Renault Espace Odyssey

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Renault Espace Odyssey 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 .
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