Using market segmentation to change the world

This week Tesla, the world’s premium electric car manufacturer, continued its mission to transition the world to sustainable energy by launching its new electric car—the Model 3.

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The unveiling was reminiscent of a Steve Jobs/iPhone launch, complete with evangelistic fans, a passionate CEO (Elon Musk) declaring his vision for the future and a company’s promise to change the way the world operates.

What the fuss? 

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We have become accustomed to queues of techies lining up outside Apple stores for the latest device and this week saw similar lines outside Tesla stores, with some customers even camping out.

The main difference here was that customers weren’t lining up to purchase a Model 3. They were lining up to enter a waiting list—at a cost of $1,500—for an option to purchase the car when it is actually produced. You see the Model 3 does not yet exist in production, it won’t be available until the end of 2017 and most people who entered the waiting list have not even seen the car.

Intuitively, lining up to buy a car—or paying for the right to purchase something that doesn’t exist—seems unusual, however at the time of writing (less than three days after the unveiling), over 232,000 people had already paid to wait, providing Tesla with $350 million in cash and $10 billion of pre-orders. So while it seems unusual, it appears plenty of people are willing to pay to wait.

In Australia the automotive industry is in the midst of a highly publicised decline, yet Tesla has bucked this trend and generated significant interest in a product that does not yet exist. How have they managed this?

The answer appears to be in how they have positioned themselves and targeted customers.

Market Segmentation

Market segments are groups of customers who share similar attributes, needs and wants. They can be clustered based on factors such as age, education or income. They can also share psychological factors such as attitudes or the intangible brand attributes sought. Once identified, these segments can then be targeted with tailored products.

The motor-vehicle market has traditionally been segmented on limited attributes such as price, size or use. Tesla identified another dimension—customers identifiable through psychological attributes—those who wanted a zero­-emission luxury car that was safe, looked good and performed well.

Tesla identified this potential market was attractive and that an appropriate product did not exist to meet its needs, but the cost to initially produce (and ultimately sell) such a car would be high.

Tesla further identified that a subset of these potential customers were also not price sensitive, so Tesla positioned themselves as a premium product provider and targeted these customers by initially building the Tesla Roadster and then the Tesla S, with the expectation that the success of these vehicles would ultimately lead to the creation of the more affordable Model 3.  The process has become known as Tesla’s ‘Secret’ Master Plan. The Plan to broaden Tesla’s offering to more price-sensitive customers while creating zero-emission power generation options.

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Evidently Tesla got it right.

Customers love it. Tesla’s car fans call it the ‘People’s Car’ and when watching the Model 3’s unveiling, and the lines to enter the wait list, their adoration for Musk and all things Tesla is clear.

Changing the world

High-end disruptors, such as Tesla, are noted to produce innovations that are difficult to copy, they typically outperform existing products, sell for a premium and target the least price-sensitive customers—before spreading to the mainstream.

Tesla have done this. They have disrupted the market by creating a product with superior attributes and completely changing the traditional car buying processThe competition hate it.

Tesla’s success in the car market is aligning with their Master Plan. They have taken advantage of a careful market segmentation and targeting process that exploited a gap in the market, to provide them with necessary capital to continue investing in clean energy solutions that will ultimately transition the world to sustainable energy.

 

jkyvelid

jkyvelid@deakin.edu.au

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