Literature Review Diesel Market, Is there a way to increase the advertising for diesel to appeal to more customers?

Journal 1

6

Milestone 1

Draft of Business Problem and Literature Review

Paige Pohopin

Southern New Hampshire University

Research Problem

MSIL’s problem is they are losing out on profit by having a higher cost of production in comparison to the competition. As the petrol price increased, MSIL switched their focus to creating Diesel models (Mukherjee, Mathur, & Dhar, 2015). These models have both a higher production cost, and a higher tax levied against them (Mukherjee, Mathur, & Dhar, 2015). This increases the price of the car, and the diesel model is admittedly only valuable to customers who do an elevated level of driving. Meanwhile, their competitors are still focusing on more inexpensive petrol models, and passing that saving on to their customers.

The loss of profit due to a focus on diesel model cars affects multiple parties involved. MSIL will need to make a change to stay competitive, and not lose out on profit. This will affect the decision of shareholders who are looking to invest in a company, as without a high return of investment on diesel models, there won’t be much appeal for investors to contribute. Without the support of investors, MSIL will not have the funds to develop in a competitive market. Not being able to compete ultimately leads to a loss of profit, which can greatly affect those directly involved with the business, including company layoffs.

The objective of this research is to find the most financially beneficial way for MSIL to make a change to stay competitive. There are a few avenues to explore; for instance, it may be ultimately beneficial for MSIL to switch its focus back to competitively priced petrol models. Perhaps MSIL can develop a better marketing strategy for their current diesel models, or find a way to cut other costs of production in diesel models so they can stay within their competitor’s price range for similar petrol models.

The purpose of this study is to identify the most cost-effective way for MSIL to increase profits, and remain a top competitor in the marketplace. Staying a top competitor is a priority to keep the interest of investors, and ultimately keep the company running and avoid employee layoffs.

The data integrity of this study will be crucial for MSIL’s desire to stay competitive. Only those directly involved in research should have access to the data collected. If information were to leak out to competitors, it could give them a jump no MSIL’s new strategies. It is also important that any questionnaires are completed anonymously. This will protect the polled population from being specifically targeted by any potential innovative marketing campaigns.

Literature Review

Diesel Market

In a similar pattern to India, dieselization began around the same time in Sweden. The market share of diesel cars grew from below 10 percent to 62 percent between 2005 and 2011 (Kågeson, 2013). In 2012, it cost an average of $5,000 more to buy a diesel model with the same power and performance of the comparative gasoline model (Kågeson, 2013). This can lead to a few points brought up by David Green (2010) about bounded rationality and risk aversion. Consumers are limited to the information available to them, and time available to make a decision (Green, 2010). Fuel economy may not be the top priority for the consumer, and even if it is, consumers tend to avoid risks and uncertainty (Green, 2010) such as paying $5,000 more up front for a diesel model in hopes of saving in fuel cost over the life of the car.

As competition grows in the Indian automotive market, so does the availability of a variety of automobiles in various segments, and the future automotive customers will be looking for the value of money paid (Nauhria, Pandey, & Kulkarni, 2011). A questionnaire of 340 senior executives of major Indian car manufacturing and automotive consultants found that their number one competitive priority was consumer perspective, and they ranked fuel efficiency as the number one consumer perspective (Nauhria, Pandey, & Kulkarni, 2011). These individuals place value in line with rising fuel prices and depleting fossil fuels (Nauhria, Pandey, & Kulkarni, 2011).

In light of marketing, the VW scandal could have brought down the entire diesel market. In January of 2016, Americans only bought a total of 222 diesel passenger cars and light trucks, which is about 4,500 less than the year prior (Eisenstein, 2016). On a larger scale, diesel sales in the United States went from a peak of 490,000 in 2014 to just 155,000 in 2015 (Eisenstein, 2016).

Are there ways to cut manufacturing costs for the diesel model cars, so they can still be priced competitively to petrol models?

When looking into cutting manufacturing costs, companies need to update the question they’ve been asking. Instead of the current question of “can we acquire cheaper parts?” the manufacturers should ask “are we adding more capabilities than the consumer requires?” (Heiss, 2017). As consumers are more typically more focused on cost than capability, a new line of inquiry could cut both manufacturing cost and time (Heiss, 2017). Effective marketing creates opportunities. Capitalizing on delivery in the quickest possible time helps to avoid loss of opportunity (Nauhria, Pandey, & Kulkarni, 2011).

Presently, there is an increased need for flexibility, as there is a rising need for a variety of products to deliver customized models. In short, customization is rising and volume is shrinking (Nauhria, Pandey, & Kulkarni, 2011). There is currently a constraint for current Indian manufacturing systems, as they have limited flexibility (Nauhria, Pandey, & Kulkarni, 2011). According to research conducted with Senior Executives of major Indian automotive companies, flexibility ranks as the second to last priority, number 7 out of 8, yet consumer perspectives ranks as number one (Nauhria, Pandey, & Kulkarni, 2011).

Japan found an efficient way to cut down manufacturing time, increase flexibility, and decrease the size of manufacturing plants, with their “just-in-time” system (Holusha, 1983). This system is based on keeping the exact number of parts on hand for each days manufacturing, thus allowing more flexibility for day to day production (Holusha, 1983).

Is there a way to increase the advertising for diesel to appeal to more customers?

Environmental effectiveness is a possible positive marketing campaign. In Sweden, one explanation for the higher registration of diesel vehicles over time is that the city began a campaign for “environmental cars,” in which environmentally friendly cars could enjoy free parking in certain parts of the city (Kågeson, 2013). The large difference in price between diesel and petrol naturally encourages the purchase of diesel-driven vehicles in India, but this is due to a price distortion caused over time as India relies on importing more than 75% of its crude oil consumption (PARIKH, 2013). As the Indian government may be pushing for the purchase of diesel cars, this could prove as a limitation to the study. There could be consumer bias driven by the marketing of the government, pushing more fuel efficient or diesel automobiles, to limit the crude oil consumption.

References

Eisenstein, P. A. (2016, November 29). Did the VW Scandal Bring Down the Entire Diesel Market in America? Retrieved September 21, 2017, from https://www.nbcnews.com/business/autos/did-vw-scandal-bring-down-entire-diesel- market-america-n689566

Greene, D. (2010). Why the Market for New Passenger Cars Generally Undervalues Fuel Economy. Joint Transport Research Centre Round Table 18–19 February 2010. OECD/International Transport Forum, Paris. Retrieved September 21, 2017, from https://www.itfoecd.org/sites/default/files/docs/dp201006.pdf

Christian Heiss partner and Federico Ucci principal | Jul 25, 2017. (2017, July 26). Re-engineer to Cut the Cost of Manufacturing. Retrieved September 21, 2017, from http://www.industryweek.com/product-development/re-engineer-cut-cost-manufacturing

John Holusha, Special to the New York Times. (1983, March 24). ‘JUST-IN-TIME’ SYSTEM CUTS JAPAN’S AUTO COSTS. Retrieved September 21, 2017, from http://www.nytimes.com/1983/03/25/business/just-in-time-system-cuts-japan-s-auto- costs.html?pagewanted=all

Kågeson, P. (2013). Dieselization in Sweden. Energy Policy, 5442-46. doi:10.1016/j.enpol.2012.09.006 Available at:http://resolver.ebscohost.com/openurl?sid=EBSCO%3a8gh&genre=article&issn=030142 15&ISBN=&volume=54&issue=&date=20130301&spage=42&pages=42- 46&title=Energy+Policy&atitle=Dieselization+in+Sweden&aulast=K%c3%a5geson%2c +Per&id=DOI%3a10.1016%2fj.enpol.2012.09.006&site=ftf-live [Accessed 22 Sep. 2017].

Mukherjee, J., Mathur, G., & Dhar, N. (2015). Maruti Suzuki India: Defending Market Leadership in the A-Segment. Ivey Publishing. Retrieved September 21, 2017 from Harvard Business Publishing [online].

Nauhria, Y., Pandey, S., & Kulkarni, M. S. (2011). Competitive Priorities for Indian Car Manufacturing Industry (2011-2020) for Global Competitiveness. Global Journal Of Flexible Systems Management, 12(3/4), 9-20.

PARIKH, K. S. (2013). Pricing of Petroleum Products: Importance and Options. ASCI Journal of Management, 42(2), 73.

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