The launch of fiat 500

Introduction

On 4th July 2007, Fiat Auto the Flagship division of Fabbrica Italiana Automobili Torino (FIAT) re-launched its heritage brand the Fiat 500. It was exactly 50yrs after the launch of Fiat 500 on 4th July 1957, which not only helped Fiat in post World War-II recovery but also provided mass motorization to Italians. Luca De Meo, CEO, Fiat Auto, on the re-launch occasion stated that “This is the car that gave ordinary Italians four wheels for the first time; that transformed a country and a company.” (Duff 2007) In its 18yrs of career between 1957 and 1975, 3,893,294 Fiat 500s were built & sold, which provided millions of Italians and Europeans individual mobility (The Fiat 500 2007).

Post 1970 with beginning of free trade in Europe, Fiat’s market share eroded continuously. Foreign companies such as Volkswagen, Renault, Ford, Peugeot, Honda and Toyota became prominent players in the Italian car market threatening survival of Fiat. In 2004 Sergio Marchionne got appointed as the CEO of Fiat Group and directed the massive restructuring of the ailing business. The re-launch of Fiat 500 was one of the important strategic tools in rejuvenating Fiat. On the re-launch occasion Sergio commented that “I want Fiat to become the Apple of automobiles. And the 500 will be our iPod.” (Colleen 2007)

“The 500 has always been in the hearts of Italians, and I think therefore that it will be a great success.” (Colleen 2007)- Silvia Depaoli, president of the Fiat 500 Club Italia.

Fiat 500 Strategy:

As per Ansoff (1957) growth matrix, Fiat adapted a product development strategy. Fiat leveraged the brand heritage of 500 in Italy (Europe) by re-launching it. Fiat adapted a market led paradigm and followed a relationship approach for success of 500. In the heart of 500’s strategy was to keep the audience engaged from the very beginning and knowing them.

As per Hambrick & Fredrickson (2001), a good strategy should be able to be refined into five elements: Arena, Vehicle, Differentiator, Staging & pacing and Economic logic. Following is the breakdown of 500’s strategy, which is discussed in detail in the later part of this paper using Porter & Wiersema framework.

Arena (Where will we be active?): Fiat mainly focused on Italian and European customer for 500. It chose to focus on small car segment as demand for small fuel efficient cars was going up in European market because of rising fuel prices. For promotion of 500, Fiat chose to focus equally on online and offline media. As Fiat was targeting young-at-heart professionals and city-car drivers, and these customers spend time on the web. The online campaigning formed an effective and efficient bellow the line and soft communication tool for Fiat for targeting a broad customer segment.

Vehicles (How will we get there?): The prime vehicle of the whole strategy was to take advantage of 500’s heritage significance in Italian consumers. The success of re-launch of BMW Mini and Volkswagen Beetle proved the market for retro models. So Fiat also adapted the same strategy of re-launching its heritage 500. “The 500 has always been in the hearts of Italians, and I think therefore that it will be a great success,” said Silvia Depaoli, president of the Fiat 500 Club Italia (AutoNews 2007). Fiat diligently tried to attract customer’s sentiment for 500 through advertising campaigns, car rallies & blogs. Further in the designing process of 500, Fiat included enthusiasts to participate and contribute to 500’s design.

Differentiators (How will we win?): The unparalleled differentiator in Fiat 500 strategy was the huge range of options for customisation. It was unprecedented in small car segment. Practically a customer could customise 500 in 549,936 ways (Tagliabue 2007). Attractive finance options were also made available for 500. Further 500 was satisfying the emission norms of Euro 5, which was supposed to be implemented 2yrs later of the launch. The extended after sales services also formed a great differentiator in Fiat’s strategy. Additionally, the new Fiat 500 was designed by Frank Stephenson, the designer of new Mini and Beetle. All these differentiators helped Fiat positioning 500 in the target customer segment.

Staging & pacing: Initially, Fiat targeted for a sale of 120,000 units per annum with a breakeven point of 85,000 units. And further as 500 was in the heart of Italians, Fiat choose to launch 500 initially in Italy then to roll out to whole Europe. (AutoNews 2007)

Economic logic (How will returns be obtained?): In Europe Fiat is known for in-expensive cars. However, for 500, Fiat charged a premium price by banking on 500’s heritage value. At a conference in Prague, Fiat CEO, Luca De Meo remarked “I am not a fan of introducing [more] low-cost cars in Europe, we did it for years, and we went almost bankrupt.” (Maxwell 2007) Further to achieve an economy of scale Fiat decided to share the platform with Ford and use components from Fiat Panda.

Porter and Treacy & Wiersema frameworks:

Porter’s framework (1980): In the strategic positioning matrix, a firm gets its strategic position depending upon the width of industry, it targets and the type of competitive advantage it chooses. The strategic position helps a firm in reducing the rivalry in its industry (Sanders 2009).

Fiat adapted the broad differentiation strategy for 500. Fiat targeted a broad market for 500, maintaining its old image of people’s car. Sergio Marchionne said “I want Fiat to become the Apple of automobiles. And the 500 will be our iPod.” (Colleen 2007) And for the strategic advantage, Fiat chose differentiation. Fiat differentiated 500 by offering product customisation and enhanced services while charging a premium price (â‚¬10,500 for the basic model and could run up to â‚¬14,000 as per customisation (Tagliabue 2007)).

As per Treacy and Wiersema (1993) framework Fiat adapted the value discipline of ‘customer intimacy’ for 500. Fiat 500 was projected as a car for everyone: “it is the car of the people, made by the people, for the people. The 500 is the ‘New Fiat’ and the ‘New Fiat’ belongs to everyone.” (Weenen 2007) By adapting customer intimacy Fiat offered a wide range of options to tailor 500 and enhanced after sales services to attract and satisfy customers.

Fiat developed a unique market proposition by adapting customer intimacy and differentiation. Following are the elements of the proposition.

Pre-launch campaign: Fiat tried to develop customer intimacy well before the launch of 500. It started a pre-launch online campaign “500 wants you”. In this campaign, enthusiasts were welcomed to join the competition of designing accessories for 500 and winning free accessories with the purchase of new 500. Over 3,000,000 enthusiasts participated and submitted their idea to the project. Fiat’s approach for designing of the new 500 was distinct and was very appealing to Fiat fans. Additionally, Fiat tried to reconnect with Italians through starting new fan clubs and blogs on the internet.

XXIV Fiat 500 Rally: Fiat organised a grand rally for old 500s on 6th, 7th & 8th of July 2007 in Garlenda, Italy just one day after the official launch of new 500. 1400 models including vintage models of 500 from all over the world participated in the rally, which helped in awakening Italian’s sentiment for 500. On this occasion Dante Giacosa 500 Multimedia Museum was also inaugurated, which features special models, designs, books, magazines, photographs and videos of 500 that provided Italy mass motorisation. Further on this occasion a new 500 was brought to the rally location through the air by a helicopter. (The New Fiat 500 at the ‘XXIV Fiat 500 Rally’ in Garlenda 2007) All these events got extensive media coverage and helped Fiat in its above the line communications.

How do Fiat’s marketing strategies match its competitive position?

A firm’s competitive position depends on its internal resources & capabilities, the strategic group, the industry environment and the macro environment. Fiat adapted a differentiation and customer intimacy strategy as per Porter and Treacy & Wiersema frameworks. In this part Fiat’s internal resources & capabilities, the Italian car industry and macro environment have been examined to analyse the match between Fiat’s strategy and its competitive position. As Fiat was more focused on Italian market the following analysis is focused on the Italian car market and macro environment.

Marketing environmental audit:

In 2006, the European car industry surged by 17%, making Europe the fastest growing car market in the world. The proliferation of cars on European streets led to the congestion problem, as unlike United States, which is a large country with wide & open spaces, European streets lack open space. Congestion along with rising fuel price made small cars more appealing to customers. This drove all major car manufacturers to focus on fuel efficient small cars, which can move around the cities quickly and safely. Following the market demand, major manufacturers launched small cars such as BMW’s Mini, VW’s Beetle and Fiat’s Panda.

Value & volume of Italian car market:

Between 2005 and 2007 there has been a steady growth in Italy’s car industry both by volume and value. In 2007 with 2.5 million units sold, the market was worth $72billion. Analysts forecast that the Italian new car industry will be of $92billions in 2014, a rise of more than 30% since 2007. So there have been ample business opportunities for car manufacturers in Italian market.

Industry life cycle:

The steady growth trend of Italian car industry, the proliferation of large numbers of car manufacturers and aggressiveness of consumer has led to maturity phase of the industry. In this phase of industry life cycle, product features and differentiation plays the key role in success of a product. Companies should look for new innovations, product development and marketing mix to compete successfully (Kotler 1999, p. 630). Fiat’s innovation for 500 in terms of technology & specifications and engaging customers in product development were matching requirements of the industry life cycle. Further its diligent marketing mix helped generate sentiment and customer for 500.

Porter’s five force analysis (Porter 1980):

The Italy new car market has a large number of buyers as 2.5 million units have been sold in 2007. The lower switching cost, availability of substitutes and easy accessibility of comparative information on the web drove threat of substitutes to be very high. Further Fiat cars were perceived as of low quality cars with low reliability. So, threat of substitute for Fiat was very high. However, buyer power of individual customers was moderate, because an individual lacks scale and scope to have a bargain with a car manufacturer but can choose a substitute product.

Key inputs for this industry are steel and labour. The manufacturer has little control over the price of the inputs as prices are determined by market forces. So supplier power is also moderate. Threat of new entrants at the time of launch of 500 was low, as this industry requires a very high capital investment, return on investment is very low in comparison to other industries and the exit barriers are high. However, following the opening of European market in 1970, the Italian car market was already flooded with car manufacturers such as Peugeot, Volkswagen, General Motors, Renault, Ford, Honda and Toyota. So, the degree of rivalry was very high. Fiat lost its majority market share and its share of 52% in 1990 shrunk to less than 28% in 2003 (Jain 2007).

From Porter’s five force analysis of Italian car industry, it implies that Fiat’s marketing strategy for 500 matches external market conditions. Degree of rivalry and threat of substitute were two major concerns for Fiat as the industry was getting more and more fragmented with the presence of a large number of players. And because of low product quality, Fiat’s brand identity was on stakes and product differentiation was at the lowest level. Fiat’s strategy of choosing differentiation and customer intimacy supported overcoming of these two barriers. The customisation options and pre-launch campaign (500 Wants you) allowed Fiat to develop a car, that customers wanted. Further the rallies and patriotic advertisements helped Fiat to consolidate the fragmented car market and invigorate sentiments for 500.

Environmental scanning

PESTEL Analysis of Italy:

Political: The opening up of European economy in 1970 allowed major auto manufacturers enter European and Italian market. This increased market competition. However, Fiat used its political clout in Italy to keep competition away. There were restrictions on Japanese car manufacturers on the number of cars they can import into Italy. Further, Fiat also utilised its political clout to get subsidises and concessions (Jain 2007).

Economy:

As per CIA World Factbook 2007 few of the major economic indicators are: Per capita GDP: $32,100 (ranked 22 in world), Urbanisation: 68% and Un-employment rate: 6.8%.
High corporate tax of 31.4% (EU average 25.04%). (Datamonitor, Italy 2007)

Social: 66.3% of total population is in the age group of 15 to 64 (CIA Factbook 2007), which is the target segment for Fiat 500. The graduation level in Italy has increased from 19% in 2002 to 39% in 2006. (Datamonitor, Italy 2007)

Environmental: Carbon emission has increased to 474millions in 2007 from 448millions in 2002. So, the Italian government is planning to stringent emission laws. (Datamonitor, Italy 2007)

Technological & Legal: As Fiat 500 was one of the small cars with advance technologies, which are rare in this segment, so there was no known macro level technological effect on Fiat. No known legal issues related to re-launch of 500.

Considering the PESTEL analysis of Italy, Fiat’s marketing strategies are in line with political, economy and environmental conditions of Italy. The per capita GDP and purchasing power make Italy an attractive market for car manufacturers. Further the new 500 was satisfying Euro 5 standards at the time of launch, which was two years ahead of regulation deadlines.

Gap Analysis: The gap analysis will help us know whether Fiat could meet the needs of its customers. Post 1990, the prime reason for declination of Fiat was the lack of innovation and deterioration of quality of vehicles. Between 1995 and 2001 Fiat spent $4.5billion on R&D in comparison to Volkswagen’s $20billion and Renault’s $9billion (Economist 31st Jan 2003, cited by Momin 2008). The Fiat became synonymous with “Fix It Again Tony”, “Fehler In Allen Teilen” (defect in every part) and “Fur Italien Ausreichende Technik” (sufficient technology for Italy). Fiat’s market share in Italy fell down drastically from 52% in 1990 to below 28% in 2003 (Jain 2007).

The BCG matrix analysis will help in revealing the reason for the gap and low R&D expenditures.

BCG Matrix: The primary reason for low R&D expenditures was un-related acquisitions between 1990 and 2001. Some of Fiat’s acquisitions were Toro, Italy’s 3rd largest insurance company, Montendison, Italy’s largest private power production company and Case New Holland, an agriculture equipment manufacturer. Fiat also diversified into banking, telecom and pharmaceuticals sectors through acquisitions.

Fiat neglected its cash cow (automobile business) and invested its financial and managerial resources on stars, dogs and question marks. This deprived the core auto business of the capital it required, resulting gaps in product range. Further, these acquisitions led to a debt burden of $5.6billions in 2003 (Phani 2003 p. 100, cited by Momin 2008). All these debt burdens and lost focus led to 75% utilisation of operational capacity at the manufacturing units, which is an essential performance indicator in manufacturing industry.

Further in the last decade of twentieth century, Fiat focused on emerging markets such as Argentina, Brazil, Turkey, China and South America neglecting the mature markets such as North America & Western Europe where growth was moderately low but demand was constant. Because of all these mismanagement, during the recession of 2001, Fiat was on the verge of bankruptcy, but was saved by a $2.8billion bank bailout. (Jain 2007)

Turnaround strategy to fill the gap and rectify cash usage: In 2004, Sergio Marchionne took charge as the CEO of Fiat and embarked upon a massive restructuring program with a layoff of 6000 personnel. The same year Fiat showcased Trepiuno, a prototype similar to 500 at the Geneva Motor Show. The model attracted good review from all over the world and prompted Fiat to work on 500. The new 500 was designed by Frank Stephenson, who had successfully redesigned BMW’s Mini. To reduce cost, 500 shared the platform, engine and other electrical equipment from Fiat Panda, another compact car.

In 2005, Fiat centralised its R&D and innovation functions and could acquire 80 new patents the same year. In 2006, Fiat radically increased its R&D expenditures budget to $7.05billions for 2006-08. Further Fiat changed its purchasing policies. It started centralised purchasing and sourcing from low wage countries. This helped Fiat save 28% of material cost thus reducing production cost considerably and invest in R&D.

Segmental Positioning of Fiat: In spite of initial success of 500, industry analysts were skeptical about 500’s success. As per them, although 500 has performed well in Italy and France, its success in other geographic regions is doubtful. Their apprehension was that, Fiat is generally known for manufacturing inexpensive small cars and its attempt to place 500 with BMW’s Mini might not work. According to S. Whitwell, customers do prefer BMW Mini, not only for its nostalgic value but also for the quality & reputation of BMW brand. And 500 may do well in Italy and some parts of Southern Europe. However, it is not iconic enough to get acceptance in other markets (Maxwell 2007).

To counter competition from other incumbents Fiat pitched 500 against Mini. The 500 was priced â‚¬10,500 for the basic model and could run up to â‚¬14,000 with customisation (approximately around $13,600 and $21,000), little lower than price of mini ($18,050 – $25,400). The pricing was to provide 500 the price advantage over Mini while charging a premium for the heritage value.

In the above segmental positioning by Morrison-Jones (2006), Fiat has the medium brand perception and placed in differentiated product category. Where as BMW commands high brand perception and placed in luxure car segment. However, Volkswagen is placed in similar category as that of Fiat. According to Stephen Cheetham, customers may not feel to pay a premium price for 500 except in Italy where Fiat has a strong brand and good will (Maxwell 2007).

Fiat’s world market sales:

It is clear from the above sales figures that, Italy and Brazil are the primary market for Fiat. Though there is not much variance in sales figure in Brazilian market, Italy’s car sales eroded continuously between 2000 and 2005. Nevertheless, following the restructure in 2005, in 2006 sales improved. In 2006, number of units sold in Italy touched 852,000 and European market share increased to 7.5% from 6.5% of 2005. (Edmondson 2007)

Kotler’s Product Levels model (1969): As per this model, Fiat 500 is a level 5 potential product. 500’s long heritage confirms its three core levels i.e. core benefits, generic product and expected product. The extended scope for customisation, finance or payment options, safety features and enhanced after sales service confirmed augmentation and differentiation of 500. Confirmation of Euro 5 standards and Fiat’s enthusiasm for innovation of 500 by launching 500 convertible and sports version, makes 500 a potential product.

Marketing Audit (SWOT)

From the above analysis of Fiat’s internal, external and macro environment, Fiat’s strengths, weaknesses, opportunities and threats are summarised.

Strengths:

Fiat’s one of the key strengths is the strong sentiment of Italians for Fiat. In 2000, GM had acquired 20% of share of Fiat and was ready for a complete takeover if Fiat wished so. During the restructuring process in 2005, GM agreed to hand back its Fiat shares for $2billions. This break-up was well received in Italy and Fiat’s advertisements proclaimed, “Fiat is all-Italian again”. (Jain 2007)
Style & look of Fiat 500 and options for customisation
Euro 5 emission standard and Level 5 safety standard.
Heritage value of 500 as it provided mass motorisation to Italy.
A level 5 product in Kotler’s product level model.
Enhanced innovation capability after increase in R&D expenditures. In-line with industry life cycle.

Weakness:

Lack of scale in comparison to its competitors.
People’s perception of Fiat as manufacturer of inexpensive cars.
Tarnished quality image of Fiat cars.

Opportunity:

Increasing demand for small and fuel efficient cars.
Increasing demand for retro cars.
Rising purchasing power of Italians.

Threats:

High degree of rivalry and threat of substitutes in new car market.
Low profit margin and high operational cost & corporate tax.

Analysis: From the SWOT analysis, it can be deduced that, Fiat has satisfactorily utilised its strengths for developing the marketing strategy for new 500 to cease the opportunities in the automobile market. By sharing platform and components with Panda, Fiat has minimised its weakness of lack of scale. Through extensive R&D and involving people in the development of 500, Fiat has improved its brand perception. Further, the differentiation and customer intimacy strategy had helped Fiat to minimise the threats of high rivalry and substitutes.

Conclusion:

The sales phenomenon of 500 in Italy and France was very much appreciating for Fiat. The demand for 500 in first two days of launch exceeded its two quarters production. It received 57,000 dealer orders, where as it was planning to sell 50,000 to 60,000 units that year. Many customers were ready to pay a premium price to get the car that year.

From the above graph it is clear that with the launching of 500 and restructuring, Fiat’s operating profit improved drastically. Further delighted with the success of 500, Fiat planned to launch 500 convertible and sport edition of 500.

References:

Ansoff, Igor. (1957). Strategies for Diversification. Harvard Business Review.

AutoNews. (2007). Fiat CEO Sergio Marchionne has big plans for little Fiat 500. 24hrs a Day Auto News. July 01, 2007. http://www.autonews24h.com/Auto-Industry/Fiat/1887.html (accessed April 04, 2010).

Colleen, Barry.(2007). Fiat has big aspirations for little 500. July 04, 2007. http://www.thestar.com/article/232343 (accessed April 02, 2010).

Datamonitor. (2007).“New Cars in Italy.” Datamonitor, Marketline,Reference Code: 0171-0358, December 2009.

Duff, Mark. (2007). Cinquecento’s return marks Fiat’s revival. July 4, 2007. http://news.bbc.co.uk/1/hi/business/6268522.stm (accessed April 1, 2010).

Edmondson, Gail.(2007). Europe’s Car Market: The ’06 Report Card, Business Week. Jan 19th, 2007. http://www.businessweek.com/globalbiz/content/jan2007/gb20070119_132541.htm?chan=search (accessed April 05, 2010).

Fredrickson, Hambrick. (2001). Are You Sure You Have a Strategy? Academy of Management Executive 15, no. No.4 (2001).

Jain, Shanul.(2007). Fiat Relaunching the 1950’s Fiat 500: Replicating the Mini’s Success? Case Study, India: IBSCDC, 2007.

Kotler, Philips.(1999). Principles of Marketing. 1999.

Maxwell, Kenneth. (2007). Fiat Steers Upmarket With ‘500′. The Wall Street Journal. July 5, 2007. http://online.wsj.com/article/SB118358796972957515.html?mod=googlenews_wsj (accessed on April 2nd, 2010).

Momin, Parvez. (2008). New Fiat 500: Revival of a Heritage Brand. India: IBSCDC, 2008.

Morrison-Jones, Tom. (2006). The Corporate Level Strategy of Fiat Spa.

Phani, Madhav. (2003).“Fiat Auto Time for overhaul”. Chartered Financial Analyst, Icfai Press.

Porter, M E. (1980). Competitive Strategy: Techniques for Analyzing Industries and Competitors. New York: New York: Free Press.

Sanders & Carpenter. (2009). Strategic Management. Pearson Education.

Tagliabue, John. (2007). Fiat appealing to Italian patriotism and nostalgia to sell its 500 model. Aug 10, 2007. http://www.nytimes.com/2007/08/10/business/worldbusiness/10iht-fiat.4.7078934.html (accessed on April 02, 2010).

The Fiat 500, an icon of our time. March 22, 2007. http://www.duemotori.com/news/auto_news/11582_The_Fiat_500_an_icon_of_our_time.php (accessed on April 2, 2010).

“The New Fiat 500 at the ‘XXIV Fiat 500 Rally’ in Garlenda.” 500 Wants You. July 9th, 2007. http://www.fiat500.com/de/news_interna.asp?menu_or=news&id=91 (accessed on April 03, 2010).

Treacy and Wiersema. (1993). Three Paths to Market Leadership, Customer Intimacy and other value disciplines, Harvard Business Review, Jan-Feb 1993.

Weenen, Frank de Leeuw van.(2007). New Fiat 500 In Depth. World Car Fans. July 4th, 2007. http://www.worldcarfans.com/10707054067/new-fiat-500-in-depth (accessed on April 03, 2010).

Order Now