| Abstract |
This is the second of a two-case series (506-208-1 and 506-209-1). Nissan Motors Ltd went through a spectacular turnaround led by Carlos Ghosn. Nevertheless, in spite of strong growth in new car sales, aftersales of automobile parts in Japan did not keep up, hurting dealer profitability. Since dealer profitability is a key success factor in the auto industry, Nissan decided to lead its Japanese dealers to: (1) improve their cost structure; (2) improve their management methods; and (3) stimulate 'customer traffic' via better marketing strategies. The aftersales department identified a Toyota dealership that actually managed to increase its profitability by working on these three factors, and its president agreed to let Nissan benchmark with his operation. The department decided to replicate this Toyota dealer's management methods, costs and strategy. The latter includes significant price reductions on fees for road- worthiness tests, which dealers are authorised to perform on behalf of the Japanese government. Many Nissan dealers raised objections to this pricing approach and, in order to convince them, the company executes the strategy on a 'pilot' basis, in Hakone, testing the approach and, hopefully, creating a showcase. While initial results were encouraging, the growth in market share seems to flatten, possibly vindicating the doubting dealers' arguments. The case generates considerable controversy in both MBA and executive classes, includes discussion on: (1) market segmentation; (2) pricing strategy; (3) channel design; and (4) dealer network management issues. The case includes a detailed discussion of the dealers' 'business model', allowing the class to inspect the financial impact of various strategic scenarios for both Nissan and its dealers. The teaching objectives of the case are: (1) to show the difference between strategic and trivial market segmentation; (2) to examine channel conflict as a major obstacle to implementing a marketing strategy that is based on a new segmentation; (3) to examine the challenge of aligning the business models of the manufacturer and the distributor; (4) to show that not overcoming channel resistance to a new strategic segmentation may require an expensive redesigning of channel structure; and (5) to provide familiarity with the distribution challenges of the automobile industry in Japan.
*Abstracts reprinted with the permission of INSEAD* |