MARKET ANALYSIS OF CADILLACS CURRENT MARKET POSITION, STRATEGY, AND TACTICS BENGAL WILD MARKETING AS

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MARKET ANALYSIS OF CADILLACS CURRENT MARKET
POSITION, STRATEGY, AND TACTICSBENGAL WILD
MARKETING ASSOCIATES INC.Marc AlexanderJesse
BedollaDaniel LewisMark PustelakJames
StansburryMarch 30, 2002
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Studys Goal

• The objective of this study is to analyze and
  critique Cadillacs current market position,
  strategy, and tactics. For comparison purposes,
  we benchmarked against Lexus.

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Cadillacs Five Objectives

• Profitably grow volume while improving Cadillacs
  imagery
• Make Cadillac respected and aspirational to a
  broader customer base
• Sustain a focused premium dealer network
• Protect and strengthen residual values
• Maintain customer satisfaction levels as Cadillac
  expands its owner base

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Strategy

• A bold, new direction for styling that will
  result in a unique look in the crowded luxury
  market
• Goal is to connect with a broader range of luxury
  buyers by entering into and creating new luxury
  segments
• Enhancing the dealer experience
• Expand global market share

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Luxury Car Sales North America
2001 Vehicle Sales
2000 Vehicle Sales
-3.8 Decline
Cad. 189,154 Lexus 206,037 Tot. Mkt 1,385,318
Cad. 172,083 Lexus 223,983 Tot. Mkt 1,334,533
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Luxury Car Segments 2001
Entry Level Luxury Cars
Mid, Large, Ultra Luxury Cars
Mid Large Sport Utility Luxury
Cadillac. 31,816 Lexus 86,746 Total Market
503,289
Cadillac 130,503 Lexus 69,904 Total Market
627,713
Cadillac 9,764 Lexus 67,333 Total. Market
647,756
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Luxury Market Global Sales Distribution
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Cadillac Then and Now

• In 1978 Cadillac was the undisputed leader in the
  luxury market
• Lexus debut in 1989 with LS400 introduction
• Cadillac had several large gaffes including the
  Cimarron and Allante
• Cadillac was slow to develop models for new
  segments- Luxury SUV, Entry-level Sedan, and high
  performance convertible.

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Trading Places
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Environmental Trends
Positive
Negative

• Market recession
• Cost cutting
• Loss of market share to Euro and Japanese Luxury
  brands
• Perceived lower quality
• Lower price- less importance for the target
  consumer
• CAFÉ Requirements
• Strong US Dollar / weak Yen

• Growing luxury market
• New product Czar Bob Lutz has positive market
  image as a car guy
• American brand- nationalism may be on the rise
  due to rise in sense of patriotism
• Cadillac heritage
• Quality has improved
• Lower price- easier entry

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Luxury Market Demographics
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Perceptual Map
Initial Quality Map 2001

• High Quality

• Lexus

IQS Lexus 85
1 (2)

• BMW

• Acura

• Jaguar 2 (10)

• Acura 3 (1)

• BMW 4 (5)

• Mercedes

• Saab 5 (12)

• Buick Park Avenue 7 (8)

• Infiniti 7 (3)

Bentley

• Cadillac 9 (16)

• Mercedes 10 (9)

• Chrysler LHS/300M 12 (18)

• Audi 13 (14)

Plain Image
Sophisticated Image

• Volvo

• Infiniti

IQS Avg 147

• Buick Park Avenue

• Cadillac

Lincoln

14 (20)

• Volvo 22 (17)

• Audi

• Jaguar

• Saab

• Chrysler LHS/300M

Low Quality
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Luxury Segments

• Entry the largest segment and growing in both
  North America and globally
• Prestige the second largest currently and
  vitally important for premium imagery, a real
  global segment
• Mid Luxury Utility has been one of Americas
  fastest growing luxury segments (this segment may
  transition to luxury crossovers)

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Luxury Segments (cont.)

• Full-size primarily North American and vitally
  important for volume and profits (not growing,
  but Cadillac is dominant here with the DeVille
  and DTS
• Large Luxury Utility primarily North American,
  small in size but growing and very important
• Ultra Luxury low volume, high image

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Product Line
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Cadillac Model Sales Volumes
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Lexus Model Sales Volumes
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Entry Level Luxury Comparison

• Cadillac CTS - 29,350
• Rear wheel drive
• 5 speed manual or auto.
• 3.2L V6 220 horsepower

• Lexus ES 300 - 31,505
• Front wheel drive
• 5 speed automatic trans.
• 3.0L V6 210 horsepower

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Large Luxury Utility Comparison

• Cadillac Escalade AWD - 52,230
• All wheel drive
• 4 speed automatic trans.
• 6.0L V8 345 horsepower

• Lexus LX 470 - 61,855
• All wheel drive
• 4 speed automatic trans.
• 4.7L V8 230 horsepower

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Full-Size Luxury Comparison

• Cadillac DeVille DTS - 47,520
• Front wheel drive
• 4 speed automatic trans.
• 4.6L V8 300 horsepower

• Lexus LS 430 - 54,405
• Rear wheel drive
• 5 speed automatic trans.
• 4.3L V8 290 horsepower

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Full-Size Luxury Comparison

• Cadillac Seville SLS - 44,039
• Front wheel drive
• 4 speed automatic
• 4.6L V8 275 horsepower

• Lexus GS 430 - 47,405
• Rear wheel drive
• 5 speed automatic
• 4.3L V8 300 horsepower

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Pre-owned Vehicles

• Both Cadillac and Lexus offer a certified
  pre-owned program
• Vehicle inspections
• Lexus offers a 128 point vehicle inspection
• Cadillac offers a 100 point vehicle inspection
• Warranties
• Lexus offers a 3 year/100,000 mile limited
  warranty from date the new owner drives the car
  off the lot
• Cadillac offers a 6 year/100,000 mile limited
  warranty from original vehicle delivery date

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Pre-owned Vehicles

• Both Cadillac and Lexus offer a certified
  pre-owned program
• Additional Services
• Lexus additional offers
• a free loaner car for warranty repairs,
• 24-hour roadside assistance,
• complementary first oil and filter change, and
• up to 200 per night for 3 nights provided for
  meals lodging if stranded out of town
• Cadillac additional offers
• 24-hour customer service
• 24-hour roadside service

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Pre-owned Vehicles
Retained value over a three year period

• 2001 JD Power Associates Awards
• Customer service index (CSI)
• 1 - Lexus
• 3 - Cadillac
• Vehicle dependability study
• 1 - Lexus
• 8 - Cadillac
• Top vehicle award in Initial Quality for the
• Lexus ES 300
• Lexus LS 430
• Lexus RX 300

Source Kelly Bluebook.com Based on fully loaded
automobiles
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200
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1400
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Dealership Network

• Total USA dealership networks
• 200 Lexus dealers
• 1,400 Cadillac dealers
• New Cadillac dealership initiative implemented in
  2002
• Cost of implementation is projected to reach 1
  billion over a 10 year period
• Cost per dealership is projected to be
  approximately 1 mm per location
• Renovations planned for stand-alone dealerships
  worldwide to form a
• uniform elegant look
• Reasons for Cadillac dealership improvements
• combining a strong dealer brand with a strong
  product brand makes a lot of marketing sense -
  Dallas Business Journal
• New Cadillac dealership image program launched
  by GM is very sleek, very modern, and very
  appealing - Automotive News
• No one satisfies their customers as does Lexus
  unequivocally, owners are given service that is
  consistently outstanding. Lexus provides
  exceptional treatment in making it easy to obtain
  appointments, vehicles are almost always serviced
  the first visit, and they provide amenities that
  delight and please their customers - JD Power
  and Associates

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Product Decisions

• Replace the Catera with the new CTS
• Eliminate the Eldorado after this model year
• Extending the range of the Escalade brand with
  the EXT and others to follow
• Moving to the all new Sigma platform rear wheel
  and all wheel drive with a world class chassis
• Enter the growing mid luxury utility (SRX) and
  ultra luxury global segments (XLR)

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Product Differentiation

• New rear wheel drive models
• CTS is available with a manual transmission
• The Escalade EXT has the unique mid-gate
  technology
• Generally have more horsepower than comparable
  Lexus models

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Product Innovations

• Cadillac has several product innovations
• Magnetic ride control
• XM radio
• Stabilitrak
• Northstar engine
• Night vision
• OnStar
• Utility enhancement system

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New Cadillac Vehicles

• 2002 Escalade EXT sport-utility pickup
• 2003 CTS entry luxury sedan
• 2003 XLR new ultra luxury roadster
• 2004 SRX new luxury crossover to compete in the
  mid luxury segment

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Marketing Methodology

• In mid-90s, GM unleashed brand-management
• Goal to sell cars the way Proctor Gamble sells
  soap
• In practice, often meant focusing the marketing
  effort on innovative new models rather than the
  division that spawned them (Escalade vs.
  Cadillac)
• Hasnt worked the way intended due to different
  type of consumer decision making
• Soap/consumables- habit/routine- products are the
  brand- most dont know which products are PG
• Cars- complex- manufacturer has a large part in
  decision- I drive a Lexus vs. I drive a LS400

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Marketing Methodology

• Now, GMs focus back to the Divisions
• See more emotional Cadillac marketing efforts
• Still run new product promotions (CTS), but also
  draw in Cadillac themes
• "All of our advertising will stress the clear
  brand benefit of Cadillac - namely, breakthrough
  leadership in bold design and product
  innovation." M. LaNeve
• CTS ability to wrest buyers away from competitors
  will be first test of this new methodology
• Need to be cognizant of existing customers who
  enjoy todays Cadillac

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Marketing Methodology

• Now, GMs focus back to the Divisions
• Still run new product promotions (CTS), but also
  draw in Cadillac themes
• "All of our advertising will stress the clear
  brand benefit of Cadillac - namely, breakthrough
  leadership in bold design and product
  innovation." M. LaNeve
• CTS ability to wrest buyers away from competitors
  will be first test of this new methodology
• Need to be cognizant of existing customers who
  enjoy todays Cadillac

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Marketing Tactics

• Back into racing on an international scale
• Mercedes, Lexus, Jaguar, BMW and Audit already in
  the racing environment on a global scale
• Win on Sunday, sell on Monday
• The name game (DeVille to DTS)
• Encouraging dealers to upgrade
• Created high performance group to compete with
  AMG, M-Series, etc..

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Marketing Players

• Mark LaNeve, Cadillac Brand General Manager
• Relatively new (one year), came from Volvo
• Is working with a 4B commitment by GM to
  revitalize the brand
• Kim Kosak, Director of Cadillac Advertising
• Chris Fraleigh, Exec. Dir.GM Ad Marketing
• Media and Creative Leader of 3B ad budget
• Wouldnt have come to GM if it wasnt for
  Cadillac.
• Each vehicle has its own brand manager (e.g.,
  Susan Docherty, Escalade Brand Manager)

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Marketing Players

• Cadillacs Ad Agency is DArcy Masius Benton
  Bowles, based in Troy, MI
• Thomas Kearns, Cadillacs top designer
• In general, tactical functions such as media
  buying (e.g., GM works), eGM, research and
  womens/diversity marketing and research are
  centralized and support divisional/vehicle
  strategy
• Research- GM employs internal experts (mainly in
  Detroit) to perform primary and secondary
  research- are they really in touch with the rest
  of the world? The cost of this research is
  estimated over 100M for GM. But historically,
  lost in the Accounting Department.

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Advertising Promotion

• Cadillac will spend about 240M in 2002- about
  10 more than 2001
• Super Bowl alone was 10M- contract through 04
• Breakthrough campaign replaces 1999 campaign
  using the taglines
• The Fusion of Design Technology
• Art Science
• The Power of
• This program was widely criticized as confusing
  and too ambiguous, even by Cadillac Dealers

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Advertising Promotion

• Cadillac will use other high-profile events
• Winter Olympics
• Academy Awards
• Wimbledon tennis
• Ryder Cup golf
• New ads will be emotional and focus on edgy
  designs and cutting-edge technology- is that
  value to the customer? Product vs. product
  comparison?
• Emphasis on product placement in media, including
  movies such as Matrix II and Sopranos
• MTV and major league sports

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Advertising Promotion

• Cadillac changes ad agency compensation
• Cadillac continues to push gimmicks
• Video game for 50k vehicle- Escalade- gaming
  is popular among our target demographic.
• !!!The average age of an Escalade buyer is 51,
  with a household income of 160K. 35 are
  women.!!!
• Escalade billboard radio station, palm pilot
  advertising, B actor product pitches
• Also dealer spending on the rise- more local ads

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Current Ads

• CTS commercials with Led Zepplin-
• Highway Escape from 50s traffic, shows
  classic 59 Eldorado, CTS, XLR and EXT
• Glow as car performs, body panels heat up like
  the Space Shuttle, then cool as car stops
• Test Track Silver CTS drives opposite
  direction on track as competitors
• EXT- Parking Space Battle for space is
  resolved as small car placed in EXT bed
• Escalade- Crossing Rather than the SUV
  stopping for the train, trains stop for the
  Escalade

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Cadillac On-Line Marketing
Cadillacs information on the main menu is
clearly labeled and easy to navigate
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Lexus On-Line Marketing
Lexus information on the main menu is clearly
labeled and easy to navigate
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Cadillac On-Line Financing
Cadillacs financing leasing information is
still in development
Site is in development
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2002 Auto Show - Detroit
Cadillacs Theme Breakthrough Design
Technology Cadillac Cien won the Best
Concept Car Award from AutoWeek
Lexus Theme Quality J.D. Powers Awards
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Then and Now

• Then
• Cadillachas pushed marketing slogans without
  the products to back them up. You dont sell
  brand. You sell product.
• Up to now theyve had a brilliant strategy.
  Design cars for dead people, and let the deadest
  ad agency make the ads.
• In 2000, Cadillac was nowhere to be seen in the
  top 15 brands for future consideration (Lexus was
  sixth)
• Late to the luxury SUV and roadster segments

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Then and Now

• Now
• The product is rolling out- new CTS, roadster,
  SUVs, updated STS and DTS
• Face a much tougher market than 10 years ago-
  competitors have few weaknesses
• Cadillac battles Lexus as the brand with the
  highest level of owner satisfaction
• (Lexus LS430 was the highest nameplate, followed
  closely by Cadillac Deville)
• Commercials to emphasize Cadillac, not just car

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Lexus Moves

• Toyota always had luxury products- in Japan. They
  were called Toyotas. The same approach wouldnt
  cut it in U.S. as Toyota not known for luxury,
  but practicality
• LS 400 was partially successful as it was a
  styling coup and had Toyota quality at a time
  when a Cadillac had poor styling and quality
• Timing is everything- Lexus rolled out at the
  beginning of the longest economic growth period
  in history
• Lexus could sell their cars without any
  marketing. How often do you hear about incentives
  on a Lexus? Never. Theyre just that good. Motor
  Trend

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Recommendations

• PRODUCT, PRODUCT, PRODUCT- need a world-class
  product in every major segment- world class or
  CUT
• world class must be measured by external experts
  (e.g., trade magazines/Consumer Reports/Edmunds)
• promotion only has proven ineffective
• Increase price/perceived value- you dont want to
  be the low price leader in the luxury market.
• Reevaluate differentiation strategy- less
  reliance on gadgets More emphasis on quality
  and performance
• Advertising is in the right direction, it was a
  good roll-out (got a lot of attention), but its
  time to move the next phase of advertising that
  clearly describes differentiation i.e., style,
  performance

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Recommendations

• Cadillac needs to complete their home web page
  (e.g., www.cadillac.com) with up-to-date product
  information
• Expand the Cadillac home page dealership
  information to include mapping software (e.g.,
  home to dealer)
• Standardize network-wide Cadillac dealership
  home pages including
• dealership home page layouts
• model pictures
• section for testimonials of happy customers

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Recommendations

• Link all standardized dealership home pages to
  and from the Cadillac home page (e.g.,
  www.cadillac.com)
• The updated format for the Cadillac dealerships
  is a solid move in the right directions.
  Cadillac also needs to begin converting higher
  volume dealerships into a stand-alone more
  exclusive format with a goal of eliminating lower
  volume multi-brand dealerships from the Cadillac
  network.

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Recommendations

• An exclusive dealership program needs to be
  developed for the top dealerships based on sales,
  customer service, compliance with programs, etc.
• Cadillac needs to begin emphasizing their
  existing dealership network in their
  advertisement campaigns (e.g., with a Cadillac
  dealer within 15 minutes of 85 of the US
  population were just around the corner)

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Tactical Recommendations

• Expand/shift demographic- must attract younger
  affluent consumer
• Final Four- office pool
• Led Zepplin (narrow demo)-need Dave Mathews,
  Indigo Girls, etc..
• Use Oprah to attract women
• High Performance Group/Products is needed to
  improve image.
• Safety and social responsibility to attract women
  
• Halle Berry (Sexy/Sophisticated)