RENAULT ESPACE ODYSSEY

« With the Espace, they hit the jackpot… but it was an accident » Renault executives about Matra

1/ WHY WAS THE ESPACE SUCH A SUCCESS?

•A success built on an ambitious differentiation strategy.

•Which found its own consumers.

•Helped by market circumstances. AN AMBITIOUS DIFFERENTIATION STRATEGY

 Renault ESPACE is a revolutionary car:  Exterior characteristic:

 Elegancy

 Dynamism

 Lightness

 Similar to a TGV  Intern characteristic:

 Movable and pivoting seats

 Flat floor

 High position

 Tablets  Motor characteristic

 Speed (185km/hr)

WHICH FOUND ITS OWN CONSUMERS

 Consumers are attracted because of:  The seat flexibility  The “insurance policy” for special use  Pleasant view for children  Feeling of safety and domination of the road  Interior comfort  Relative rapidity  Characteristic of those consumers:  65% are 35-49 years old (study made in 1993)  Large families  30% of women  Those consumer represent a huge market:  They were born between 1944 and 1958 = BABY BOOM  After 70’s crisis people are looking for differences (Fordism crisis)

HELPED BY MARKET CIRCUMSTANCES

 Marketing strategy:  Bad start  Good welcome from specialized media  Positioning as a top of the range product  Fit well with Espace II (good quality)

 Competitors failure:  The few earlier competitors are not good enough  Very bad reactivity  An inertia effect (high renewal rates)

 Leads to a big competitive advantage CONCLUSION

 To sum up:  Renault ESPACE is totally new  Lot of people are interested  A huge competitive advantage  Favorable socio-demographic environment  = Success

 Advantages of a successful differentiation strategy?  Protect against competitiveness  Loyal customers  Strong defense against substitution product  Above all: prospect of huge profitability

2/ HOW DID THE ESPACE PROFITABILITY EVOLVE OVER TIME BOTH FOR RENAULT AND MATRA?

•Global tendencies

•Market share/ correlation analysis

GLOBAL TENDENCIES

20% 100%

15% 80% 60% 10% 40% 5% 20% 0% 0% 80 85 90 95 00 -5% -20% -40% -10% Profitability Matra -60% -15% Profitability of Renault -80% Market share -20% -100%

 At first sight:  We could also describe:  A relatively bad start  Two product cycles:  Error of timing  A big one (84-96)  A more contrasted one (96-01)  A huge growth of profitability  A break point (96)  A correlation between market  Which melts away with share and profitability (above time all for Matra) CORRELATION ANALYSIS OF MARKET SHARE AND MATRA PROFITABILITY

120%

100%  The graph show

80% R² = 0,7843 an obvious 60% correlation 40%  Coefficient of 20% determination : 0% -0,1 -0,05 0 0,05 0,1 0,15 R²= 0,7843 -20%

-40%

Matra/Market share Linéaire (Matra/Market share)

• Interpretation:  78% of the market share variations explains the Matra CA ones  Matra takes huge advantages of the differentiation success  But Matra profitability is very depending on Espace Market share

CORRELATION ANALYSIS OF MARKET SHARE AND RENAULT PROFITABILITY

120%  The correlation 100% is less obvious 80%

60%  Coefficient of 40% R² = 0,0906 determination 20% R²=0,0906 0% -6% -4% -2% 0% 2% 4% 6% 8% Renault/Market share Linéaire (Renault/Market share)

 Interpretation:  Less than 10% of Espace Market share explains the Renault CA variations  Renault profitability is less depending on the market share

CONCLUSION

 The global trend show that:  After a huge growth, profitability has slowly decreased for both of Renault and Matra.  Matra profitability has much bigger variation.  Correlation analysis shows the Matra’s profitability huge dependency on Renault ESPACE.

 The profitabity evolution for Matra and Renault shows:  The success of the differentiation strategy  That Matra health depends on Renault ESPACE  That Renault is less depending on Renault ESPACE

 The two firms share the same product, but their level of dependency is different 3/ WHY DID RENAULT DECIDE TO RENEW THE MATRA ALLIANCE FOR THE ESPACE 2 AND ESPACE 3, BEFORE BREAKING IT FOR THE ESPACE 4?

•Basis of a strategic alliance

•1988 & 1993: Renewal of the alliance

•1995-1996: Breaking of the alliance

BASIS OF A STRATEGIC ALLIANCE

 What they have to do?  Matra:

 Architect and creator

 Buys components to Renault

 Manufactures the car (Romorantin)

 Sells it to Renault  Renault:

 Supplies some components

 Supplies its network

 Supplies its brand  Why do they need this?  Matra:

 They need Renault network to sell the car  Renault

 They need the Romorantin’s knowledge of SMC

1988 AND 1993: RENEWAL OF THE ALLIANCE

 First re-negociation:  Possibility to use the AMC network to sell Renault ESPACE (As They did for Renault 9 & 11).  In this case Romorantin would not give a sufficient production  But the investment is too costly  Matra shows again its creative skills (the P36 project won)  Second re-negociation:  Renault is much more hesitating, but:

 Volvo-Renault merger is a failure

 Scenic project will also decrease market size

 Matra won the architecture contest (P52)  Volumes are not sufficient to launch an automatic steel production 1995-1996: BREAKING OF THE ALLIANCE

 Ambition of Renault:  600 units a day  decreasing the price by €2.300  Steel technology  But:  Matra is only equipped for SMC  SMC fixe cost are lower than steel one  SMC variable cost are higher  SMC and steel cost are approximately the same for a 450- 500 unit production  What can propose Matra?  400-450 units a day  SMC technology  Refusal of Renault: The alliance no longer exists. CONCLUSION

 A successful alliance based on:  network-technology sharing  A core activity concentration for each firm

 An obvious imbalance based on:  The Matra dependency with ESPACE  The Romorantin’s plant limits

 For Renault it is as everything was about volumes 4/ WHAT ARE THE PROSPECTS OF SUCCESS FOR THE AVANTIME AND THE M72?

•Difficulties of the Avantime focalisation strategy

•M72 an encouraging project? DIFFICULTIES OF THE AVANTIME FOCALISATION STRATEGY

 Encouraging marketing studies:  You love or you hate it  For adventurers and technology likers  People older than 50  Fan of espace which no longer need all the modularity  25% of:  Ex-ESpace  Coupé Ex Espace Coupé  Sedan  Sporty estate cars and SUV Avantime  = there is a market Sedan Other  But lots of troubles:  Costs higher than expected  Launch with only a V6 manual transmission  People confound Avantime and Vel satis M72, AND ENCOURAGING PROJECT?

 Innovative characteristic:  Low price of the m72: € 6,000  Original style  Open bodywork, a two seat format, rear wheel drive, reminiscent of the Mini Moke  Possibility for the 16 years old to drive it  20hp version  First car to bear the Matra brand name since the Rancho:  New way to sell the product:  Internet and independent garages, instead of selling its car to exclusive dealers  IRR of more than 13% because of low production costs CONCLUSION

 Matra has understood the risk of having only one product:  =Diversification  Matra cannot invest or produce a lot:  =Focalization strategy  So Matra has exchanged a « only one product risk » to a « very little market » risk.

 What is happening?  In spite of encouraging market studies, the Advantime start is bad.  m72 could be very profitable (13%)

5/ WHAT STRATEGY WOULD YOU RECOMMEND TO MATRA FOR THE FUTUR

•Our suggestion OUR SUGGESTION

 Priorities  Insure the future of the plant  Conserve our SMC skill  Find a way to have access to a network  Diversify the risk is the key solution.  Strengthening Renaults Alliance with the plant devoted to the Advantime car

 The brand Advantime should sponsor sports events

 Positioning : live your times, feel free, Advantime !  M72 becomes the Mstreet  Beginning of a new strategic alliance with Sony  Growth and characteristics of Asian market

 small cars’ market expectations are optimistic  Matra-Toyota “just in time” agreement

THANKS

Matthieu AUCLAIR Walid B Jean François J