In the early 2000’s something happened which would forever change the car industry. The first Toyota Yaris was released. This car seamed harmless at first, but it did not last long before car manufacturers worldwide experienced the shock that the Yaris brought to the market. This car on its own was not very special, however, the Yaris model as a whole offered the customers, for the first time, the opportunity to fully customize their new car from factory (Lander & Liker, 2007). This inspired a new way of thinking in the car industry which is why you can now order your new car in (almost) every color of the rainbow. Car manufacturers realized they had to capitalize on the customers’ need for diverse product options.
Versioning has been a hot topic across many different industries for the last two decades. Manufacturers try to capitalize on customers’ different WTP’s by creating different versions of their products to sell at different prices. Every person differs in their taste and needs for cars. Some want (and can afford) a top-of-the-line 4-door limousine, like a BMW M8, while others are contempt with a small but sufficient city car, like a Toyota Yaris. To differentiate between different types of customers, car manufacturers create different versions of their car suiting their unique requirements. BMW for example produces cars suiting different needs divided into series (from 1- to 8-series) to roughly divide their customer base. Within these series they version their products by offering cars with different utility types (family, sport, luxury) (BMW, 2021). This type of versioning allows manufacturers like BMW to get the most out of each of their customers’ WTP.
Recently, electric vehicles (EV’s) have been making a very successful entrance into the market for cars. With the release of the Model 3, Tesla was able to sell over 95,000 units in 2019 and almost 86,000 in 2020 showing that customers are interested in buying EV’s (carsalesbase.com, 2021). Tesla’s success caused other manufacturers to fast track the development of their EV’s as to defend their position in the market. However, where tesla offers relatively little versions and personalization options to customers, established manufacturers like VW, Audi, BMW and more have already announced and even released electric versions of their combustion engine counterparts (IAA, 2021). Because incumbents offer more versions they are able to capture the attention of a broader audience and, eventually, through incumbents’ economies of scale Tesla is likely to lose sales.
I expect EV’s to slowly take over the market in the following decades. Newer generations of people are more aware of the severity of the climate situation and are more willing to do their part in changing it. I believe that through the smart introduction of EV’s into the market by incumbents and the ever increasing environmental awareness of consumers EV’s will be the future of the car industry and that personalization and versioning will help increase growth of the popularity of EV’s tremendously.
References:
BMW (2021) via https://www.bmw.nl/nl/index.html
Carsalesbase.com (2021). ‘Tesla Model 3 Europe Auto Sales Figures’. via https://carsalesbase.com/europe-tesla-model-3/
IAA (2021) via https://exhibitors.iaa.de/ausstellerportal/2021/produkte-aussteller/
E. Lander & J. K. Liker (2007). ‘The Toyota Production System and art: making highly customized and creative products the Toyota way’, International Journal of Production Research, 45(16), pp. 3681-3698
Hi Matthijs,
I think you wrote an interesting blog post. It gave me some food for thought.
I do indeed agree with you that versioning and personalization helps attract more customers, as the more options available simply allow a company to reach different groups of customers. I think that another method that helps car manufacturers sell cars, is bundling. More specifically, car manufacturers offer packages of options for a total price lower than the sum of each individual option. E.g. BMW offers the “Safety Pack” which bundles several safety options for a total price lower than the sum of each individual option. I believe this way of selling extra options in bundles does help convince customers to spend more money on their car as well as attract different customers that want a more complete car.
I do get your point about the possibility of Tesla loosing market in the future, because of the small amount of versions and personalization options they offer. However, it is clear that, at least at this point, the range of Tesla cars is far superior to that of the traditional incumbents. I feel that for most people the biggest disadvantage of an EV is its range restrictions (next to the high purchase price). Hence, in my opinion, winning from Tesla is a tough battle for the incumbents to win at this point. Perhaps in the future though, when the incumbents find a way to (near) match Tesla’s high range, there will be a more intense battle.