Hybrid Cars the Marketing Strategy

Hybrid Cars

The marketing strategy of hybrid cars has been twofold in its purpose. First the consumer is sold on the product as a result of the reduced cost of operating a hybrid car, based on the fact that hybrid models as compared to traditional combustion powered cars of the same size and type can be as much as 20-30 miles per gallon more efficient. The second aspect of marketing is that the environmental impact of hybrid cars is far lower than standard combustion engines and therefore desirable to many. These two factors and the marketing strategy surrounding them coupled with growing consumer concern about fuel costs (which are higher than they have ever been) and a growing sense of consumer desire to protect the environment have been exceedingly successful. So much so that the hybrid cars in the first wave of consumer availability continue to generate waiting lists for new models, as they hit the market, the goals of marketing teams having been met, when demand outstrips supply by large numbers. (Krol & Orrick, 2006, p. 15)

For this reason the market share of the product has increased almost exponentially. In the initial wave of sales hybrid cars were limited to commuter sized vehicles, mostly two door sedans, from 1999, when the first hybrids hit the market to the first wave of blanket consumer availability, still smaller sedan models but in greater numbers and limited model availability. Currently, the market share has increased yet again to include SUVs and other larger vehicles in the mix, the size of vehicles having been an obstacle for some consumers. Now larger model cars with more seating and cargo capacity have been added to the market share of hybrid cars and again sales are significant and are expected to remain so for some time. Sales have climbed from less than 10,000 vehicles between 1999 and 2001 to 250,000, sold in 2005, statistics for year end in 2007 will likely see a dramatic increase as more and more models are introduced to the market. (Dooley, 2005, p. 233) the market share is expected to see an increase by just short of 50% through this short period based on early numbers. The sales forecasts then must be seen as a fluid number, beginning with between 400,000 and 450,000 vehicles sold in 2006-2007 and increasing as more models enter the market, conservatively about 100-120 billion dollar total market share since 1999. Projected growth is therefore also a fluid number as the number of available vehicles as well as potential market saturation (unlikely for at least 20 years) or overall economy slumps may change the numbers. Interestingly, an overall market slump may actually improve sales of hybrids, shifting sales from other vehicles. ("Hybrid Market Forecast" Hybridcars.com)

The following graphs shows the real growth up to 2005 of hybrid sales followed by the predictions of top analysts up to 2015:

The black line shows hybrid sales continuing at their current pace since hybrids were introduced in 2000. In the five-year timeframe, J.D. Power forecasts are well below the line, while others (e.g., D.O.E., Freedonia Group, and BoozAllen) predict wider public acceptance of hybrids. ("Hybrid Market Forecast" Hybridcars.com)

Product Description:

hybrid vehicle is any vehicle that has the potential to store electrical power generated while driving to fuel future electric needs of the car, and it must have a duel or more energy source. Current models of hybrids run on both electric and gasoline. There are two main types of hybrid vehicles, series and parallel and there is also some controversy as to what can be called a hybrid and what needs to be labeled a highly efficient combustion engine. ("Hybrid Market Forecast" Hybridcars.com)

In a series hybrid, all of the vehicle power is provided from one source. For example, an electric motor drives the vehicle from the battery pack and the internal combustion engine powers a generator that charges the battery. In a parallel hybrid, power is delivered through both paths, both the electric motor and the internal combustion engine powering the vehicle. Thus, the electric motor may help power the vehicle while idling and during acceleration. The internal combustion engine takes over while cruising, powering the drive train and recharging the electric motor's battery.

2004)

The competitive advantages of hybrid vehicles are that they offer an alternative to combustion engines that is highly efficient, does not cost as much to run and has a lower environmental impact. To the consumer the differences between hybrid types are simply an issue of the bottom line, how much fuel efficiency as compared to a similar model can I expect to see. The marketability of the hybrid has also proven significant in that many consumers are markedly aware of the need to better care for the environment as the publics have been indoctrinated with years of messages regarding the dangerous balance of the environment and the need for each individual to do at least a small share to reduce impact. It is for these reasons as well as others that the hybrid cars have a competitive advantage over traditional combustion vehicles. In fact sales of hybrid vehicles have become so swift that traditional model cars are now being offered by some companies with hybrid engines, as well as combustion engines to ensure that sales of traditional high selling models are not outstripped by hybrid alternatives. In short the consumer is obviously ready for this introduction, and many believe it is to long in coming. Toyota, Honda, Ford and General Motors are strong industry leaders in the market while other companies are seeking development options to bring hybrids to market in the next few years the U.S. Department of Energy expects 57 hybrid models to be in the market by 2010. ("Hybrid Market Forecast" Hybridcars.com)

Target Market:

The target market of the hybrid vehicle, like its sales and offerings has increased basically to any individual purchasing a new car, as limitations of the types and sizes of hybrid vehicles has sharply increased to include models that were previously unavailable in the market. "While the United States is the most motorized nation on earth, automobiles are on the rise nearly everywhere, even in places where public policies aim to limit their use (Committee for an International Comparison of National Policies and Expectations Affecting Public Transit, 2001)." (Taylor, 2006, p. 279) the only excluded market is large commercial purchasers, such as companies that require much larger vehicles, such as service vehicles or very large passenger vans or busses to do business. This leaves all individual consumers seeking models with as much as 9 seat capacity to buy. The initial sales of hybrid vehicles also includes those who have been waiting to buy a car until hybrid technology caught up with demand, but it then also includes all those people who would have purchased a new car anyway in the next few years, as many do and will buy a hybrid alternative if one is available. Previously the target market was short commuters with limited seating needs. The growth, of the target market can also be seen, secondarily in the chart above. The initial target market was young urban professionals and baby boomers with the growth of the market including potentially anyone who cares about gas prices and the environment, which is most of us. Though marketing strategies continue to focus on this demographic, as this is the group that is buying the most cars new avenues, such as the family are also being targeted effectively now with the expansion of model offerings. Many families have the capacity to buy only one vehicle per worker in the family, therefore the ability to buy a hybrid that can be used with lower cost and environmental effect as the car that does the family work, which includes frequent trips to school, activities and other places as well as to be used to commute, is of great intrinsic value to this consumer. (Carr-Ruffino & Acheson, 2007, p. 16)

Surveys indicate that many hybrid owners joined the Hybrid Phenomenon not only to help themselves, but also to help the world. Drivers save money on gas, leaving more oil for other purposes. They enjoy quiet rides allowing others to breathe cleaner air. They get to feel good about the car they drive. Their hybrids recycle energy and demonstrate how to enjoy life while saving our oil reserves and our planet. (Carr-Ruffino & Acheson, 2007, p. 16)

The marketing bi-fold technique, (economy and environment) is hitting on the needs and feelings of the consumer, a goal for nearly every marketing tactic. Target market size, has yet to be determined, as can be seen by the chart above, with wavering expert opinions on the subject, yet the estimated 500,000 by year end 2007 has been met by one company, Toyota (the current leader in number of hybrids sold and number of models available, and will likely increase exponentially, with Toyota alone expecting to meet their 1 million sold goal by 2010. (Carr-Ruffino & Acheson, 2007, p. 16) Broader estimates, including all companies are more conservative, yet it is clear that the target market potential is exponential, and marketing will likely broaden its scope to other target markets in the near future.

Possible risks to the industry are limited by quality and potential market saturation, when demand levels off with supply, as it will likely in the near future. As has been stated previously, it seems the shakier the economy seems the more likely people are to invest in hybrid technology to offset other costs. Though it is clear that like all other durable goods, when people are satisfied, except for the exclusion of those who out of hand buy a new car every 3 years, they will likely retain their vehicle longer and therefore not seek another purchase once their immediate needs have been met. The overall industry has answered this call by marketing quality and efficiency as well as targeting expendable income and offering financing with better and better terms for those who do not buy large items with cash, which is the case with most consumers. If the current hybrid cars prove unreliable, difficult to maintain or in any way express of poor quality the market may see a downturn, but technology seems to be outpacing any initial problems or drawbacks seen by first consumers, such as those who purchased hybrid vehicles that required charging from outside sources.

Competitors/Substitutes:

If by chance the all electric vehicle makes a significant comeback, which is unlikely, given the political climate and marked limitations of lack of independence from the electric grid there could be some market drop, but again this is unlikely as all electric vehicles are still limited in size and scope as compared to inclusive hybrids. Secondary to this is the diversity of hybrid technology itself which will be tested by consumers and in research. This includes differing hybrid fuel types, including gasoline, natural gas, diesel and hydrogen as well as alternative non-hybrid fuel cars, which are also in research currently. Bio-diesel has a strong hold in some regions of the market, but bio-diesel as well as natural gas are still frequently difficult to find and the extreme differences between these technologies and combustion engines (still a part of the hybrid) often leave consumers scratching their heads. Future utilization of hydrogen technology is likely but will again challenge the consumer as there is still a clear sense that waste will be produced by such vehicles and will in the long run do as much damage as good. Each competitor will have to sell their option independent of the major auto producers as most have not embraced such technology at this time, which will be a significant challenge and secondarily if these technologies are adopted by any major producer in a significant way the competition for niche sales in substitutes to hybrid cars will likely be even greater.

Price:

Price is clearly an issue for consumers as well as the market, as prices for hybrid cars are currently higher than for traditional combustion models in the market between 3,000 and 6,000 more than a traditional engine car depending on model. The current assumption is that even in the long run current hybrid buyers may expect to break even, not save a bundle on the purchase, meaning in the short-term the cost could be prohibitive but in the long-term its about the same with the environmental issue being the deal breaker most frequently. (Bartell, 2007, Carseek.com) This has been offset in some locals with discounts and tax incentives that can be as high as $2,000 in tax rebates (both federal and state/local) for the purchase of a hybrid vehicle. Though it must also be clear that entities are losing tax revenue, by both reducing the direct tax and by smaller tax bases at the pumps, so it is likely that many of these incentives may disappear in the future as hybrid and alternative fuel cars become more in number. (Krol & Orrick, 2006, p. 15) Unexpected costs such as maintenance is also a serious consideration, as well as yet inconclusive insurance premiums.