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SEAT Case Study

SEAT Case Study

Introduction
Purpose
The purpose of this report is to analyse and critizise, SEAT’s situation in 1982, and consider strategic alternatives available to them at that time. In particular I am going to look at their Econosport concept and their move into the Foreign Market, including their breakthrough into the French Market.

Methodology
As this is a report based on a case study most information will involve secondary research, however it will be backed up by, analytical tools of marketing.

Profile
SEAT was formed in 1950 as a joint venture between the Spanish Government and Instituto Nacional de Industria. SEAT operated as an independent company producing cars under licence to Fiat. This agreement allowed SEAT to enter the market at significantly reduced set up costs, which in turn reduced their level of risk. However, there were limitations to this agreement, SEAT did not acquire the required skills either in design nor management to take them beyond their agreement with Fiat. Their structure was unwieldy and it was not long before Fiat pulled the plug and SEAT found themselves in an extremely vulnerable situation. This spelt disaster for SEAT as the future welfare of the company depended on them identifying a strategy for survival.

SEAT – the case study
In order to make any strategic plan work, SEAT firstly had to identify factors in both their internal and external environments, which might have effected their ability to develop and maintain their strategic aims, the marketing environment can presents many opportunities and threats which can fundamentally affect all elements of the marketing mix.

SEATs Marketing Environment
The ford act passed in 1972 opened up the market to much larger competitors such as Ford and GA which in turn, put pressure on smaller manufacturers like SEAT who were struggling in the short term for survival and in the long term to increase market share. Another factor to consider was the 1973 oil crisis, this had brought about an economic crisis which had lead to market instability with no imminent signs of recovery. SEAT had no idea how this would affect the market in the long-term so had to ensure they adopted a strategy which would allow for adaptation should external forces require it.

Another key factor in the automobile industry, as in many others throughout the eighties, was the advancements in new technology. These advancement opened up supply networks, allowed for JIT procedures and TQM policies all of which allowed SEATs competitors to gain competitive advantage.

Internal Resourses
As previously discussed SEAT came out of the agreement with Fiat with literally no
technological know -how and a weak financial situation, this made the implementation of any strategic plan extremely difficult to achieve.

Competitor Analysis
An important issue for them to consider and analyse was the nature and role of competition. No company could afford to neglect what their competitors where doing and succeed.

The Threat of new Entrants was minimal, as to enter the market was extremely expensive and the economic crisis was not conducive to new entrants.

Threat of Substitute Products as SEAT targeted the lower more economically minded segments of the market there was a possible threat from motorbikes and mopeds, the intensity of this threat would strongly depend on which countries they would be targetting. Perhaps on some of the Spanish and Greek Islands the threat would be greater than on the mainland. Good research would indicate what segments these threats would be likely to effect.

Competitive Rivalry
SEATS main competitors were the Japanese manufacturers who were managing to significantly increase market share through the development of production techniques such as JIT and TQM, these techniques allowed them to significantly reduce their production costs which allowing them to increase the amount spent on added extras which would give them competitive advantage. It was to them that SEAT would look for inspiration in reducing overheads, which were extremely high. Other direct competitors targeting the same segments of the market as them were Fiat and Volkswagen, therefore strategic alliance with them would prove to be an extremely good move. However, they should have been asking themselves whether they could exploit weaknesses in other close competitors such as Peugeot and Citreon who were increasing their market share in Europe within the same segments as SEAT, research would have aided their ability to minimise their competitive advantage.

Bargaining Power of Buyers
SEAT automobiles were only sold in Spain, yet Spain had a relatively low market share in the automobile industry, therefore there was no immediate threat. However the opening up of export quotas became a consideration for future strategic planning.

Bargaining Power of Supplier
SEAT had set up their own network of suppliers, supplying them with the correct skills and facilities for production, therefore they would not have been seen as an immediate threat.

As a direct consequence of scanning their internal and external environments SEATs key strengths and weaknesses were identified as:

Strengths
They had more than adequate production facilities, if they could they be utilised better!
Product Life Cycles were decreasing, this could be seen as either a strength or a weakness as it increased sales but also increased competition.

Weaknesses
They had no distribution network of their own
They had no technological know-how
Their production facilities were overstaffed and expensive to maintain
There had been limited investment in R&D therefore their product range was extremely poor and indeed losing market share
They no brand name to trade on

Opportunities
Spanish market was still there to be cracked!
Globalisation had levelled the playing field taking away comparative advantage of competitors

Threats
Japanese manufacturers continued to increase market share through advancements in technology
Economic crisis had increased the level of competition

Once SEAT had performed their audit they identified their strategic objectives a and set about obtaining them.

These included:
1. To guarantee the survival of the SEAT company without breaking completely with Fiat technology.
2. Develop a SEAT Technology
3. Co-operate with multinational Groups.

In order to meet their strategy of survival SEAT opted to pursue a “growth strategy” in Spain and to pursue a “Diversification strategy” into international markets.

To achieve these goals, investment in both financial and planning terms would be high, therefore it was imperative that they follow a market entry strategy that would reduce the risk involved, yet provide them with adequate returns make company competitive.

For growth to be achieved in both the Spanish and International markets there had to be significant investment in product development. SEATs current range was losing market share and did not appeal to the home market therefore it would be foolish to move into international market with a product range that did not satisfy consumer choice. Before investment was made however, they would of used either the Boston Box or the Product Life Cycle to aide identification of products which were performing well, which products needed further investment and if indeed any products should have been deleted altogether.

There was no easy option for SEAT, all products in their range had suffered due to a lack of investment in R&D, they also had a poor quality image therefore, the decision was made to update all models including engines and components.

Agreements reached with Porsche, to fully design, and build Porsche engines, were seen as a way of improving SEATs reliability problems, as well as of attaining competitive advantage by capitalising on Porsches brand name. Along with further agreements with Guigiarto and Karmann for parts and components, SEAT began to build a marketing campaign based on reliability, allowing them to shed their image of “cheap cars, cheap parts, poor quality” before entering the International market.

SEATs agreement with VAG proved to be the key factor in making their strategic plan work, in that it allowed them to transfer knowledge and technological know-how as well as increase production in their own plants thus, reducing overheads and gaining the economies of scale they so needed to achieve.

Further agreements with Fiat allowed them to develop Fiat brands, which they had previously produced with the exception of the Panda – which Fiat would reduce production of until SEAT took over in 1986. This again allowed them to increase production, reduce overheads and implement JIT and TQM procedures, which were imperative if they were to be able to adopt a pricing policy of market penetration.

Their agreement with VAG, played a major part in the turnaround of SEATs fortunes. VAG purchased a 51% majority share in SEAT and undertook to meet the goals set in SEATs 1981 strategic plan, those goals included the continued production of SEAT automobiles and diversification into international markets.

Pull factors for SEAT included a broader customer base, higher levels of profit and the ability to build a strong brand name. Push factors to be considered before going international included legislation of host countries, entry barriers, and of most importance the state of the market in those countries to be entered.

SEATs resources were still limited therefore their market entry strategy had to be tailored to suit their situation. The only option available to them therefore was that of licensing, a major strength of licensing is that it combines the skills and knowledge of the licensor with the local contacts and experience of the licensee.

Segments to be targeted included A – compact cars, B – small cars, C -medium low range cars. Why not strive for D – medium high range cars? this should have been considered in the long term as segment D had the potential for the highest level of profit per car sold.

World markets were analysed, as were the policies and standards applied by the competition before any decision was be made on which countries would be targeted. The decision to target Europe first was a sound strategic decision as SEAT had already begun the slow process of improving their company image, allowing them to gain a small market share. 1982 saw the first exports take place through export agents and franchising as again these options limited the level of risk to SEAT should the markets entered not be successful. SEAT took great care in identifying importers for their products choosing only those, who were financially sound and had adequate resources for marketing their products. They achieved this with the co-operation of their franchisees, as they could aide in developing advertising campaigns, which were appropriate to the country and target market aimed for. Again resources were tight and SEAT chose to use promotions instead of costly advertising campaigns and hope that word of mouth advertising would help them achieve their corporate goals.

Another key aspect to developing their brand image was SEATs investment in customer service as this was seen as paramount to the companies future success.

SEATs pricing policy was that of market penetration in the first instance, however they tailored their price to the economic conditions of the segments they were targeting. This called for much environmental and competitor analysis but always ensured that their products were competitively priced in relation to their competitors offerings.

Summary
SEAT’s options for survival were minimal, they had no capital, no resources and no skills regardless of their 30 years trading. Their strategic options therefore, were limited. To turn the company around they had to learn from previous mistakes, which I feel they did extremely well. They followed the strategic option of diversification and in doing so they researched their markets well, positioned their products to suit their market segments and adopted the only strategies for distribution which was open to them, i.e. exporting/franchising. Had they chosen to enter as wholly owned subsidiary or even by joint ventures the capital required would have limited their ability to invest in R&D, and New Product Development, which they knew was necessary for them to achieve their ultimate goal of survival.

The great care taken in the distribution of their vehicles showed that SEAT were serious about changing their brand image of a poor quality. Importers had to meet strict criteria set by the company limiting the amount of vehicles which could be sold, but the hope was that it would help create customer demand.

The only other option available to them at that time would possibly be a strategy of market penetration in Spain, this may have allowed them to gain a larger market share in the shortest possible time. However, this could have proved risky as they already had a poor quality brand image and it would have been even more difficult for them to develop a brand name that they were proud of.

SEATs Econosport Concept
SEAT identified that their products were not performing as well as their competitors, they still had not developed a brand name and research showed that no one was actively seeking to purchase a SEAT. Therefore they had to build a car that would prove attractive to the market and create consumer desire.

It was not sufficient to compete on price alone therefore they had to find other ways of differentiating their product offering from that of their competitors. However, they still had to think of the segments of the market they were competing in. It had to be economical to run yet offer added extras. Their aim was to create a model that consumers would want to buy for design not for cost. This in turn would allow them to create a “Brand Name” .

After much research SEAT came up with the ECONOSPORT concept, economy but with the styling of a sportier model.

Hence, The IBIZA model was launched successfully in 1984, and proved to be extremely attractive to the French and Italian markets allowing them to increase market share taking them one step nearer to achieving their strategic objectives set out in their 1981 strategic plan.

Summary
The launch of the econosport concept identified well with what the consumer wanted, it was economical yet sporty and above all increased consumer awareness of the SEAT brand. This allowed SEAT to increase their market share in most European countries, but of most interest was that SEAT continued to lose market share in Spain, which confirmed that their strategic choice of internationalisation was the correct option for them.

One drawback however, was that it only appealed to one segment of the market, which was why the IBIZA was most successful in France, Germany and Italy as they purchased more small cars than the rest of Europe. To continue to build brand awareness in other segments SEAT should have identified with their consumers that there were still market segments in which SEAT was relatively unknown.

The French Market
France had the lowest market growth between 1981 and 1985 yet SEAT successfully achieved to not only enter the market but increase their market share from 0.1% to 1.2% only two years.

The small to medium priced bracket was one of Frances most successful segments, therefore SEAT strategically placed themselves in the marketplace confidently, knowing they could deliver what the consumer wanted therefore they could create desire and stimulate action for their products.

This also allowed SEAT to adapt their pricing strategy accordingly making it more favourable to them, allowing an increase in profit per sale.

Successful marketing would also be much easier to achieve, building brand awareness, and increase their market share.

Summary
SEAT had researched their segments well, Germany, France and Italy all proved to be invaluable to them in achieving their strategic goals. The chosen entry methods limited their risk but reduced the profit available to them. A better strategic option would be to move into these segments as either wholly owned subsidiaries or as a joint venture. This would allow them to capitalise on their strengths within these market segments.

SEAT – Conclusion
SEATs recovery strategy can be seen as highly successful, they have created a successful Brand, and are now known as an International Company. They are also continuing to increase their market share in many segments but it is extremely important for them to continue to invest in New Product Development, as any advantage achieved through technology, can easily exploited by their competitors.

For future growth they should now be looking to other segments of the market, for instance Group D cars, as this would allow them to maximise profit margins and broaden their customer base.

Another option for growth would be to look at different entry strategies in markets that have proven to be. These could be as wholly owned subsidiaries, or and Joint ventures, this would allow them to develop good customer relationships, create brand loyalty and maximise profits.

Of most importance to any business however, is the need for ongoing research, In anticipating their competitors actions, they will be more likely to successfully achieve theirs.

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