAN CAPITAL

It is important to consider that there also needs to be alignment between the company’s strategy and its human capital. Few executives take the time to examine the alignment between their business strategies and their people practices and policies (Nalbantian, Guzzo, Kieffer & Doherty, 2003:17-21).

This is very important when involved with Mercedes-Benz. Daimler SA has taken a hard stance with their recently updated Dealer Standards at the end of 2007. These standards are forcing dealerships to take responsibility for vehicle preparation before delivery to customers, accurate administration of deal files and post delivery contacts with pre-owned customers. And whilst these measures are necessary for customer satisfaction, they place much pressure on sales staff and sales managers considering the financial penalties on a dealership if an audit finds that these standards have not been adhered to.

From a human capital point of view, management need to take note that aligning this dealer standards strategy with the correct human capital requirements will be crucial for Claremont Pre-Owned. In the past successful pre-owned sales executives and sales managers were considered to be individuals who were able close any deal anywhere and to ‘shoot from the hip’. These individuals were not famous for their systematic approach to selling or their administrative abilities.

Circumstances have since changed as careful consideration needs to be taken to only recruit and employ people who will be able to master the Dealer Standards and still be able to close and make the sale. Some managers still prefer to recruit these so-called ‘closers’ whilst employing another administrative person to do the Dealer Standard cleaning up after the sales executive. This makes sense in a perfect world where cutting costs are unnecessary. Unfortunately Mercedes-Benz Claremont needs to keep its costs down and it therefore makes sense to employ only those executives who are systematic and administratively sound.

In the past Dealer Standards only forced new vehicle sales executives to go on new product training as well as take on some soft skills training in the form of two-day workshops with elaborate assignments to be handed in before being considered competent. From July 2008 this is now compulsory for all pre-owned sales executives and pre-owned sales managers dealing with the Mercedes-Benz brand. From a human capital strategy point of view this is great as all sales executives are being trained and developed. It does however place pressure on the recruitment of sales executives for the pre-owned department who have a willingness to be trained as well as the ability to do the assignments in order to be declared competent on that unit standard.

The strategy necessary to align the human capital in the pre-owned department with the Dealer Standard strategy of the dealership lies in the ability of management to communicate the importance of their contribution toward Dealer Standards. Management will also need to coordinate and train them in this new work process to ensure that they develop the administrative and systematic skills employed by the new vehicle sales executives. As consultants George Labovitz and Victor Rosansky (1997: 13) once wrote, “Imagine working in an organisation where every member, form top management to the newly hired employee, shares an understanding of the business, its goals and purpose.” Imagine working in a department where everyone knows how he or she contributes to the company’s business strategy. That’s alignment!

The same applies to the goals of the pre-owned department not relating to dealer standards. Pre-owned sales executives need to be given a clear brief on their own sales targets, gross profit targets and the financial implications of their debtor levels. They need to be shown how these factors impact the business and the long-term sustainability thereof. They need to understand where they are part of the activities which make Claremont different from its competitors.

Most importantly, they need to understand that they are a part of the competitive advantage and therefore need to take responsibility for that.

2.10 Processes

Satisfied customers constitute the company’s customer relationship capital. It forms a very important base of monetary value in Mercedes-Benz Claremont and because of this, long-term profitability and increasing cost pressures forces SMH management to ensure that no deals are lost. It is important to understand the value and the importance of customer retention. It costs five times more to acquire new customers than satisfying current customers. The average company loses 10 per cent of its customers per year. A five per cent reduction in the customer defection rate can increase profits from 25 per cent to 85 per cent, depending on the industry. The customer profit rate increases over the life of the retained customer. (Kotler & Keller, 2006:156).

Kotler and Keller’s statement holds great value for Claremont Pre-Owned and it therefore makes sense to make sure that existing customers are well looked after. For the months of June, July and August 2008, Claremont Pre-Owned spent R26 415 per month on advertising and promotion and retailed an average of 20 units per month. This implies that Claremont spent R1 320,75 per unit retailed on advertising.

Further investigations revealed that over the same three months in question, an average of four ‘offers to purchase’ were signed by customers but these deals were never completed due to customers defecting. A big reason for these defections lie in sales executives failing to promptly follow up these customers in terms of finance and other promises made. In some cases customers only informed the sales executives up to 15 days after the original offer was signed. Strictly speaking these customers should be seen as existing customers as soon as they sign.

If Claremont pre-owned had retained those four customers per month, it would mean that the advertising spend per unit retailed would drop to R1 100,63. This amounts to a 17 per cent reduction in advertising spend per unit.

The strategy laid out above, however much it may create warm fuzzy feelings, is at best a cloud of hot air if not translated into everyday actions. Clive Howe (2006:87) in his book, Simple Solutions to Strategic Success, states that once strategic plans and business plans have been established, it should be translated into doable goals and ultimately measurable activities. Clive Howe has developed his C@ps model which emphasises simplicity and practicality.

The aim behind his model is to keep things simple and to the point. Most strategic plans of more than one page are often not read thoroughly and are often cluttered with superficial information. This document is a one-pager which really expresses a company or department’s critical success path. It can be circulated to all employees involved and can be used as a guide for all their actions.

The model starts by stating the vision of the company, in this case being the vision to become the finest motor group in the world. From this vision, the values of the department flows followed by the critical success factors. Next the model aims to define what strategic objectives are necessary to achieve those critical success factors. This is crucial. These strategic objectives are really what bring the strategy to life. This is the part of the model that needs to be religiously adhered to in order for the strategy to be implemented successfully.

Executing the strategy is often easier said than done as many organisations have found over time. The ability to measure whether the strategy is being implemented is just as important as the conception of it. The C@ps model emphasises this ability to measure and advocates a key performance measurement for each of the strategic objectives. Figure 2.4 shows the C@ps Model devised for Claremont Pre-Owned. The values aspire to high levels of integrity and critical success factors are both financial and activity based. The performance indicators relating to pre-owned sales are provided to measure whether or not the strategic objectives are being met are simple and easy to measure on a day-to-day basis.

The model is a great tool for the pre-owned department and is the final step to getting the pre-owned department to world-class level.

Figure 2.4: C@PS Model for Claremont Pre-Owned

CHAPTER 3
DEVELOPING AN E-COMMERCE STRATEGY TO SUPPORT THE MERCEDES PRE-OWNED EFFORT

3.1 Introduction

With the proliferation of the internet and online auctioneering technology in South Africa, it makes sense to embark on an e-commerce project to support the efforts of the pre-owned department.

The pre-owned market is marked by great fluctuations in the demand and supply of pre-owned vehicle stock and understanding how to cope with these fluctuations is the key to success for small and larger motor groups.

SMH as one of the largest motor groups in

South Africa

, is no stranger to these fluctuations. In the period spanning March 2007 to December 2007, Sandown Motor Holdings Western Cape alone had been overstocked by about R17 million. This problem has since grown to roughly R22 million and has to be funded by an interest-bearing overdraft. It therefore comes as no surprise that SMH requires an urgent strategy to curb these dangerous levels of cash-consuming stock.

Although this research report aims to focus on Mercedes-Benz Claremont, it makes sense to develop an e-commerce strategy that can be used throughout the group, as Claremont does not have enough vehicles to sell via an e-commerce platform to make it financially viable and successful. The next section will therefore explore the viability of an e-commerce platform for the Western Cape region from which to trade these units to wholesalers and stop stock from ageing.

This chapter starts by analysing SMH at industry level by drawing heavily on the work of Michael Porter (1996, 2001). Again it is relevant to discuss the mission of the business within the context of an e-commerce strategy, the industry structure and possible competitors. Again Michael Porter’s work in the form of his Resource-Based View is utilised by looking at SMH unique competencies, sustainability and timing. These insights lead to strategy formulation and implementation, specifically related to an e-commerce solution.

3.2 Porter’s Approach

Porter’s Competitive Forces Model, however outdated it may seem, still serves as a useful tool in helping to sculpt the correct strategy for SMH’s e-commerce business. In doing so one is able to draw a distinct line between strategy and performance by specifically looking at the mission of the business, the industry structure and competitive positioning.

3.3 Sandown Motor Holdings Overall Strategy

SMH aims to derive satisfy its four equally important shareholders in the following ways:

a) Shareholders

“Some smaller previously profitable dealerships were losing money after sales had dropped by 40 to 50 percent.The decline in sales volume coincided with severe sales margin erosion resulting in a double whammy…The operating margins of good dealerships are 2.5 per cent before interest and tax, so they are sailing very close to the wind” (Cokyane, 2008). This statement certainly holds true for SMH.

Generating enough revenue in an attempt to cover all overheads and give SMH shareholders maximum return on investment and exceed the industry norm is the vision for the foreseeable future.

b) Customers

SMH strives to provide customers with the highest quality service. In doing so, SMH aims to provide world-class sales consultants, superior after sales service and trade-in prices that are market related and fair. In the current economic climate, it is high quality trade-in prices that will allow SMH to enter into new transactions. This however, is easier said than done as high levels of pre-owned stock forces SMH to pay less than fair prices for trade-ins. Included in the definition of customers are the wholesalers who buy those unwanted trade units that SMH does not intend to retail.

The cornerstone of the e-commerce strategy is to also provide the wholesalers with superior service such as unit availability, ease of posting a bid on any particular unit and fair pricing. This problem lies at the heart of this chapter and is the motivation for the e-commerce strategy to be discussed.

c) Suppliers

SMH aims to build lasting relationships with suppliers. Daimler SA is the biggest supplier of SMH as they supply SMH’s primary stock in the form of new vehicles. The longevity of SMH directly translates into the longevity of Daimler SA. SMH’s ability to trade in pre-owned vehicles has a direct influence on their ability to sell new vehicles that is the commodity of Daimler SA.

d) Employees

However cliché it may seem, SMH really does care about its employees. The success of SMH is the direct result of SMH’s employees’ success and vice versa. SMH therefore aims to provide job security to its employees. In times of financial strain, SMH will seek to minimise costs of a non-human nature and try to cut costs and maximise profits elsewhere. An e-commerce strategy aimed at increasing turnover and profit will ultimately allow SMH to cover expenses which would otherwise have been subsidised by the retrenching of staff.

3.4 Industry Structure

From a vehicle sales point of view, motor groups have different manufacturer franchises with different strengths and weaknesses. As mentioned in the first chapter, SMH is involved with Mercedes-Benz, Chrysler, Mitsubishi and Jeep, whereas Barloworld and McCarthy are very much involved with Toyota as well as some Daimler Franchises. These differences serve to differentiate their operations, but one thing all these groups have in common is the ever-changing levels and mix of trade-in vehicles they deal with.

Depending on market circumstances, the abundance or the lack of trade-in-stock, largely determines the success of a dealership in that it allows the new car department to trade-in unwanted vehicles from customers. If a dealership is overstocked in its used car departments, it will find it difficult to front the cash to buy in the trade units, which means that the dealer is limited to deals containing no trade-ins and will therefore lose business to rival dealerships.

Having just launched the new Mercedes-Benz C-Class, SMH finds itself in a position where it is trading in large volumes of trade units that exceeds pre-owned sales levels at SMH outlets. By the same token, other motor groups such as Audi are launching their new models and also experiencing increased pre-owned stock levels. It therefore makes strategic and financial sense to find another channel from which to sell the excess stock to other vehicle traders who have a demand for that stock and will consequently be willing to pay slightly higher prices to ensure they receive the unit.

3.5 Competitive Positioning

Clay Christensen (1997: 141-156) insists that any strategy should start with a strengths, opportunities and threats analysis. In the pre-owned strategy this route was not taken due to the inherent knowledge and experience already built into the department as it stands. Considering that an online auction is a brand new field for most managers at SMH, it is relevant if not crucial, to analyse the environment which SMH plans to enter in this fashion.

3.5.1 SMH strengths

a) The most distinguishable characteristic of SMH lies in its ability to attract a top workforce, especially in the Western Cape. This translates into a rare ability to attract people in top positions in competing companies as these people aspire to work at SMH to a large degree. In doing so SMH is able to gain insight into what other successful companies are doing. In pre-owned terms it means that SMH management know management in other companies on an intimate level and can therefore leverage this ability to sell pre-owned vehicles to these dealers within the scope of the proposed e-commerce strategy.

b) Due to its size, SMH has access to relatively large financial resources. This allows SMH to carry pre-owned stock levels of size and mixture that allows it to trade with almost any customer.

c) The number of outlets over which SMH has control is a great advantage in terms of its pre-owned retailing strategy. Should a unit be deemed not retailable at a specific outlet, it can easily be moved to another SMH outlet elsewhere in the Western Cape. When an outlet requires a specific vehicle for a customer, then that pre-owned manager can access the consolidated stock list and transfer the vehicle to where it is necessary.

d) The size of SMH operations presents the opportunity to centralise certain functions and departments. Administrative functions such as payroll, vehicle stocking, financing and marketing can be centralised. Mass clearance sales are often held at one central location for all the outlets and the advertising budget for these sales are split between the various pre-owned departments. It would therefore make sense to centralise the e-commerce strategy by using the various outlets’ inputs electronically. Costs can be easily allocated based on usage of the system which, in this case would be directly tied to the number of units sold via e-commerce.

e) Proximity of the various Western Cape outlets also brings great advantages.

· Paarl Motors: Mercedes-Benz and Mitsubishi, Chrysler Jeep

· Eikestad Motors: Mercedes-Benz and Mitsubishi

· Orbit Boland: Mercedes-Benz and Mitsubishi, Chrysler Jeep

· Mercedes-Benz Claremont: Mercedes-Benz

· Mercedes-Benz Culemborg: Mercedes-Benz

· Lifestyle Centre Century City: Mercedes-Benz, Chrysler Jeep

· Mitsubishi Paarden Eiland

· Mitsubishi Durban Road

All these dealerships are within a 100km radius of one another. Even though an e-commerce strategy is usually associated with vast geographical dispersion, the pilot Western Cape project would benefit from this proximity by allowing dealers to easily drive to the precise location of the vehicle on offer for a thorough inspection. More often than not, e-commerce strategies in the motor vehicle industry fail due to the sheer distances between the seller and the buyer. When it comes to high value goods such as vehicles, buyers definitely prefer to physically inspect the goods they are purchasing, especially if the vehicle is pre-owned.

3.5.2 SMH weaknesses

a) Under strengths it was noted that SMH has access to vast financial resources. At this point it should be noted that McCarthy’s, Imperial and Barloworld are much larger companies and have much deeper pockets. If they do decide to take on SMH in a price war on pre-owned vehicles, they would most probably be the victors.

b) SMH lacks diversity in its businesses. All SMH eggs are packed into the motor vehicle basket. The threat obviously exists that a severe industry recession could jeopardise the future of SMH. In contrast McCarthy’s, Imperial and Barloworld have diversified their operations into logistics, vehicle and plant hire, finance and insurance, to name but a few. In the case of vehicle rentals, they are able to buy the vehicles from their own dealerships, rent them out and end up selling them from their own outlets and auctions. They are also able to cross subsidise between industries when a specific industry suffers from severe recession. This creates longevity and security for all stakeholders.

c) SMH dealerships tend to differ from region to region. One will find that Gauteng dealerships give away larger discounts than the Western Cape dealerships. This means that a lack of communication often sees Western Cape dealerships losing business to its Gauteng counterparts. Such undercutting taking place within regions is a source of much conflict at most management meetings at regional level. Such inter-company competition results in margin erosion through cannibalization. Luckily for SMH, so do McCarthy’s, Imperial and Barloworld. In this instance, it is much better to be in the shoes of a smaller vehicle group. The proposed e-commerce strategy will hopefully eliminate this form of detrimental inter-company competition by using a single auctioneering platform in what will initially be the Western Cape only, but later on, countrywide.

3.5.3 SMH threats

Strong competitors (see Appendix A for screen shots of competitors’ sites)

a) Wesbank, ABSA, Standard Bank, Nedbank, MFC etc. all have their own auctions selling repossessed vehicles to traders and the public. Smaller auctions by privately held companies include Aucor, Burchmores and CMA. Their auctions occur frequently (once or twice a month) and they generally sell at very competitive prices as they are only looking to recover their costs. It should be noted however that their auctions are still traditional auctions and they do not yet have a real online presence. By having an online auction, SMH will be able to compete with bank auctions as it appeals to the timing needs of vehicle traders requiring stock to sell.

b) McCarthy Call-A-Car is the second biggest threat and provides a marketing service for not only McCarthy Limited dealers but also for dealers that are not part of McCarthy. All participating dealers list their vehicles on the Call-A-Car website and customers’ inquiries are thereafter channeled to the relevant dealers via Call-A-Car. SMH does not form part of this network.

c) Barloworld also has an online auction which is really aimed at selling vehicles to end customers called autoteam.co.za. Appendix A clearly shows the large list of participating dealers. Whilst their sites are mostly aimed at retailing units to customers instead of vehicle traders, they still remain a threat to take notice of.

d) Other auctions such as Claremart, Surf4Cars and Auction Alliance are also sources of competition for the SMH site. Once again these sites and auctions are mostly aimed at selling retail units.

3.6 Achieving Sustainable Competitive Advantage

In the motor vehicle industry, most bankruptcies are caused by unmanageable interest bills on increasing stock levels and lack of sales and resulting margins to cover this interest.

Interest rate levels are the biggest determinant of sales in the motor vehicle industry. These need to be monitored closely as possible rate hikes need to be anticipated and pre-owned stock levels need to be dropped as soon as possible. Interest rate hikes give dealers a triple whammy as sales drop, stock levels of unwanted stock rise and dealerships have to then fund those stock levels at the higher interest rate.

Once again the proposed e-commerce strategy will be an ideal way to lower stock levels in anticipation of rate hikes and getting a head start on the competition. By pumping out unwanted pre-owned stock before other motor groups and smaller dealers do, means that SMH would be the ones saturating the market and realising relatively decent prices before the market slumps.

In times where the normal revenue lines are under pressure, it makes sense to keep the use of current capital as low as possible in order to make strict return on net assets requirements from the shareholders. Being able to manage sales levels and the interest therefore lies at the core of business sustainability in the motor industry and will be the departure point for SMH’s e-commerce strategy.

3.7 Strategy Formulation

Gaining competitive advantage does not require a radically new approach to business; it requires building on the proven principles of effective strategy (Porter, 2001). This implies that SMH should not reinvent the wheel. Instead they need to focus on what they have been doing well all these years, which is selling cars, and just modifying those channels and the methods of selling through them.

The answer lies in establishing a lower-cost and higher-profit business based on e-commerce in the pre-owned departments. SMH will create synergies with its existing businesses like the new vehicle departments as well as service and parts. Such synergies will also benefit SMH by allowing the smaller dealerships in rural areas to trade out of their unwanted stock that might be more appropriate for metropolitan areas.

A well planned e-commerce strategy will generate value for all SMH stakeholders by freeing up cash flow to trade, thereby making it financially stable for investors, shareholders, customers and employees alike.

3.8 Taking the Resource-Based View on the situation

The resource-based view is another approach advocated by Michael Porter. It is more firm specific and is therefore the next logical step in formulating an e-commerce strategy for SMH. This framework should be used to build a picture around the unique competencies of SMH, the appropriability of retaining value created inside the firm, sustainability of a proposed strategy and timing required to build competitive advantage.

SMH in the Western Cape already has a well-developed information technology (IT) department with all the necessary expertise and infrastructure to embark on the development of an online auctioning platform. Further capital expenditure required will be minimal. All pre-owned managers are fully computer literate and will require only minor, focused training in order to operate the software relating to the auction. It is also clear that the product to be sold is quite unique to SMH as other motor groups and individual dealers have different trade-in profiles. One can say with conviction that SMH has the necessary resources to embark on this strategy.

As mentioned earlier in the paper, SMH managers all come from different companies and therefore have the necessary contacts which are built over years. These levels of trust with other dealers will be the toughest unique competency for competitors in the Western Cape to imitate. It will also be very hard for competitors to imitate the stock mix that SMH will have on offer. The only competitor that will really be able to match the product mix will be the bank auctions.

At this point one can once again point out that the timing of SMH auctions will be better than those of banks as it will be online and the auction can be run as often as is necessary to stay competitive with bank auctions.

As SMH will continue to have high stock levels over the foreseeable future, it remains certain that the resources will consistently be available and therefore sustainable.

The competitive advantage will therefore be derived from a technical and financial ability to see the strategy through. SMH will continue to have appropriate stock available for sale and has the necessary contacts and relationships in place with its dealer customers. All of the above-mentioned factors are value that is already being generated inside the firm and has to date never been exploited. It makes sense to start utilising the value by turning it into revenue.

3.9 The Strategy

According to Johnson, Clayton and Kagerman (2008:1), very little formal study has been done into the dynamics and processes of business model development. Second, few companies understand their existing business model well enough: the premise behind its development, its natural interdependencies, and its strengths and limitations. So they do not know when they can leverage their core business and when success requires a new business model. Based on their opinion and the findings of the previous sections, it is apparent that there is a need for SMH to re-look its business model to some extent. Whilst an e-commerce strategy will not reinvent the way SMH does business currently, it will be a good starting point to start creating a core competency for commerce in the future. Baby steps are required.

It is also clear that SMH has the necessary resources to embark on such a strategy. The aim would be to develop an alternative channel from which to market its unwanted pre-owned vehicles. An e-commerce approach is seen as the most viable and approach with the least cost implications to optimise profits.

The immediate tactic would be to set up an interactive auctioning website that will allow SMH to auction off unwanted units at financially sound prices starting at a regional level in the Western Cape. Only once the business model has been fine-tuned, can it be rolled out to other regions in South Africa, eventually establishing it at a national level.

According to Turban, King, Viehland and Lee (2006: 58), the advantages of an online auction would be the following:

a) Increased revenue from broadening the bidder base and shortening the cycle time. SMH will have more vehicle traders showing interest in vehicles for which SMH otherwise might not even have had a prospective buyer in the first place. By shortening the time from when SMH owns the vehicle to when they sell the vehicle (cycle time), they will be able to keep the interest bill to the minimum.

b) Optimal price setting becomes possible. It will also give SMH a true indication of the true value of a vehicle for future purposes of pricing certain models.

c) SMH are able to cut out intermediaries such as wholesalers who in the past used to buy trade units from SMH and sell it onto other dealerships who will eventually retail it. Typically those wholesalers take a R3 000 profit on vehicles wholesaled. It makes financial sense to cut out the intermediary and realise the R3 000 per unit for SMH.

d) SMH can liquidate large quantities of capital buried in stock easily.

e) Improved customer relationship on a business-to-business basis as smaller dealerships will keep coming back knowing they are paying fair, market-related prices.

Turban, et al. (2006: 58), also state the advantages for customers, who in this case are the dealers SMH are selling unwanted stock to. Once again the emphasis is on the fact that the customers of the online auction will not be retail customers.

a) It gives dealers the opportunities to find stock that is suitable for their business and appeals to their retail customers. Usually this type of stock is hard to come by for these dealers.

b) The entertainment value of online auctions can be exciting for the dealers and give them a sense of belonging to a select group of the motor industry where only they and no retail customers can buy.

c) The site will provide shopping convenience and cost savings for dealers. In the past these dealers had to drive around endlessly and often long distances to different towns in the hunt for desirable stock. Often these hunts end in failure to find decent stock. Instead they save fuel and time costs by searching and bidding online on a unit that they know they need. Only then does it make sense to physically drive to the location of the vehicle to view it.

3.10 The Value Proposition

Segmenting the vehicles SMH will be selling via the auction site will be the key to designing many aspects of the website. It is crucial to determine this prior to the actual design as it has to fit in with the strategy. Doing so will save money in the design process as SMH will have laid down a blueprint for what they are aiming to achieve. The aim will be to sell all unwanted units (known as trade units) that the various pre-owned managers deem to be slow movers or risky. Usually these vehicles will range from R10 000 all the way up to R350 000. SMH managers will not put all their stock up for sale as it makes no sense to sell prime stock on the auction.

The Target Market of the auction site will be wholesalers (also known as traders) of vehicles and all dealerships. Under no circumstances will vehicles be sold to the public via the site. If dealers should find out that SMH are selling to the public via the site, then they will perceive us as damaging pre-owned values of vehicles. Credibility amongst dealers is crucial to the success and integrity of the auction. The name of the site and auction will be tradingstock.co.za. This name refers to exactly what the auction aims to sell and should appeal to the target market.

3.11 Stakeholders

It is important to note that the following stakeholders form an integral part of decisions made in the course of the strategy.

a) Sandown Motor Holdings Pty (Ltd) executives lie at the centre of the project as they have to give the go-ahead on the website based on this viability study. They will have to place their pre-owned stock in the care of an e-commerce team. In doing so they will need to show full commitment to the project and will expect results that reflect their strategy.

b) Daimler SA is a major stakeholder as the new website will ultimately represent some of their brands. They will be expected to give their authorisation on the site as it may in no way harm their strategic intentions or break down their brands. It is crucial to understand that in the event of them not agreeing with SMH actions, they will reserve the right to immediately stop all activity which will result in SMH losing all capital investments into the online auction, not to mention bad publicity amongst other dealers.

c) Equipment suppliers will form an integral part of the project. They will have to tender against other suppliers based on a best quote/ best quality and timely delivery. Negotiations will be extensive in an attempt to get the best value for money.

d) Contractors responsible for the installation of IT equipment and infrastructure will also be viewed in the same light as equipment suppliers. They will also tender for the contracts based on best price/ best quality and the ability to deliver timeously installation and back-up services.

e) Advertising in the appropriate media will be crucial to the initial marketing effort. SMH and the central advertising department at DaimlerSA will have to work together closely to create best value-for-money advertising to help reach the strategic intent. Building the brand image needs to be at the centre of SMH’s attention. Careful consideration needs to be taken as to how SMH’s marketing efforts tie in with the overall strategy of SMH and Daimler SA.

3.12 Key resources to be mobilised

In order for the strategy to succeed at the business level, the following would need to be in place:

· A website that is technically sound;

· A team to administer the website such as updating stock for sale and running the auctions;

· A system to account for all sales via the website;

· A team of marketers whose aim will be to promote the website to pre-owned vehicle dealers only. These dealers need to be screened and approved prior to being allowed to place a bid.

3.13 The customer Interface

Awad (2002:145-146) proposes that the website should have the following characteristics:

· Navigation: The site must be easy and logical to navigate given the type of person (dealer) who will need to use it.

· Consistency: The design look and feel and contents will need to be consistent from page to page and will need to appear the same on all dealers’ screens.

· Performance: How long will the pages take to load? This will be crucial considering that it is an auction site.

· Appearance: The site must be aesthetically pleasing and represent SMH in a consistent manner.

· Quality Assurance: This should be high on the priority list. No dealer should feel that he lost a bid due to website quality issues.

· Interactivity will be high. Feedback will be welcomed as via the ‘contact us’ link as well as by telephone.

· Security: Customer information needs to be treated with absolute confidentiality. There is no real risk of fraud as will be discussed in the auction process. No money is transferred via the site.

3.14 The 7C’s of the Customer Interface

The context of the website will be of crucial importance. The layout needs to be simple and easy to use as most dealers in the motor industry are not overly computer literate. Instead they need functionality over aesthetics.

The homepage should feature a quick tutorial on using the site efficiently with a troubleshooting section. The second screen will enable the customer to select a screen ‘view auction items’ containing content that accurately describes all auction stock as well as pictures of all vehicles up for auction. This screen will be rich in content as it will be visually stimulating and rich in information such as reserve price, book and retail values, estimated reconditioning costs, etc. From the second screen the customer can also view his shopping trolley as well as all transactions that have taken place on the last auctions. This is a crucial part of content as it gives users the opportunity to learn actual market values. This is a service one can almost charge for as a separate business service. The last screen the customer can access via the second screen is the actual auction screen. This screen is the interactive part of the site and will have content on ‘a vehicle on auction’ basis. It will display the exact vehicle details as taken from the stock screen, the customers last bid, standing bid, reserve price and most importantly, time left on the specific vehicle.

a) Content on the site should be limited to functionality. Colours must be simple and non-threatening. The homepage must also consist of the well-designed company logo in classic Orbit colours of white, black and navy blue. The site should have the ability to screen a photograph of the unit in question. No videos or animated features will be necessary.

b) Commerce on the site should be limited to the auction process only. No payments will physically be made via the site so costly security software will fortunately not be necessary. All moneys change hands at a later stage at a physical outlet where the vehicle is kept.

c) Communication on the site will be rich and varied. A ‘contact us’ link taking the user directly to his email browser with SMH’s email address in the ‘To’ field. The website will also supply telephone and other contact details. Providing this direct line of communication in the event of the customer having problems with the site, especially whilst an auction is taking place, will be the key to engendering the levels of trust when doing business online. Lastly the homepage will show a field in which the customer must enter his username and password to access the second screen.

d) Connections to other links will be limited to SMH sites only.

e) Customisation of the interface will be standard. All will be kept as simple as possible. The content and levels of sophistication of the site can be upgraded over time as the business is rolled out across the country and possible changes will take place centrally.

f) Community sense on the website will be promoted. Although the information regarding customers is of a confidential nature, it still makes sense to have them know who they are bidding against in an attempt to spur on competition and therefore price levels. There will also be a forum on the site allowing them to voice their opinions and have some sense of stickiness. Ideally they should share news and information on the industry that will be of value to others.

3.15 Technology and software required.

An internet service provider such as MWEB has the all necessary expertise to get the site set up to the specification required. They offer a package that includes the design of the website, all the necessary software required and setting up of the service. This means that they would host the auction on their server as well as maintaining the site. The package also includes the necessary training. The total cost of the quote amounted to R58 500 payable in 9 monthly instalments of R6 500/month. Another R2 000 per month for 3G, website maintenance and downloading is also applicable. Cost considerations and revenue possibilities are shown in the cash flow projection contained in Appendix B.

3.16 Marketing

Marketing will be the most important aspect of the project. The person responsible for the marketing of the project should have a background in pre-owned vehicle sales. This will provide him/her with the necessary credibility and knowledge to approach other pre-owned dealers (customers) on a level that is based on trust and creates value for both SMH and the customer. The site will also be advertised in media such as:

· NAAMSA’s website: www.naamsa.co.za

· Mead and McGrouther Auto Dealers Guide (The Book)

· Automotive Refinisher

· Publications such as Topcar, Wiel and Car will be avoided as it is most frequently read by the general public and will create confusion as to whom the advertisement is actually directed at.

3.17 Customer Screening

In order to keep the site exclusive to independent wholesalers and pre-owned dealerships, a careful screening process will be adhered to. These dealers will appreciate the need for screening as it is in place to protect their profits and interests. Prospective customers will need to issue proof of their business status. This means that they need to show proof of being a company or close corporation (CC). In the event of them being sole proprietors, they will need to issue proof that they have engage in an average of at least four vehicle transactions per month. This can be done through South African Receiver of Revenue (SARS) returns, bank statements or copies of registration documents on the transactions done. All customers need to supply proof of being registered for value-added tax (VAT) on commercial vehicle transactions. This is necessary to protect the integrity of SMH and ensures its dealings are lawful in terms of taxation.

3.18 The auction process in more detail

Once customers’ credentials have been screened and authorised to take part in the online auction, they will be issued with a username and password with which to access the second page. The second page will guide them to view the stock and trolley screens. All vehicles to go on auction will be finalised and posted 48 hours prior to the auction. The auction will take place on a weekly basis on Wednesdays at 10h00. Note that the timing and frequency could be changed to better suit the market conditions.

At no point will the customer be allowed to buy the vehicle prior to the auction. A customer will however be allowed to view the vehicle on SMH premises if he so wishes.

Upon entering the auction screen the customer will be confronted with a legal document describing the terms and conditions of the auctions which he will sign via his electronic signature. No deposit is taken from the customer prior to the auction. The risk of the customer defaulting lies with SMH at this stage.

Once the auction commences, the first lot is loaded by the administrator and customers can place their bids in increments of only R1 000 at a time (assuming it is no less than the reserve price). The bid is automatically sealed once five minutes have elapsed since the last valid bid.

The dealer is then sent an electronic invoice. The invoiced amount is payable within 48 hours by electronic funds transfer (EFT) or bank guaranteed cheque directly to the appropriate pre-owned dealership at SMH. In the event of a customer failing to pay within the allowed timeframe, he will be issued a written warning that stands for three months. The customer is allowed three written warnings and on the fourth default he will be banned from the system and his username and password revoked for six months.

The beauty in this auction system is that no money is exchanged through the site thereby reducing the risk of fraud to virtually zero. Instead, tradingstock.co.za will issue an invoice amounting to R1 000 per unit sold via auction to SMH. This is payable within 10 working days, thereby allowing SMH to collect the money from the customer. To SMH this reduces risk and serves to incentivise their pre-owned sales managers to actively load vehicles onto the auction.

3.19 Risks and possible pitfalls

Although the project will be meticulously planned to avoid overrunning the budget cost or time limitations, there are indeed certain risks that need to be addressed.

a) The first risk lies in the ability to build a technically sound website and interactive auctioning system. Should the site crash mid-auction, customers will lose confidence in the ability of SMH to host an auction that keeps bringing dealers back when they need stock or some excitement.

b) Another risk inherent to the project lies in hardware problems. This is another reason for having a second computer in the form of a laptop to ensure smooth operation of the auction.

c) Training will be crucial if the project is to succeed. Although the package supplied by MWEB includes training, it will still be necessary to ensure that all people involved are properly trained in all software applications. This includes all the pre-owned managers selling their units as well as customers.

d) Buy-in from SMH pre-owned managers will be a key element in getting the right inventory at the right price onto the system on time for the auction. Ghemawat & Rivkin (2006: 3) make a good point when they stress that creating the competitive advantage is easier than sustaining it. It cannot be emphasised enough that these managers are the ones who will make or break the system. If they start to bypass the auction by selling highly sought-after trade units to wholesalers with whom they have previous relationships, the auction will lose its integrity. The marketers of the auction will also form the backbone of sustaining this competitive advantage over time. Their efforts need to be consistent and relentless to ensure that wholesalers keep visiting the site regularly.

3.20 Final remarks around E-Commerce for SMH

Compared to other e-commerce ventures, this is a relatively simple concept, especially given the resources SMH already owns. Looking at what strategists such as Porter and Turban have to say, it becomes clear that SMH should start turning its problems (which in this case is used stock levels), into a base of power and an opportunity to increase its profit range.

The business model is straightforward and easy to use. Knowledge of the industry is necessary but SMH is full of capable people with the right skills and experience. As long as buy-in comes from all levels within SMH, there is no reason why the supply side of the auction should not succeed.

Unlike other businesses who need to create the demand for their products through elaborate launches and seriously expensive advertising campaigns, prospective dealers already have the demand for quality, well-priced vehicle stock as it is the stock SMH will sell them that is their very lifeblood. The relationships forged with customers over time will stand the strategy in good stead.

Doing the basics right and building trust over time will see this method of trading becoming the only way to do wholesale vehicle business in the future.

CHAPTER 4
CLAREMONT NEW VEHICLE SALES STRATEGY

4.1 Introduction

To Mercedes-Benz Claremont, the new vehicle department is of crucial importance, considering that it has a 85/160 contribution to total gross profit. Clearly the new vehicle sales department as the proverbial ‘golden goose’ needs to be carefully managed to ensure its continued profitability, given the tough economic outlook for 2008/2009.

The aim of this chapter is to formulate a strategy for Mercedes-Benz Claremont`s new Mercedes-Benz department. It must be workable and measurable. It will focus on deliverables that harness its strengths as well as looking at ways to improve on weaknesses in key result areas. The recommendations will be of such a nature that it can be driven down to the shop floor with relative ease.

This chapter starts with a brief analysis of the industry, taking into consideration market tendencies, competitors and the macro-economic environment.

This is followed by the development of a Claremont-specific strategy that will support the overall strategy of the company, drawing heavily on Kumar’s Framework for responding to low-cost competitors.

The rest of the paper will focus on tactics to be employed in the pursuit of the goals set out in the strategy. This will be the development of hands-on activities that will bring the strategy to life and translate it into actual results.

4.2 Passenger Car Performance Overview

Since 1990, domestic vehicle sales have grown at a consistent rate up to January 1997. This was followed by a decline in vehicle sales up to 1999, followed by a stabilising effect at roughly 18 000 units per month for 4 years. The start of 2003 marked the beginning of the motor industry boom, peaking at an estimated 36 000 units per month. The bold line on the graph in Figure 4.1 clearly shows this phenomenal growth trend which is suddenly halted by an invisible force, once again dropping vehicle sales since January 2007.

Figure 4.1: Vehicle sales over time

Source: Naamsa Report, 2007:2.

The jagged line indicates short term fluctuations, which are also created by some invisible force. It is therefore important that one isolates the underlying reasons for fluctuations in short-term sales, but more importantly, establish what is causing the long-term trends?

4.2.1 Interest rate overview against sales performance

By matching nominal interest rate movements over time (Appendix C) to the corresponding sales levels over time, one notes that vehicle sales do not perfectly mimic interest rate movements. Instead one finds periods of interest rate lag where sales performance and consumer behaviour take a while to act accordingly with what the South African Reserve Bank (SARB) envision in their attempts to stimulate growth and at the same time curb inflation. However, the prime lending rate (nominal) currently stands at 15.5 per cent and is expected to remain at this level until middle 2009. It is suffice to say that interest rates will act as a constraining force on passenger car (PC) sales over the next year and even if interest rates were to drop, one would not expect new vehicle sales to increase dramatically in the short term.

4.2.2 Other monetary policy and legislative factors to note

Car allowances also play a central role in the performance of the motor industry. This is especially apparent in metropolitan areas where a lot of firms structure their remuneration packages to employees around car allowances based on the perceived benefits to the firm and employees.

To date the new National Credit Act (NCA), which became effective June 2007, is also placing great pressure on vehicle sales in especially the lower segment of the market and the pre-owned market. It aims to protect the consumer by limiting the amount of credit issued to consumers. The second half of 2007 saw sales plummet by 12 per cent and will continue to do so over the next four years while consumers who entered into credit agreements since 2002, are consolidating their debt.

4.3 The next 12 to 24 months

What happens in the retail motor industry over the next year in the run up to the Soccer World Cup 2010 is of great concern to those responsible for guiding firms involved in the motor industry. General consensus does however exist on the following points:

a) New car and light commercial vehicle sales are expected to remain under severe pressure as a result of tight monetary conditions, growing inflationary pressures, high levels of personal and household debt and the slowdown in economic activity levels (Naamsa Report, 2008).

b) Employment levels during the second quarter of 2008 are shown in Table 4.1. Compared to the 36 475 positions at the end of the first quarter of 2008, aggregate industry employment declined by 416 jobs during the second quarter of 2008 to 36 059 jobs (Naamsa Report, 2008).

Table 4.1: Employment levels second quarter 2008

	Industry Total
Last pay week April, 2008	35 955
Last pay week May, 2008	36 164
Last pay week June, 2008	36 059

Source: Naamsa Report, 2008:5.

c) Business conditions and performance indicators show that the 2008 second quarter passenger car sales at 69 829 units recorded a decline of 18 406 units or 20.9 per cent compared to the 88 235 new cars sold during the corresponding quarter of 2007. Combined commercial vehicle sales during the second quarter of 2008 at 51 426 units reflected a fall of 5 550 units or a decline of 9.7 per cent compared to 56 976 units sold during the corresponding quarter of 2007.

Table 4.2: Industry domestic sales growth

Industry Domestic sales Growth : Direction and Extent of Change
(Previous quarter’s percentage changes are reflected in brackets)
	Qtr ended 30 June 2008 compared with previous Qtr ended 31 March 2008		Qtr ended 30 June 2008 compared with corresponding Qtr ended 30 June 2007
Passenger Cars	- 18.5%	(- 4.8%)	- 20,9%	(- 17.5%)

Source: Naamsa Report, 2008:5.

d) Although inflation has remained within the 3-to-6 per cent target range since the publication of the previous Monetary Policy Review in November 2006, and the inflation outlook initially improved in 2007, the perceived medium to long-term risks to the outlook have remained a concern to the Monetary Policy Committee (MPC) (SARB, 2008).

e) The automotive industry has been a net user of foreign exchange for many years, however, there is a distinct possibility that, for the first time since 1995, the industry could achieve a modest trade surplus during 2008.The downturn in the domestic market should result in a reduction in imports, particularly of built-up vehicles. At the same time, the more competitive exchange rate will boost exports.

Looking ahead, the key determinants of the industry’s 2008 performance, in terms of domestic new vehicle sales, include the overall performance of the South African economy, the direction of interest rates and new vehicle pricing.

Table 4.3: Projected domestic growth rate

	2004	2005	2006	2007	2008	2009	2010
					Projections
Cars
Domestically produced
Local sales	200 264	210 976	215 311	169 558	130 000	140 000	145 000
Exports (CBU)	100 699	113 899	119 171	106 460	190 000	207 000	210 000
Total domestic production	300 963	324 875	334 482	276 018	320 000	347 000	355 000

Gross domestic product growth rate	4.5%	4.9%	5.0%	5.1%	3.4%	3.8%	4.4%

Source: Naamsa Report, 2008:7.

What the new vehicle sales department needs is a strategy that would allow the department to reach the following strategic objectives:

· The implementation of innovative yet practical sales and marketing strategies which must contribute to the attainment of profitable business objectives.

· Managing activities and resources which contributes to creating a work environment that is productive, challenging and most importantly, enjoyable.

4.4 Kumar’s Framework for Low-Cost Rivals

As is the case with any industry that has been growing up to 2005, economics 101 states that it will be accompanied by new entrants to the market looking to benefit from the economic profits generated in the boom. The South African vehicle market had its fair share of new players in the form of Asian manufacturers such as GWM, Asia Wing Motors and Chana.

Existing manufacturers have also expanded their product lines and depths by adding new models and engine derivatives. Whilst industry reports at the end of 2007 claimed that the vehicle industry in SA is growing, it is in fact to the detriment of individual dealers. Sure, the pie has grown, but the individual slices have shrunk since the start of 2006.

The traditional South African battle in the luxury segment of the market has been fought between BMW, Audi and Mercedes-Benz. They competed primarily on price and the individual product offering. They have however been so busy with this battle that they almost did not notice other manufacturers such as Honda, Lexus and Volvo enter their markets. What really happened was that these manufacturers’ products might have been in different stages of their product life cycles and were therefore overlooked by the traditional leaders in these segments (Perreault & McCarthy, 2005:270-276). Suddenly these vehicles have jumped onto the radar screens and their monthly sales volumes are becoming a concern to BMW, Audi and Mercedes-Benz. Their vehicle offerings are very well priced and can be seen as low cost competitors. Their products are on average 8-10 per cent cheaper in their product ranges and while this does not seem like a large margin, it really is compounded by the fact that it comes standard with features such as navigation, heated seats, extra cup-holders and nappa leather to mention a few.

So how should Claremont compete with these low cost competitors? Nirmalya Kumar in his article on Strategies to fight Low-Cost Rivals (2006:5) suggests a framework to respond to these manufacturers.

IF NO- Switch to selling solutions or transform into a low-cost player

ASK- Will they take away any future or present customers?

ASK- If I set up a low-cost business, will it generate synergies with my existing business?

Figure 4.2: Kumar’s framework to respond to low-cost rivals

Source: Kumar, 2006.

In translating this framework into a realistic strategy for Claremont, the following approach to the framework should be taken:

Will Volvo, Lexis, Toyota, Peugeot and Honda take away future or present customers? The answer is yes, and they have been doing so for some time now. According to Kumar, Claremont should not launch a price war just yet. As a dealership, Claremont cannot lower the prices of its new vehicles. Claremont is a price taker from Daimler SA and can therefore only have a price war by discounting the already small 8 per cent markup.

Achenbaum (1993:3) maintains that marketing managers are often guilty of using widespread price competition as a competitive strategy. Unfortunately such price discounting erodes brand loyalty. The truth is that customers are willing to pay extra for the Mercedes-Benz brand due to its status image, reliability and quality. The customer is also willing to pay the higher price based on the image that SMH has as a brand. The highly visible, convenient location on Claremont Main Road and Newlands Sports Grounds is another draw factor which, coupled with short workshop lead times, still makes customers willing to spend on a new Mercedes-Benz.

It would not make sense to take over other smaller entrants and competitors as that would be a decision taken at group level. This is a Claremont-specific strategy, not a group-strategy. Based on the framework that Kumar provides, the following will apply:

IF YES: Intensify differentiation by offering more benefits. Over time, restructure your company to reduce the price of the benefits.

4.5 Turning Kumar’s Strategy into a Claremont Reality

Claremont can intensify its differentiation most dramatically in terms of its service levels and therefore the recommendation is to take the following three-pronged strategy approach:

a) Step One: High levels of customer satisfaction

The past saw companies moving toward mass production. To maximise economies of scale, companies made standard goods in advance of order and left the individual to fit into whatever was available (Kotler & Keller, 2006:152). This approach is sometimes still relevant when looking at the ordering systems of Mercedes-Benz called the dealer front end. Mercedes-Benz also builds stock in advance and tries to sell it. Should customers wish to have a vehicle custom built for them, they will be looking at a three month waiting period. The challenge here is to keep the customer happy and excited in this time period as it is in this waiting period that the customer’s levels of satisfaction is exceeded or destroyed.

Marketing and retail textbooks point to the difference between convenience goods, shopping goods and specialty goods-but because marketers need to memorise product classifications but because they know that consumers behave differently when buying and shopping for different types of products (Terblanche & Boshoff, 2006:11). As always the focus is on getting the customer through the door to close the sale. Unfortunately, most of the marketing theory focuses on the art of attracting the new customer rather than on retaining and cultivating the existing ones. The focus is on making the sale rather than caring for the customer afterwards (Kotler & Keller, 2006:155). This has since changed. Today companies are moving away from mass marketing and are moving towards precision marketing, focusing on customer relationships. The focus has moved to the management of customer information designed to build strong relationships.

Many companies have entered the market in both the new and pre-owned sales segments, leaving SMH to not only battle for market share against other manufacturer groups such as Imperial and McCarty, but also the smaller pre-owned outlets across the Western Cape. These competitors aim to compete on price, thereby driving down the margins of SMH.

Claremont should turn itself from being a supplier of vehicles into a supplier of customer experiences with a strong emphasis on achieving customer satisfaction levels second to none in Cape Town. This approach will justify higher pricing levels leading to better first and second gross retention.

b) Step Two: A fresh new marketing strategy

“It’s a wonder how many management teams fail to exploit, or even perceive, the full potential of the basic business they are in” (Zook, 2007:1). These decisions are fuelled by analytical and operational CRM as the firm seeks to learn from its customers, develops insights and knowledge concerning its customers’ needs and requirements, and translates these insights into customer value through its product, service, and channel offerings (Leigh & Marshall, 2001). This means that a well thought-through approach to advertising, selling techniques and a strong Customer Relationship Management (CRM) component, will enable Claremont to capture the growing black market as well as to draw a sizable portion of the younger, newly affluent market. The women’s market also holds great potential.

Section 4.7 will focus on a detailed marketing plan for Claremont new vehicle sales. This document will guide the actions of the Claremont new vehicle sales department. It starts of by clearly stating sales targets for the year and then moves into a summary of the customer profile of the various models as defined by Mercedes-Benz SA. The last part of the marketing plan suggests promotions and events based on CRM to reach the desired target markets at the specific points in time when the models are being upgraded or go into fashion as the seasons change. It has been added as the last section of this chapter for the sake of keeping it as a separate document.

c) Step Three- Generate extra revenue through value added products

The more value added by a firm, the greater its potential for profit (Ghemawat & Rivkin, 2006:7). Considering that the average gross profit percentage on second gross accessories are in the region of 32.4 per cent, as opposed to the fixed 8 per cent first gross profit margin on the actual sale of the vehicle, it makes sense to push these lines of the business. The idea is to generate multiple cash flow streams by selling a variety of related products that really add value to the customer. This tactic would turn the dealership into a one-stop shop when it comes to buying and servicing vehicles. The key here is to generate value for the customer which would otherwise have accrued to other service providers in the following ways:

When buying a new vehicle, customers firstly require fast and transparent financing as well as competitively priced insurance. The incidence of hijackings and vehicle theft has seen insurance companies offer lower premiums to customers that have tracking devices fitted. Other value-added products should also be sold and fitted to the customer using. Here the value added for the customer lies in peace of mind motoring.

Such products include run-flat safety bands, smash-proof window tinting as well as various maintenance and warranty extensions. Many dealerships offer these products at the point of sale so this is no new strategy. However, these activities are mostly outsourced to fitment centres where the vehicle needs to travel away from the dealership. This adds an element of risk of damaging the vehicle when travelling and being in the care of external suppliers.

The selling-process of these products also still remains somewhat shoddy as the Finance and Insurance (F&I) representative stationed at the dealership is selling on behalf of another company. More often than not, F&Is are not fully familiar with the product they are selling as it is usually on the request of customers to fit certain items. The proposal is to stock, sell and fit these products in-house.

By keeping these activities in-house, Claremont can control the product, the margins and maximise sales volume by tying incentives on sales of these value-added products (VAPs) to the F&Is remuneration structure. This will also force F&Is to become more knowledgeable on the products they are selling. The customer will feel confident in the product they are buying from the confidence the F&I exudes.

4.6 Strategy Execution

In order to drive the above strategy down to the showroom floor, management of Claremont need to be committed to a process of reinvention of current practices, training, and benchmarking activities. They need to communicate the need to change, the desire to be the best and the determination to succeed very effectively. In essence this would require them to empower all employees. How do you empower people to become leaders themselves? How do you motivate them to take on responsibility without being handed the responsibility for customer satisfaction and service excellence?

Spreitzer and Quinn (2001:33) argue that to change SMH employees from sheep to empowered leaders, SMH must take on certain disciplines:

First: Empower those who matter most. This means that management need to empower all frontline staff as well as the sales executives. They should be allowed certain parameters in which to operate, such as being able to offer discount up to a certain level or to entertain customers or offer loan cars to customers in need. Managers need to support them in the decisions they take and provide mentorship where necessary. But more importantly, management need to reward performance.

Management need to provide them with a continuous vision and challenge. But most importantly, managers need to live this vision by cascading it down the organisation. In the same breath it should be noted that this vision needs to be kept flexible. Allow employees to give input and deviate from the norm when circumstances demand it. This will provide them with direction and motivation to see deals through which might have otherwise fallen by the wayside. It will also show them that their input is valued and that their judgment is trusted.

Management should also provide an environment that engenders openness and trust. James Surowiecki (2004: xvii) noted that if you put together a diverse and big enough group of people and allow them to make collective decisions on matters affecting general interest, they will over time be intellectually superior to the isolated individual, no matter how smart or well informed he is. When Claremont employees make mistakes, they should not be afraid to inform management or ask for advice in difficult situations. It is when they hide mistakes that managers miss the opportunity to provide corrective training and miss the opportunity to become involved to keep the customer happy.

The strategy also aims for a management focus on continuously guiding and controlling all activities. Management must aim to make their expectations crystal clear and create structures that will make employees accountable.

4.7 Key Objectives and Related Activities

The following extract from the Sewells Benchmarker (2007:3) holds another key to success:

“But motor retailers have just had the ‘best of times’ with record volumes and profitability.” Now it faces the challenge as demand drops and profitability declines. What to do remains the immediate question. The paradigm shift for dealer operations is to achieve the greatest efficiencies possible.

South African economists in the main, predict a rise in demand again as the Soccer World Cup and 2010 approaches. If demand is going to return, dealer team skills, dealer processes and dealership resources, developed to manage the phenomenal growth of the past three years should be retained but reconfigured to achieve maximum efficiencies.

Having said that, it is just as imperative to look at the basics of what actually makes or breaks the experience for a customer the moment he enters through the door. Until now the report only looked at the complicated aspects of improving the business. But more often than not, it is the simple things that are overlooked when, in fact, they are the factors that make all the difference. The next section focuses on the most important nitty gritty factors that are often overlooked, the first impression on the customer and other important daily activities.

4.7.1 First Impressions

a) Visible signage to direct customers to open parking spaces leaves a lot to be desired. Parking is not visible from the street as Claremont only has basement style parking facilities. New customers often do not know where to park when visiting Claremont. Reduce confusion.

b) Ensure adequate open parking. Mercedes-Benz Claremont, compared to other dealerships has the least amount of customer parking of all SMH dealerships in the Western Cape. Only twelve parking bays are available for customer parking. This space constraint should be carefully managed. Under no circumstances should these be utilised to park company vehicles.

c) A greeter should be stationed outside to greet customers in the parking lot and escort the customer to the appropriate entrance. Careful consideration should be taken to avoid wasting as little of the customers time and effort as possible. Customers struggling to get to the appropriate person in the dealership they are looking for tend to become more irate and the selling process therefore starts off on a negative footing.

d) A possible dialogue for the greeter should be as follows:

Greeter: Hallo sir/madam, welcome to Mercedez-Benz Cape Town.

Are you interested in buying a vehicle or is your visit service related?

Scenario 1 Customer: I want to have my vehicle serviced/buy spares.

Greeter: Let me show you to the service desk.

Scenario 2 Customer: I would like to take a look at some vehicles.

Greeter: Which type of vehicle do you have in mind, new or pre-owned?

Customer: I think I would like to look at a new/pre-owned vehicle.

e) The greeter escorts the client through the entrance where the customer’s name and if possible, a contact number is recorded. It is done at all other institutions such as banks and doctors and there is therefore no reason why SMH cannot insist on customer details before assistance is given.

f) This foyer should be furnished with comfortable chairs so that customers may be seated.

g) The customer is handed a high quality folder containing an easy to use pricelist and new product information when applicable. The purpose of handing out a folder is two-fold:

· This provides the client with background information with regards to Mercedes-Benz, and SMH’s product range.

· It also serves as a ‘tagging’ system, where the greeters or other sales staff can see that the client has been assisted.

h) Waiting customers should be offered a beverage such as water or coffee. A vending machine is also advisable in the reception area. Claremont should invest in a dedicated playing area for children who accompany their parents. This will add great value to the selling process, allowing both parents and sales executive to focus on the selling process.

i) The greeter can now contact an available sales executive and introduce the customer. Under no circumstances should the customer follow the greeter around looking for a sales executive. This only creates confusion and will be seen as unprofessional.

j) The sales executive now assists the customer.

4.7.2 Daily activities and processes

Claremont’s new vehicle sales management need to consistently and comprehensively implement, control and manage SMH’s five documented fundamental processes of the retail side of the business on an ongoing day-to-day basis. (Daily contacts and prospecting, debtors, stockholding, corporate social investment (CSI) management and demonstration model control). Most of these resources and structures are in place and only need careful management. Claremont can however, improve on the following crucial aspects of the operation:

a) Improved management of sales activities via daily contacts. Having salespeople hand in daily contact sheets is not enough. The information supplied need to be analysed and acted upon. This will provide crucial information on amounts of demonstrations done, follow-ups or closing problems which can then be rectified. The onus lies on the sales manager to sell the value of these activities and enforce it rigidly.

b) Improved management of so-called ‘monkeys’. Some problems should remain the responsibility of the sales executive. However, a sales executive who has too many monkeys on his/her back will ultimately drown in the problems and lose focus of the main priority which is to sell cars. A manager needs to take quick decisive action to solve problems as they arise. This means the manager should have the willingness as well as the ability to make the problems disappear. A manager should be there to serve his/her employees – not the other way around.

c) In modern days, a collective mindset within a team is paramount for competitiveness and survival. Therefore, in order to survive, teams need to have a good blend of individuals who contribute different kinds of knowledge, skills and abilities (Poovan, du Toit & Engelbrecht, 2006:23). Currently the sales force is well diversified with males, females, English, Afrikaans, White, Indian, Coloured and Muslim executives. However, Claremont as a flagship branch also needs to have a well-chosen Black sales executive to conduct sales to the newly emerging Black customers. At this point no other dealership in the Western Cape has a skilled and successful Black executive.

d) Swift action and decisiveness. Unfortunately being part of a big operation requires certain procedures to be followed. But too much red tape kills the idea eventually.

e) Unfortunately there are certain sales executives that are not pulling their weight. This might be due to a bad attitude toward the job, a lack of skill or poor management. Whatever the case may be Claremont management need to investigate the real cause and act appropriately. Some executives work as sales executives purely to survive whilst in reality they hate their jobs. The best option might be to transfer them elsewhere to a position where they will be more suited and in the longer run, become happier.

f) CHANGE OF ATTITUDES- This is possibly the most important change that needs to be made. It comes from within and moves outward, which means that it should start with management. Claremont management expect executives to treat customers with the utmost respect and friendliness, but management can only expect that when they themselves, treat the sales executives with the utmost respect and friendliness. A company becomes customer centric by being employee centric.

g) Manage hands-on. This does not imply that one should micro-manage. All actions should be accompanied with one question in mind: ‘Does it sell cars’? If the answer is yes, then do it and if the answer is no, then do not.

The next step is to focus on the objectives of the new Mercedes-Benz sales department over the next 12 to 24 months. These are in line with group objectives and at times, aim slightly above group targets.

Table 4.4 shows a list of targets necessary to translate the strategy into action. These targets are meaningful because they are measurable and realistic. Management can analyse these indicators on a weekly basis to ensure that the department is still on track.

Table 4.4: Goal setting

Table 4.5 focuses on key activities necessary for achieving the departmental goals and need to be continually monitored in an effort to drive the strategy to the showroom floor. It is the nitty-gritty needed to show customers that Claremont is committed to customer service.

Table 4.5: Tactics to be employed

CHAPTER 5
CONCLUSION

Mercedez-Benz Claremont is a dealership of great potential and can be built into the finest dealership in the Western Cape.

The pre-owned sales department operates in a highly fluid environment and therefore needs to be managed dynamically. Of course this does not mean that no strategy or methodology should be followed. In fact, it is crucial that a structured approach to selecting and buying stock is taken. Even though seasonality and ‘flavour of the month’ trends exist, it is still crucial to segment the target market and procure stock through stock profiling to match what the target market is expected to demand. Buying and selling policies also need to be revised to ensure that not only departmental targets are achieved, but that they will also support the new vehicle sales department.

Considering that the new vehicle sales department’s ability to sell new vehicles is closely linked to the ability of the pre-owned sales department to sell off unwanted trade units, it has become clear that an alternative channel should be developed from which to ‘flush’ these vehicles from the Claremont system. It was decided that an e-commerce strategy based on an online auction system to dealers will be the best option as it cost effective and in many cases, will generate significant profit opportunities. In the past these opportunities were missed as vehicles were sold on a ‘one buyer only’ as opposed to a ‘multiple buyers’ system.

Analysis of the new vehicle sales department also showed areas for improvement. It is clear that competing directly against competitors for market share in existing markets will hold no new benefits as fierce competition already exists here. Instead, efforts need to be focused toward previously untapped markets such as women, the younger generation and the so-called Black Diamonds. This means that the composition needs to be changed to reflect the demographics of who Claremont is trying to sell to. Marketing and promotion activities also need to be tailored to appeal to these customers.

This does not mean that current customers should be neglected. Most large companies gather considerable amounts of data on the customers that have bought from them in the past. However, what they do with this data leaves a lot to be desired as CRM efforts are generally inconsistent and at best, ineffective. In fact, research has shown that well crafted CRM programmes provide benefits at a rate that is less expensive than marketing in new markets. For the new vehicle sales department, this means that the Kerridge software utilised by SMH needs to be ‘farmed’ extensively to provide sales executives with accurate leads that would amount to more deals being closed at a lower cost per unit sold.

The new strategy also highlights the need to do the basics right. The customer reception provides the first impression and is a vital part of the selling process.

Finally, measurement and consequent management of key performance areas provides is the final step in making sure that the department operates cost effectively.

2009 and 2010 will possibly present the toughest times that SMH and Claremont as a dealership has faced and will see management and employees being tested both mentally and financially. Discipline towards tried and proven practices in known circumstances will be crucial, but even more important will be the ability to adapt where necessary to accommodate changing conditions.

The talent and commitment necessary to do so already exists, and it is merely a matter of understanding how the different departments function as standalone units and then transforming that knowledge into how they should be functioning as part of the dealership whole. Implementing sound strategies to guide their individual and collective efforts will enable the dealership to gain the necessary synergies needed to not only survive, but be profitable until the next economic upswing takes place.

LIST OF SOURCES

Achenbaum, A. 1993. The Mismanagement of Brand Equity. Workshop at the ARF Fifth Annual Advertising and Promotion. 1 February.

Asbury, S. 2008. Any Strategy that Works Outdoes an Ideal Theory. Business Report. 28 November, 2.

Autoteam. 2008. Dealer Lists and Locations. 15 June. [Online] Available: http://www.autoteam.co.za/dealers/UCdealer.aspx. Accessed: 15 June 2008.

Awad, E.M. 2002. Electronic Commerce: From vision to Fulfillment. Upper Saddle River, New Jersey.

Clarke, T. & Clegg, S. 2000. Changing Paradigms: The transformation of management knowledge for the 21^st century. London: HarperCollins Business.

Christensen, C.M. 1997. Making Strategy: Learning by Doing. Harvard Business Review, November – December, 141-156.

Cokyane, R. 2008. Low sales of new vehicles bite dealership jobs. Business Report, Cape Argus. 21 April.

Coughlan, P.J. 2002. Competitor Analysis. Harvard Business Review. February, 1-10.

Dalton, N.W. 2008. Quoted in the Business Report. 27 November, 23.

Ghemawat, P. & Rivkin, J.W. 2006. Creating Competitive Advantage. Harvard Business Review February 2007, 1-21.

Harvard Business School Press Books. 2006. Strategy: Create and Implement the Best Strategy for your Business. Boston.

Howe, C. 2006. Simple Solutions to Strategic Success. Knowledge Resources: Johannesburg.

Johnson, M.W., Clayton, C. M. & Kagerman, H. 2008. Reinventing Your Business Model. [Online] Available: http://harvardbusinessonline.hbsp.harvard.edu/hbsp/hbr/articles/article. Accessed 23 November 2008.

Kotler & Keller. 2006. Refer various pages, 12, 20, 48

Kumar, N. 2006. Strategies to Fight Low-Cost Rivals. Harvard Business Review. December.

Labovitz, G. & Rosansky, V. 1997. The Power of Alignment. New York: John Wiley & Sons.

Leigh, T. W. & G.W. Marshall. 2001. Research Priorities in Sales Strategy and Performance. Journal of Personal Selling & Sales Management, 21(2) (Spring), 83-93.

McCarthy motor group. 2008. [Online] Available: www.mccarthy.co.za Accessed:15 November 2007

Mercedez-Benz. 2008. [Online] Available: www.mercedes-benz.co.za Accessed:15 November 2007.

Naamsa Report. 2007. Quarterly review of business conditions: Motor Vehicle Manufacturing Industry: 2nd quarter 2007.

Naamsa Report. 2008. Quarterly review of business conditions: Motor Vehicle Manufacturing Industry: 2nd quarter 2008.

Nalbantian, H.R., Guzzo, R.A., Kieffer, D. & Doherty, J. 2003. Play to Your Strengths: Managing Your Company’s Internal Labour Markets for lasting Competitive Advantage. New York: McGraw Hill Publishing Company.

National Automobile Association of Manufacturers of

South Africa

(NAAMSA). 2008. [Online] Available: www.naamsa.co.za Accessed: 23 August 2008.

Perrault, W.D., & McCarthy E.J., 2005. Basic Marketing: A Global managerial Approach, 15^th Edition. New York: McGraw Hill.

Poovan, N., Du Toit, M.K. & Engelbrecht, A.S. 2006. The Effect of the Social Values of Ubuntu on Team Effectiveness. South African Journal of Business Management. 37(3) September, 17-27.

Porter, M. 1996. What is Strategy? Harvard Business Review, November-December, 1-19.

Porter, M. 2001. Strategy and the Internet, Harvard Business Review, March, 62-78.

Pretorius, B. Sewells Benchmarker. August 2007

South African Reserve Bank. 2008. Dates of Change in the Prime Interest Rates of Banks, 17 November 2008. [Online] Available: http://www.reservebank.co.za/internet/Historicdata.nsf/Mainpage? Accessed 17 July 2008.

Spreitzer, G. M & Quinn, R. E. 2001. A Company of Leaders. San Francisco. Jossey-Bass.

Surowiecki, J. 2004. The Wisdom of Crowds. New York: Doubleday.

Terblanche, N.S. & Boshoff, C. 2006. A Generic Instrument to Measure Customer Satisfaction with the Controllable Elements of the In-Store Shopping Experience. South African Journal of Business Management. 37(3) September,17-27.

Turban, E., King, D., Viehland, D. & Lee, J. 2006. Electronic Commerce 2006: A Managerial Perspective, 4^th Edition. New Jersey: Pearson Education Inc.

Von Clausewitz, C. 1832. On War. Posthumous Publishing, Publisher Unknown.

Wesbank. 2008. Wesbank Repossession Auctions, 15 June. [Online] Available: http://www.wesbank.co.za/auctions/index.asp. Accessed: 15 June 2008.

Hare, A. Wesbank Corporate. Private interview: 15 July 2008

Zook, C. 2007. Finding your Next Core Business. Harvard Business Review. April, 3-12.

Appendix A

Screenshots of e-commerce competitors

www.autoteam.co.za

www.mccarthy.co.za

www.wesbank.co.za

Appendix B

Projected cash flow forecast for e-commerce

Appendix C

Interest rate changes over time

DATES OF CHANGE IN THE PRIME OVERDRAFT RATE OF BANKS
DATE	%
1948-12-31	4.50
1949-10-17	5.00
1952-04-01	5.50
1955-10-01	6.00
1958-06-01	6.50
1959-01-22	6.00
1960-08-19	6.50
1961-05-15	7.00
1962-01-01	6.50
1962-07-01	6.00
1962-12-01	5.50
1964-07-24	6.00
1964-12-12	6.50
1965-03-08	7.00
1966-07-15	8.00
1967-07-01	8.50
1968-09-10	8.00
1970-09-15	8.50
1971-05-01	9.00
1972-08-19	8.50
1973-04-16	8.00
1973-07-16	7.50
1973-11-15	8.00
1974-02-01	9.00
1974-06-01	10.00
1974-08-01	11.00
1974-10-07	12.00
1975-07-15	11.00
1975-08-11	11.50
1975-10-01	12.00
1976-06-22	12.50
1978-08-24	12.00
1978-09-15	11.50
1979-02-12	11.00
1979-03-24	10.00
1979-08-16	9.50
1981-01-24	10.00
1981-02-09	11.00
1981-03-24	11.50
1981-05-06	13.00
1981-06-24	14.00
1981-07-21	16.00
1981-12-17	17.00
1982-02-18	18.00
1982-02-26	19.00
1982-03-04	20.00
1982-11-01	19.00
1982-11-22	18.00
1983-01-24	17.00
1983-02-16	16.00
1983-03-07	14.00
1983-06-13	15.00
1983-06-24	16.00
1983-08-08	17.00
1983-08-15	18.00
1983-11-23	19.00
1983-12-14	19.50
1983-12-24	20.00
1984-03-23	21.00
1984-07-17	22.00
1984-08-04	25.00
1984-11-19	23.00
1984-12-17	24.00
1985-01-08	25.00
1985-05-06	24.00
1985-05-27	23.00
1985-06-24	22.00
1985-07-10	21.00
1985-09-02	19.50
1985-10-07	18.50
1985-11-04	17.50
1985-11-25	16.50
1986-01-24	15.50
1986-05-05	14.50
1986-08-23	14.00
1986-09-20	13.50
1986-12-24	12.00
1987-01-24	12.50
1988-01-21	13.00
1988-03-10	14.00
1988-05-05	15.00
1988-07-29	16.00
1988-11-03	18.00
1989-02-28	19.00
1989-05-08	20.00
1989-10-11	21.00
1991-04-02	20.00
1991-10-01	20.25
1992-04-01	19.25
1992-07-06	18.25
1992-11-23	17.25
1993-02-22	16.25
1993-11-01	15.25
1994-09-26	16.25
1995-02-22	17.50
1995-07-03	18.50
1996-04-29	19.50
1996-05-20	20.50
1996-07-01	19.50
1996-10-01	19.25
1996-11-21	20.25
1997-10-21	19.25
1998-03-09	18.25
1998-06-11	20.25
1998-06-30	22.25
1998-07-04	24.00
1998-08-31	25.50
1998-10-19	24.50
1998-11-09	23.50
1998-12-07	23.00
1999-01-11	22.00
1999-02-12	21.00
1999-03-08	20.00
1999-04-19	19.00
1999-06-25	18.00
1999-07-14	17.50
1999-08-08	16.50
1999-10-04	15.50
2000-01-24	14.50
2001-06-18	13.75
2001-07-16	13.50
2001-09-25	13.00
2002-01-16	14.00
2002-03-18	15.00
2002-06-14	16.00
2002-09-16	17.00
2003-06-13	15.50
2003-08-15	14.50
2003-09-11	13.50
2003-10-20	12.00
2003-12-15	11.50
2004-08-16	11.00
2005-04-15	10.50
2006-06-08	11.00
2006-08-03	11.50
2006-10-13	12.00
2006-12-08	12.50
2007-06-08	13.00
2007-08-17	13.50
2007-10-12	14.00
2007-12-07	14.50
2008-04-11	15.00
2008-06-13	15.50

Appendix D

Mercedes-Benz Claremont detailed marketing plan

1. Business Objectives

· Mercedes-Benz Claremont: Dealer Target % of MCG National: 2.33% monthly

· Retail Targets by Brand: January 2008 – December 2008:

Demo Targets by Brand: January 2008 – December 2008:

2. Marketing/Communication Objective:

· Build Brand Centre awareness of the Lifestyle Centre in which a substantial financial investment has been made through: newspaper, magazine and radio advertising, marketing campaigns (i.e. newsletters, web-based campaigns, sms campaigns) as outlined later in the plan, to existing Kerridge customers and new potential clients.

· Also build this awareness through hosting of Lifestyle type events e.g. Fashion Shows, Rally Drives, to which the general public are invited through advertising to try and get new feet through the doors of people who otherwise would not necessarily have visited i.e. people who may not have come to the Lifestyle Centre otherwise, but come due to an event which they wish to attend and then use the opportunity to view SMH’s vehicles.

· Increased awareness and traffic will be measured on a weekly basis by sales managers (whereby all sales managers record walk-in traffic weekly measuring whether the client is there as a result of advertising, referral, word-of-mouth). These results are discussed at a Sandown group sales meeting monthly whereby figures per dealership are examined and discussed and it is agreed that month on month SMH should experience at least a 5 to 10% increase in the walkthrough traffic numbers.

· Develop an appropriate CRM & marketing events promotions and planning system (as outlined later in the plan) to build customer relationships and increase sales volumes through the dealership. The sales volumes must be increased during the remaining 6 months of the year of 2008 to meet the month on month 2008 targets as outlined above, as SMH are currently not meeting targets.

3. Core Marketing Strategy:

· Focus on aggressively building brand awareness and visibility of the three brand centre facilities, through advertising, marketing campaigns and events programmes to draw existing and potential clients in, as outlined later in the plan.

· Streamline marketing activities between the three different branches and ensure activities run in conjunction with one another tomaximise benefit from marketing spend.

· Use CRM as a strategic management tool for building customer relationships (use existing Kerridge database to market to and upgrade existing customers to new products and models).

· Assist sales managers by developing targeted marketing campaigns for each model and brand within the brand centre to maximise variable margin and segment share payouts.

4. Brand Positioning

In 2008 the international positioning for Mercedes-Benz is ‘The Culture of Driving’. In order to begin to implement this position in South Africa and align the product range, one first needs to define ‘The Culture of Driving’:

Each of ‘The Culture of Driving’ experiences involves three key components:

· The Driver;

· The Car; and

· the Environment that the car exists in.

Mercedes-Benz has created an entire range of purpose-built vehicles that allow the driver (and the passengers) to truly experience the uniqueness of each possible driving experience and in doing so to participate in ‘The Culture of Driving.’

A Mercedez-Benz driver can be said to be an individual who appreciates and understands the values that the company, brand and products represent. These values are:

· Elegant;

· High Value;

· Authentic;

· Leading;

· Respectful;

· Fascinating.

Mercedes-Benz Western Cape Brand Centre is positioned as the leading innovative motor dealership of a premium motor brand, Mercedes-Benz, in the Western Cape offering top after sales service as well as the Mercedes-Benz lifestyle experience representing the Mercedes-Benz luxurious and premier values.

The different Mercedes-Benz models are positioned in line with the national brand values per model (outlined further on in this document). This is to ensure that the same message per model is presented by Sandown brand centre dealerships as per what the Mercedes-Benz head office brand management team are doing, to ensure an aligned and consistent message is presented to the public by the dealer and the brand team at head office.

5. Driving Experience, Target Market and Segmentation (presented by model):

5.1 Mercedes-Benz Driving Experience

Driving Experiences are the cultural objects that constitute ‘The Culture of Driving’ (Mercedes-Benz 2008 International Positioning) and can be arranged into five key types:

· Urban;

· Touring;

· Luxury;

· Sporting; and

· Go-anywhere.

Accordingly each product can be assigned to a driving experience. Each product gives a unique take on that experience allowing the customer to pick the one that has the best fit with them and their needs.

Mercedes-Benz Driving Experiences by Model - Summary:

5.2 Target Market and Segmentation, by Model

The Mercedes-Benz Brand Centre target markets per Mercedes-Benz model are in alignment with the brand’s target markets, in order to present a consistent message to the public and in alignment with the advertising conducted by the brand. The brand centre in Western Cape will therefore focus per model on the target markets as indicated in the diagrammes below, using campaigns and advertising as outlined later in the plan to increase unit sales of each model.

Smart Car:

Target Market: Individualists

Segmentation: LSM 8 - 10; Age 25+

Creative Platform: Open your Mind

Driving Experience: Urban

Smart car target market in Western Cape region specifically:

· Tour/car hire operators (due to the large amount of tourists visiting Cape Town, a number of companies purchase Smart fleet to hire the vehicles out e.g. Zereba Drive in Cape Town who have purchased a huge Smart fleet)

· Coffee companies (who use these vehicles as branding tools e.g. Caturra).

· Image, concept driven youth individuals.

· City dwellers (as the vehicle is easy to park and maneuver in small spaces).

· Young image and fashion conscious women (aged 25 – 35) (SMH have noticed this to be a major target market in the Cape Town region).

A-Class:

Target Market: Young professionals leading a full life.

Segmentation: LSM 8 - 10; Age 25+

Creative Platform: Full Life

Driving Experience: Urban

A-Class target market in Western Cape region specifically:

· Young mothers with kids.

· Retired people, especially women.

B-Class:

Target Market: Urban warriors, active individuals with one foot in the garden and one foot in the night club.

Segmentation: LSM 8 - 10; Age 25+

Creative Platform: Urban Warrior

Driving Experience: Urban

B-Class target market in Western Cape region specifically:

· Young professionals, especially males including the black male market.

C-Class:

Target Market: Driven individuals

Segmentation: M60% vs. F40%; LSM 8- 10; 25+; Emerging black market

Creative Platform: Serene Agility

Driving Experience: Luxury

C-Class target market in Western Cape region specifically:

· Image conscious young professionals, especially seeing as the design of the new C-Class is very aggressive, this has attracted a more ‘non-traditional’/ image-conscious customer.

· Professionals: Doctors, lawyers, business men.

· Hotels as courtesy vehicles.

· Companies purchasing Fleets.

C-Class Estates:

Creative Platform: Understated Elegance

Driving Experience: Touring

C-Class Estate target market in Western Cape region specifically:

· Successful Professionals with families, i.e. affluent mothers.

· Hotels.

· Golf Courses to transport guests (luggage, golf clubs etc) due to large number of golf courses in the Western Cape.

C-Class Coupe:

CLC target market in Western Cape region specifically:

· Young professionals e.g. accountants.

E-Class:

Target Market: Entrepreneurs

Segmentation: LSM 8 - 10; Age 35+; Male bias

Driving Experience: Luxury

Creative Platform: The Best

E-Class target market in Western Cape region specifically:

· Middle aged, traditional, successful businessman who has always driven Mercedes-Benz – accountants, financial directors, partners in firms etc.

CLS:

Target Market: Non-conformists - celebrating individualism

Segmentation: LSM 8 - 10, Age 35+

Driving Experience: Luxury

Creative Platform: Alternative Approach

CLS target market in Western Cape region specifically:

· Muslim-oriented target market.

S-Class:

Target Market: Leaders

Segmentation: Age 35+; LSM 8 - 10; Male bias

Driving Experience: Luxury

Creative Platform: Ahead

CLS target market in Western Cape region specifically:

· Business Owners and CEOs.

M-Class:

Target Market: Expressive achievers - visibly living their success.

Segmentation: 50% black market. LSM 8-10, Age 35+

Driving Experience: Go Anywhere

Creative Platform: Visible success

M-Class target market in Western Cape region specifically:

· Black ‘emerging black diamond’ market.

· Entrepreneurs.

· Film Makers.

· People who enjoy the outdoor life in the Western Cape – hiking, boating, camping.

R-Class:

Target Market: Wealthy families.

Segmentation: LSM 8 - 10, Age: 35+

Driving Experience: Touring

Creative Platform: Personal Space

R-Class target market in Western Cape region specifically:

· Hotels – Cape Town is a huge tourism hub of Southern Africa with many hotels. The R-Class is perfect to target at the most upmarket hotels such as Cape Grace, Mount Nelson, Table Bay as a courtesy vehicle for the hotels to transport guests as it is luxurious and spacious.

GL Class:

Target Market: Exploring families. Requiring space and ability from a vehicle.

Segmentation: LSM 8 - 10, Age 35+

Creative Platform: No Limits

Driving Experience: Go Anywhere

SLK:

Target Market: Youthful hedonists.

Segmentation: LSM 8 – 10, Age: 25+

Driving Experience: Sporting

Creative Platform: Speed and Style

SLK-Class target market in Western Cape region specifically:

· Youthful, successful women.

· Older, successful and sometimes retired people for use as a weekend vehicle.

· To drive around the coast with the top down and ‘show off’ their success.

CLK:

Target Market: Sense of knowing

Segmentation: LSM 8 - 10; Age 35+

Driving Experience: Sporting

Creative Platform: Best of both Worlds

SL:

Target Market: A-List.

Segmentation: LSM 8 - 10, Age 35+

Driving Experience: Sporting

Creative Platform: The Original

CL:

Target Market: Opinion Leader

Segmentation: LSM 8 - 10, Age 35+

Creative Platform: Sense of Knowing

Driving Experience: Sporting

6. SWOT Analysis

Strengths:

· Central location of showroom in Claremont, an affluent area in the Southern suburbs. New Pick ‘n’ Pay and Virgin Active Gym opening across the road in October 2008

· Mercedes-Benz brand name and brand equity thereof.

· Resources i.e. qualified/competent staff, upmarket existing premises from which to operate, the backing of Mercedes-Benz

South Africa

(Sandown is partly owned by MBSA), training systems in place.

Weaknesses:

· Negative attitudes – ‘Resistance to change’ factor (this is reduced by hosting regular staff get togethers to build spirit and camaraderie).

· Arrogance/Complacency – expecting people to come to us (measures are being put into place to ensure that sales staff go out and find business rather than waiting for business to find us i.e. each sales person has to spend a certain amount of time out of the office every week and bring back a certain number of leads to their manager).

Opportunities:

· Kerridge Database system: data status not up to par. Huge opportunity if utilised correctly

· Use existing data to sell to orphaned and existing customers as it is more expensive to gain new clients that to retain existing clients – Lifetime value of customer.

· Attract new business to the Lifestyle Centre through lifestyle activities and campaigns

· Sales through Service department – identify prospects for model upgrades, i.e. through morning sales drive where everyone through the service department is approached by a member of the sales team every morning whilst booking their vehicle in for a service to try and upgrade the customer.

· Develop ‘proactive’ IT driven management information system for identifying potential new customers

· Develop and implement CRM programme (We have identified a working group within Sandown Western Cape that will handle CRM in order to benefit the company by putting in place a strategy etc).

· Establishment of Lifestyle Facilities and Events such as classic car days, fashion shows, book launches where customers and the general public are invited so that SMH’s lifestyle centre becomes known as a Lifestyle Centre where Lifestyle Activities are hosted and not just a car dealership, i.e. SMH become a destination.

Threats:

· Competitors: BMW, Audi, Lexus and Volvo present an ongoing threat as new models are introduced or as their brand teams come up with good marketing concepts which may attract people to their brand who may otherwise have come to Mercedes-Benz.

· Inflation and rising cost of living (although this is beyond SMH’s control). This negatively affects us as persons become averse to spending large sums of money on vehicles in times of need.

· Increasing petrol price (out of SMH’s control), but persons definitely re-consider before spending money on vehicles which use a lot of petrol or diesel.

· Eskom power shortages (as this shuts SMH’s operations, specifically workshop and service operations from where a great deal of revenue comes). Generators are being installed in some facilities to overcome this threat.

· Dealer standards as non-compliance can cause major financial implications. In order to overcome this threat a person has been employed by the group who only oversees dealer standards to ensure 100% compliance.

7. Tactics / Tools:

Management need to consider the marketing mix to determine how to meet retail targets:

Product:

· During Quarter 3, 2008, the focus needs to be on the newly launched face lifts of the A- and B-Classes, the bread-and-butter models (due to finance campaigns)

· Servicing claims and expectations – the need to manage customer expectations of servicing, customer experience does not stop at sale.

· Close tie between service and sales departments – ‘product’ extends to servicing.

Price:

· Competitive finance packages during Quarter One of 2009 for A and B Class – lowest rates in their market segments.

· Competitive Insurance Packages

Place:

· Programme of events to attract people to Lifestyle Centre e.g. Family Days, Festivals, Book Launches, art displays, and musical performances.

· Customer events to attract existing and potential customers to Lifestyle Centre e.g. Launches of new models.

· CRM events: Ladies Day, Corporate Breakfasts, MercedesTrophy etc.

Promotions:

· Test Drive campaigns/Ride and drives, activation campaigns

· CRM activities through Kerridge and cleansed 100 day challenge data (newsletters and special communications via email, print and sms).

· Advertising through press and radio.

· Mall displays, displays at expos and sporting events e.g. Constantia Show Jumping.

· Vehicle displays and accessories e.g. M-Class display under stairs.

Processes:

· Improve ‘customer care’ processes through improved CRM.

8. Planning/Timings:

Our product focus is in line with the focus as identified by MBSA:

Quarter One Product Focus Jan - March:

· Smart launch

· A and B Class: due to finance campaign running

· C180 launch

· C-Estate launch

Quarter Two Product Focus: April - June:

· C63 AMG Launch April

· Fascination Campaign Launch May

Quarter Three Product Focus: July - September:

· E-Class Maintenance Finance

· C-Coupe (CLC) Launch: Beginning July

· A-Class facelift launch Mid July

· B-Class facelift launch Mid July

· ML/GL Focus before facelift Early August

· C-Class maintenance

Quarter Four Product Focus: Oct - December:

· E-Class Maintenance

· M-Class Facelift Launch September

· C-Class maintenance

· A and B maintenance

· Smart maintenance

9. Internal Marketing

Objectives:

· Create internal brand community

· Quarterly editions of quarterly internal marketing communications newsletter, The Sandowner.

· Develop staff events programme to build team spirit e.g. Big Walk in November 2008, whereby all staff members who wish to do the walk, can walk in a dealership team. The company pays entry fee and sponsors t-shirts for all walkers as it is an excellent opportunity for all colleagues to spend some time together.

· Staff annual awards event and teambuilding

10. Corporate Social Responsibility Programme

Maximise corporate social investment (CSI) exposure through appropriate involvement in social investment programmes including Pioneer Rally and Nuwerus Napier Nasorg.

Earn Money Online

Monday, 1 June 2015

Research Methodology Assignment

Source: Naamsa Report, 2007:2.

LIST OF SOURCES

No comments:

Post a Comment

Labels