Nina Mehta 11/5/2013 Land Rover Case MKTG Strategy

Land Rover North America (LRNA) has just set a goal of selling 40,000 LRNA units by 1998, a significant increase over the current 5,000. In order to do this, the company needs to make decisions as it pertains to its positioning, fund allocation, and retail strategies. Land Rover initially was a brand created out of the necessity for a 4WD utility vehicle with high versatility and little creature comforts (i.e. the Range Rover) and quickly became a well-established brand in the U.K. As consumer trends evolved, Land Rover became a more stylish vehicle touting luxury and comfort and was awarded Four Royal Warrants giving it the aura of dignity and class, increasing demand significantly, and creating a cult like following. However, a run of SUVs caused Range Rover sales to plummet and two distinct user segments were discovered: 1) A group of young, affluent, childless adults that wanted to increase their image and valued uniqueness and 2) A group of conservative buyers interested in functionality as well as family buyers focused on safety and practicality. The result was the launch of the Land Rover Discovery whose design was focused on achieving a car-like feel and passenger comforts. The Discovery was tagged with the Land Rover brand (unlike the Range Rover) and the vehicle became the bestselling 4WD vehicle in the U.K and the top selling Land Rover product. When Land Rover came to the U.S. under the Range Rover name, initial customer reactions were dismal based on price and brand confusion. Efforts to educate them proved effective and once consumers knew that the Range Rover was a luxury car alternative, the car the Queen drives, and the best off-road vehicle there was a much more favorable response and Land Rover was able to create a niche (perhaps becoming a prospector but also a differentiated defender in terms of the total SUV industry) between the traditional rugged 4X4 and luxury cars. In regards to the U.S. SUV competitive landscape, Jeep was the best-selling SUV brand with three product offerings and significant advertising budget of $67.8M (the differentiated defender given its history). Other benefits were a strong brand name, low repair and maintenance costs, and high compliant rate. The Ford Explorer was the second best-selling SUV and while ad spending was only at $24M it benefited from its enormous Ford brand umbrella (the low-cost defender). Price was lower as were repair costs and consumers perceptions of quality, safety, and aesthetic were high. Finally, Chevy was the third major player with $60M in advertising spending and emphasized quality and style.

Nina Mehta 11/5/2013 When looking at the Discovery in the U.S. there are three possible positioning strategies: 1) The Definitive Family 4X4 2) The Evolved Land Rover or 3) The More Affordable Range Rover. My recommendation would be for Land Rover to position the Discovery as The Definitive Family 4X4, The Safest Luxury SUV in the world based on the Discovery buyer profile: 84% married (38% with children, 46% no children), a median age of 41, and a household median income of $142K. In addition, when looking at the Maritz 1994 Truck Study, the top two metrics with the highest importance scores were quality (4.5) and safety (4.3), while status/image fell to the bottom (2.9). These studies show that Discovery buyers, unlike original Land Rover buyers, are not young singles and image/status is of little relevance. Performance and off-road capabilities were also metrics that were scored relatively high, a 4.2 and 4.1 respectively. These metrics, even though many will never take it off-roading, are a signal as to security and a great way for the company to differentiate its offerings. If the consumer knows that this vehicle can be taken into the jungle, they know that the vehicle will be able to withstand normal day to day usage. However, while Land Rover should use its offroading capabilities as a differentiation point, they need to be careful to not focus solely on this and instead focus on safety and practicality. Focusing only on the rugged nature of the brand could result in the Discovery positioning itself with the wrong segment. This is aligned with the Usage Diagnostics Study for the Discovery which shows that 70% use their vehicle for work transportation, 82% for shopping/daily errands, and 65% for vacation trips; only 40% said they use their Discovery for off-roading. In addition, 21% of Discovery purchasers say safety is the most important reason for selecting a model. Compare this to the Defender model where only 57% use it for work transportation but 78% use it for off-roading and 65% for hunting/fishing trips. Also in stark contrast to the Discovery is that no consumers stated that safety was an important purchase metric. Instead, 31% stated that fun to drive was the main reason for selecting the Defender. Finally, the Discovery comes with alternative body configurations so is easily adaptable: the five door version could be for families with children while the three door version could be for those without children. In terms of economical positioning, history has already proven itself with the Land Rover Hunter model that consumers do not simply want a stripped down version of the more expensive model. The Hunter was promoted as a more affordable Range Rover: cloth seats, no anti-lock brakes (which goes against the fact that even U.S. consumers making <$100K ranked quality and safety as the top two metrics), less wood trim, etc. and the result was disastrous and

Nina Mehta 11/5/2013 the model was terminated. Furthermore, positioning the Discovery to mid-income families means that it will have to face much stronger competition from brands such as Jeep ($78K median income) and Ford ($64K median income). Jeep would be especially hard to compete (could be seen as the cost leader for this niche) with given its massive advertising budget and strong historical presence. Finally, it would go against the image and reputation that Land Rover had created. Consumers would be confused to think that the car the Queen uses is the same price as a Jeep. Another risk is that it could cause dissonance with the cult like following Land Rover has amassed. Thus, the Discovery should be positioned as the affordable, but not cheap, safety first vehicle, the Defender as the off-roading model, and the Range Rover as the vehicle that promotes safety and utility but at a higher price point based on additional luxury comforts. When it comes to allocating funds, the $25M marketing budget needs to be spread across traditional advertising as well as public relations and corporate programs. One thought would be to calculate an expected RIO (hurdle goal) but given that much of this is to build initial brand awareness and market expansion I do not think that all programs should held to this standard. Furthermore, I view Land Rover somewhat as question mark in that it has low market share but there is high growth for the niche meaning that large amounts of cash are required. As mentioned, one of the main goals should be to increase the Land Rover corporate brand as it will help consumers understand that Discovery and Range Rover are the under same umbrella. This will also allow Land Rover to more efficiently use their budget and gain synergies. For example, the Ford Explorer was backed only by a $24M advertising budget but was able to benefit from over $1B in total Ford spending. According to the brand awareness study, 54% were very familiar with the Ford Explorer and 40% with the Jeep Grand Cherokee while only 2% were very familiar with the Land Rover Discovery. In addition, 33% could recall lots of Ford Explorer ads, 37% for Jeep Grand Cherokee, but only 2% for Land Rover Discovery Ads. Given the low percentages, LRNA needs to dedicate a vast majority of its marketing budget to advertising if it wants to play with the big fish. I would recommend a total of $16M to be budgeted for model specifics as follows: 60% Discovery, 30% Range Rover, and 10% Defender (see Exhibit 1) given that the Discovery was the larger volume driver and that Range Rover already had a presence in the U.S. I would also suggest a shift from general business magazines to more family friendly publications and TV. I would also allot $3M to general advertising to help strengthen the corporate image of luxury, quality, and safety bringing the total spend to

Nina Mehta 11/5/2013 $19M (76% of the total budget). I would also encourage a campaign similar to the initial images used by LRNA that focused more on the brand than the people and highlights the nationwide driving classes (will be discussed in more detail later). For corporate sponsorships I would focus on aligning customer preferences and programs for a total of $796,250 (see Exhibit 2). For example, the Maya Expedition is a great way to promote the Defender while also gaining public visibility from the press. For experience programs, the suggestion is to tweak the current Academy in Colorado offerings as the concept does help enforce the historical brand utility as well as cater to the off-roader. In order to make it more profitable, I would propose increasing class sizes for the 4 day sessions and increasing tuition for the 7 day sessions (see Exhibit 3). I would also expand nationwide in order to reach a wider audience and have courses focused on safety and quality. For example, in the North courses can showcase braking capabilities in ice/snow as well as day to day safety events. With operating costs of $20,000 (LRNA should target the top 15 U.S. cities), it would be a very effective way of gaining customer loyalty and national attention (see Exhibit 3). For the remaining marketing budget (see Exhibit 4), I would allot $50K per year + $150K in development costs to an internet site as it would be an ideal place to collect consumer feedback, have people share examples of safety instances, allow for class registration, tote public events, conduct research and allow for customization. In other words, it can be used as a primary communication channel and will be much more cost effective in the future. Another $1.6M would go to the Love of Product seminars as one of the best ways to promote appeal is to ensure that the sales force, staff, and retail partners truly understand the brand, buyer profiles and preferences. Finally, another $60K for various direct mail offerings would be allotted. The one caution is that LRNA could potentially reexamine some of their ideas. For example, the treasure hunt idea would do well only with families with children. Perhaps appealing to the quality/safety concept would be more effective such as offering a free first aid kit. LRNA should launch the Discovery at $29,500 to avoid the image of it being a stripped down Range Rover. In addition, it would still be priced significantly above the popular Jeep Grand Cherokee at $21K. In regards to the Centre and vertically integrating, given that Land Rover is not in a defender position strategy and the high cost of $2M - $3M, I think that it would be better to wait until sales increased (plus there is already the $1.6M that is spent on educating retailers).

Nina Mehta 11/5/2013

Appendix Exhibit 1: Ad Spending Breakdowns

Brand
Jeep Grand Cherokee Ford Explorer Ford Explorer w/Ford

Unit Sold
212,564 306,681 306,681

Ad Spending
$ $ 67,800,000 24,000,000 $ $ $

Spend Per Unit

319 78 3,339

$ 1,024,000,000

Total Projected LRNA Units

40,000

Ad Spend Per Unit

$ 400

Total Spend
$ 16,000,000

% of Total Spend ($25M avg) 64%

$10M Total Ad Breakdown

Discovery Range Rover Defender Total LRNA Ad Additional Spend

% of total $10M 60% 30% 10% Total $$ % of Total $ $ $ $ $

$ Spend 9,600,000 4,800,000 1,600,000 3,000,000 19,000,000 76%

Exhibit 2: Corporate Sponsorships and PR Programs

Corporate Events 24 Hours of Aspen Tread Lightly Camel Trophy La Ruta Maya Expedition Proceed (Y/N) Yes No Yes $ $ $ Cost 160,000 240,000 $86,250 Total General Fees ($28.75K Each) Comments Association with High End Clientele, Continuous visibility since done before Can cut since small spend and not much visibility Keep based on management's views Promotes Off-Roading (Defender) and visibility with the press for potentially free advertising space with published stories; Should also try to tie in safety; Donate 1 Defender and 1 Discovery While does not align with promoting safety or other features discussed in terms of the vehicle would be good to get local exposure and polo matches typically bring in high end clientele; could also tie in some British history of the brand Promotes Safety in World Worst Weather, great for Discovery and LRNA Brand

Yes

270,000

Clay shoot Virginia Cup Tennis Challenge Polo Matches Winter Ascent

No No Yes Yes

$ $ $ $

20,000 20,000

$ $ $ $ -

$ Total $

710,000 796,250

$86,250

Nina Mehta 11/5/2013

Exhibit 3: The Academy and Nationwide Class Offerings

Current Academy Average Class Size (4 days) # of Sessions Total Cost Total Tuition Profit

15
Average Class Size (7 days)

10
# of Sessions

425,000
Total Cost

412,500
Total Tuition

(12,500)
Profit

15

375,000

360,000

(15,000)

*7day cost not provided so used prorated cost of $75K per 7 day session Proposed Academy Average Class Size (4 days) # of Sessions Total Cost Total Tuition Profit

21
Average Class Size (7 days)

7
# of Sessions

297,500
Total Cost

412,489
Total Tuition

114,989
Profit

15

375,000

375,000

*Increase Class Sizes for 4 day and keep tuition the same to make a profit *Keep Class Sizes the same for 7 days and increase tuition to $5K to break even Nationwide Classes Average Class Size (2 days) # of Sessions Total Cost Total Tuition Profit

20

12

240,000

240,000

*Assumes a session once a month per year at operating capacity; total locations should be ~15 main U.S. cities where sales are high *Prorated tuition cost based on 4day session is $687 per day, but in the beginning offer tuition of $1K to attract consumers *Goal is to break even initially

All Classes Total

4,272,500

*Does not take into account profit since money needs to be spent from marketing budget to start with Exhibit 4: Remaining Budget
Remaining Budget Spent Program Cost

WWW site WWW Development Cost Love of Product Seminars Promotions and Direct Mail Total

$ $ $ $ $

50,000 150,000 1,600,000 50 1,800,050