Case # 10-2 The Smart Car
June 16, 2012
Competitive advantage exists when there is a match between a firm’s distinctive competencies and the factors critical for success within its industry (Keegan & Green, 2011). There are two basic ways to achieve competitive advantage. First, a firm can pursue a low-cost strategy that enables it to offer products at lower prices than competitors. Next, an advantage can be gained by a strategy of differentiating products so that customers perceive unique benefits, often accompanied by a premium price (Keegan & Green, 2011).
In the case of the smart car, it seems as though the type of competitive advantage that Smart sought to attain was two-fold aiming to achieve a low cost strategy by building “an ecologically inoffensive, high-quality city car for two people” that would sell for about $6,400 along with differentiation by building a composite exterior with panels mounted on a cage-like body frame which would allow owners to change colors by switching panels (Keegan & Green, 2011). Additionally, it would emit almost no pollutants and offer gasoline powered operation using a highly efficient, miniaturized engine capable of achieving speeds of 80 miles per hour (Keegan & Green, 2011). It was in 1991 that the idea was born by Nicolas Heyek, chairman of Swatch. To bring his goal into fruition his company made an alliance with Volkswagen. The alliance with Volkswagon soon dissolved and he teamed with the Mercedes-Benz unit of Daimler-Benz AG. After several months, Mercedes bought out Swatch’s remaining stake in the venture to leverage its engineering skills and broaden the company’s appeal beyond the luxury segment of the automobile market combining ecology, emotion and intellect within the technologically savvy market scope (Keegan & Green, 2011). In 2000 making an additional attempt at differentiation, Wolf-Garten GmbH & Company, a German gardening equipment company, took interest in the Smart and initiated a program to convert the Smart to a lawn mower suitable for use on golf courses using both convertible and diesel-engine editions (Keegan & Green, 2011). As Americans were facing steep increases in gasoline prices in 2001, several small cars were introduced to the United States markets in the $10,000 to $14,000 range. The Smart brand assumed that it was capable of sustainable profitability as they were working on a cost basis that was almost 50% lower than it used to be using German manufacturers (Keegan & Green, 2011). The Hambach plant in France assembly time was 20% shorter saving them 500 marks per car in parts and 40% in labor costs as the car only needed 7.5 hours to complete a vehicle. This was 25% less time than required by the world’s best automobile makers again giving the company a competitive advantage in the area of low cost (Keegan & Green, 2011). Today, the 2013 pure coupe starts at $12,490 with a down payment of only $1,299 down and $99/month (Smart Open Your Mind).
The average consumer takes into account all of their experiences of observing, using or consuming a product with everything they hear or read about it. The information that they receive comes from various sources to include advertising, publicity, word of mouth, sales personnel, and packaging [ (Keegan & Green, 2011) ]. After the sale is made, the perceptions of the price and distribution are taken into account also [ (Keegan & Green, 2011) ]. The total of the perceptions held in the consumer’s memory becomes the image of the brand or brand image [ (Keegan & Green, 2011) ]. The brand image is one way that competitors in the same industry sector differentiate themselves [ (Keegan & Green, 2011) ]. In 1998, the Smart City coupe officially went on sale in Europe [ (Keegan & Green, 2011) ] where Smart’s brand image took off at a slow start. In effort to create a distinct brand identity, Smart...