The Impact of Technology and Consumer Behavior on the Automotive Industry
Question:
Explain, providing appropriate examples, why car manufacturers are constantly introducing new models.
The modern economies have been dramatically changing. This has essentially been triggered by development that has come over in the emerging markets, the leap in technology and the sustainability policies and the change in tastes and preferences of the consumers. The huge change that the automotive industry has undergone revolves around four broad technology implementations. These are namely diverse mobility, autonomous driving, connectivity and electrification. However, the question that has been posed is that why car manufacturers are constantly introducing new models. This can be answered with the two most probable reasons that are in order to avoid the cannibalization of the previous model and also for the purpose of compensating the fall in the gross sales of the old models.
This particular study aims to look into the probable reasons as to why the car manufacturers have been shortening the life cycle of their products or why they have been constantly using new models. Moreover, this study also utilizes relevant examples in order to provide a better understanding of the concept.
The automotive industry has gone through socio economic changes in the last few years. The major players of the economy have brought about these changes. The automotive industry as a whole has in the recent past and will undergo huge change due to the new trends and challenges that will definitely affect the existence of the individual automakers (Schulz & Müller, 2016). In order to understand as to why the car manufacturers have been constantly introducing new models, at first, the fundamental understanding of the life cycle of a particular product needs to be understood.
The life cycle of a product can be usually divided into five distinct phases. These are:
- Development
- Penetration of the market
- Growth
- Product market saturation
- Decline
The success of a particular product can be measured by the simple amount by which the revenue gained from the product exceeds the total cost of operations incurred in relation to that particular product.
The subsequent profit that is earned may not be the same or uniform throughout the life cycle of the product. The different stages that a product goes through have its own advantages and problems. For instance, a model that is in the phase of growth enjoys a certain demand in the market and such a benefit continues until the product saturation hits the market. Therefore, it is evidently clear that each of these stages will require a distinctive plan or strategy for marketing, financing and effective management of the particular product (Hartley, 2017).
According to other sources, the life cycle of a product can be divided into an investment phase, profit phase and decline phase. Thus, in order to be in constant competition and in order to survive the constant changes in the demands and preferences of the consumers, the car manufacturers have to constantly carry out the required innovation of their products or launch new products in the market as the case may be. To be more precise, if a company has the desire to maintain the portfolio of the product in the market they are in the need of constantly innovating their product thus, provide different version of the similar product. For instance, the Opel Zafira minivan has innovated its product subsequently in order to hold onto its customer base. The Zafira holds a capacity of seven passengers and yet all the seats including the driver’s seat can be removed. The unique selling point of the model is that the seating arrangement of the product can be effectively changed. The vehicle had received tremendous success due to its innovation (Bracke, 2016).
Understanding Product Life Cycle
The car manufacturers constantly introduce new models in the market for the following essential reasons:
- In order to avoid the cannibalization of the previous model that had been introduced in the market
- In order to compensate for the loss or decline in the gross sales of the previous model
Cannibalization refers to the negative impact that a new product has on the gross sales of the existing product in the market. This means that when a particular company introduces a new model in the market, the sales revenue incurred by the already existing product in the market falls, as the consumers prefer the newly introduced product than the previous one. Thus, shortening the life cycle of a product helps the car manufacturers to effectively reduce the negative impact that cannibalization can have on the total sales figure of the organization. To understand further, the shortening of the life cycle of a product reduces the effects of cannibalization, as the consumers do not get the respective offer for a particular model for a stipulated time. This induces the clearance of the stock in a shorter period of time and the introduction of the next model do not much hamper the sales figure off the previous model. As far as the timing of the launch of the new product is concerned, it can be fixed at such a moment that the new product life cycle can effectively compensate for the life cycle of the old product thus ensuing the sales is not hindered (Wowak, 2016).
The desired situation or an individual carmaker’s paradise would be when the demand of the product is so high that the degree of demand is constantly able to saturate the production capacity of carmakers plant. This is a hypothetical situation as the diverse aspects of the operation management like the fact that the saturation also depend on the product mix is not taken into account for the achievement of such a desired situation (Inghels, 2016).
A particular research conducted in the similar field showed that the life cycle of a product in the developed or advance countries has invariably decreased from eight years to approximately four years. Even, the total time taken for the development of a brand new model has been shortened from a range of 48 months to 25 months and has been further aimed at reducing it straightaway to 20 months (Sjf.tuke.sk., 2017).
Recent studies show that the variety of the product or the innovation in different models of the cars brought about by the car manufacturers has been more than double in the past fifteen years. This has effectively resulted in the decreasing or shortening of the life cycle by about 25%. Another potential reason for the increase in the number of models that have been introduced in the market is due to complex customer behavior and the rise in the degree of demand for cars. The recent trend that the customers have been following is that they want a car not only to serve their purpose bat also to represent their lifestyle. This has induced more and more car manufacturers gradually move from mass to individual production. The customers’ preferred tastes and preferences also have shifted from the niche models to more customized designs. The automakers, today, are not known for the design offered or the technology implemented in the cars but the range of models that they have to offer (Sjf.tuke.sk., 2017).
Reasons for Shortening the Product Life Cycle
The car manufacturers in the recent times have incorporated the procedure of shortening the life cycle of a product in their marketing strategies. Moreover, the recent trends in the tastes and preferences of the potential customers indicate that the car manufacturers can no longer manufacture products that aim to satisfy the needs of both the low income and the high-income strata of the economy. This is due to the fact that there are a huge number of markets, technical options and demographical conditions that the automakers have to adhere to in case they want to concentrate on the economy as a whole. Therefore, the entire car manufacturing procedure has been customized and shortened in order to serve a particular class of the economy.
In order to understand the issue much more clearly a particular example has been taken up. Ford, being a lead car manufacturer in the respective industry has introduced their latest generation Fiesta, which has compelled its customers to think that little time had passed after the introduction of the previous model. The experts have listed down a number of reasons for the shortening of the life cycle of the products by such measures.
One of the main reasons is increased competition from the Far East manufacturers of cars, who have arrived at the European market and constantly change their designs and other associated features of the products in accordance to the ever-changing needs and preferences of the customers. The particular strategy adopted by these manufacturers are that they often introduce their domestic products in the European market and then quickly change it in order to correctly tune the suitability of such a product to the European customers (Sabadka, 2013). Moreover, the legal obligations and legislations in regards to the carbon-dioxide emissions of the vehicles also compel the car manufacturers to shorten the life cycle of their products in order to bring in a new batch of models that comply with the particular emission standards. Furthermore, the materials nowadays used in the manufacture of cars make it really easy for the automakers to make the necessary changes quite often, in order to customize the product according to the needs and requirements of the customers (Mourtzis, 2016).
Some experts however are of the opinion that car manufacturers have been constantly introducing new models in the economy in order to keep up with the fast changing lifestyles of people. The car manufacturers lately have been feeling the urge to constantly update their models in order to hold on to the appeal to the customer base. The executive director of Maruti Suzuki India Limited have been of the opinion that earlier the common crowd using cars used to own the same model for fifteen to twenty years. However, now the trend has changed (Inghels, 2016).
Another perspective for looking into the reasons for shortening the life cycle of a product is that the car manufacturers by constantly updating their propose models aim to achieve the following:
- Improvement in the level of customer intimacy
- Achievement of operational excellence
- Achievement of the respective product leadership
By constantly updating and innovating the models, the car manufacturers aim to improve or reach for a higher degree of customer intimacy. This marketing goal is primarily aimed at developing a strong and loyal customer base. Therefore, the car manufacturers, in order to accurately customize the product models, utilize the preferences or choices of the customers. Thus, a better customer intimacy level is achieved.
Cannibalization
Next, the achievement of operational excellence also makes a particular car manufacturer popular among his customers. Operational excellence also facilitates lowering of the operational costs, which further ensure the increase in the revenue gained. Therefore, achievement of the operational excellence also makes the car manufacturers constantly introduce new models into the economy (Wells & Nieuwenhuis, 2015).
Lastly, the providence of product leadership also make the car manufacturers constantly try to hold onto their customers by making a continuous effort in innovating and making their product suit the requirements of the customers. The achievement of product leadership is a prestigious and commendable position for any car manufacturer. Thus, it compels a car manufacturer to constantly update its products in order to gain leadership in the respective market or industry (Sabadka, 2013).
Conclusion
The conclusion that can be drawn from the above discussion is that the rate of innovation in the car industry have increased in the recent times and in order to keep up with such innovation needs the car manufacturers have to constantly introduce new models in the market. The car manufacturers also face the challenging task of responding to the ever changing demands of the customers as well as keep an eye towards the actions taken up by his competitors in order to comply with such demands. The shortening of the life cycle of a product also induce the car manufacturers to achieve the break even at a much early stage. Thus, it can be evidently concluded that car manufacturers constantly introduce new models in the market majorly for keeping up with the changing tastes and preferences of the consumers
References
Bracke, S., Hinz, M., Inoue, M., Patelli, E., Kutz, S., Gottschalk, H., … & Bonnaud, P. (2016). Reliability engineering in face of shorten product life cycles: Challenges, technique trends and method approaches to ensure product reliability. L. Walls, M. Revie, T. Bedford; Risk, Reliability and Safety: Innovating Theory and Practice.
Hartley, J. R. (2017). Concurrent engineering: shortening lead times, raising quality, and lowering costs. Routledge.
Inghels, D., Dullaert, W., Raa, B., & Walther, G. (2016). Influence of composition, amount and life span of passenger cars on end-of-life vehicles waste in Belgium: A system dynamics approach. Transportation Research Part A: Policy and Practice, 91, 80-104.
Mourtzis, D. (2016). Challenges and future perspectives for the life cycle of manufacturing networks in the mass customisation era. Logistics Research, 9(1), 2.
Sabadka, D. (2013). Impacts of shortening Product Life Cycle in the Automotive Industry. Transfer inovácií, 29, 251-253.
Schulz, W. H., & Müller, M. (2016). Time to Market—Enabling the Specific Efficiency and Cooperation in Product Development by the Institutional Role Model. In Advanced Microsystems for Automotive Applications 2016 (pp. 253-268). Springer International Publishing.
Sjf.tuke.sk. (2017). Retrieved 20 December 2017, from https://www.sjf.tuke.sk/transferinovacii/pages/archiv/transfer/29-2014/pdf/251-253.pdf
Wells, P., & Nieuwenhuis, P. (2015). EV Business Models in a Wider Context: Balancing Change and Continuity in the Automotive Industry. In Electric Vehicle Business Models (pp. 3-16). Springer International Publishing.
Wowak, K. D., Craighead, C. W., Ketchen, D. J., & Hult, G. T. M. (2016). Toward a “theoretical toolbox” for the supplier?enabled fuzzy front end of the new product development process. Journal of Supply Chain Management, 52(1), 66-81
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