Hyundai is perhaps the only company selling more cars in 2008. I didn’t know this but this Wharton note is a good one on Hyundai and its strategy in these times.
In 2008 — a brutal year for the auto business — Hyundai’s global unit sales rose 2%, lifting revenues by 5%. In the first three months of this year, the company’s global market share rose to 4.7%, compared to 4% a year earlier.
However, Hyundai had to really do some image management.
Hyundai first made a name for itself in the United States in the late 1980s when it exported the low-cost Excel to the American market. The car was popular at first, but soon earned a reputation for developing rust and other quality problems. “Sales dropped and it left reputational damage in consumers’ minds,” according to MacDuffie. In the 1990s, Hyundai attempted to introduce a range of high-priced vehicles into the U.S. market, but MacDuffie says the company was “haunted” by its reputation: “Quality has always been Hyundai’s Achilles heel in … the U.S.”
So, what did it do ?
Beginning in 2001, MacDuffie says, Hyundai launched a major push to upgrade quality with a daily focus on improvement through new processes at its manufacturing plants, and from better design and engineering. At the same time, to help overcome its reputation for poor quality, the company announced a 10-year, 100,000-mile warranty. The Hyundai program was far more comforting than the industry’s standard three-year, 30,000-mile warranty, and essentially guaranteed the car for its entire expected working life.
“It was risky, but a powerful impetus to improve quality,” says MacDuffie. “They pulled it off and it helped them make a major jump forward.” This year, Hyundai’s Genesis was named 2009 Car of the Year by independent automotive journalists at the North American International Auto Show in Detroit.
Its strategy in this crisis is a real winner:
In January, Hyundai grabbed attention in the United States as consumers were reeling from the collapse in housing and stock market prices and growing fears of unemployment, by offering to take back a car that is financed or leased by a worker who subsequently loses a job. When it was introduced, the Hyundai Assurance program was seen as more than just a marketing campaign, but also as psychological affirmation that the economy was not going to collapse entirely.
What they are doing is empathizing with the plight of people who are struggling,” says Wharton marketing professor David J. Reibstein. He observes that the Assurance program is similar to the warranty that Hyundai used to build confidence among consumers. “There might be hesitancy to buy because people don’t know if they will be employed, but this provides the safety net which allows them to say, ‘I can still afford to be in the market.’ Clearly, the market needed some stimulation and Hyundai was able to provide that stimulation.”
In another surprising marketing move, the company last month offered to send buyers of some Hyundai models up to $333 a month for six months. The catch: The deal applies only to cars on which Hyundai is offering rebates. Buyers may opt for either the rebate or the monthly check (not both), and the value of the two offers is about equal. But such programs tend to generate consumer buzz.
This is superb stuff from Hyundai. Both the strategies are an example of using a bit of behavioral economics. The first looks at people’s emotions and helps them make a buying decision in these times.
The second strategy is a typical behavioral economics situation: Do you want USD 600 now or USD 100 per month for in next 6 months.
In good times most people usually opt for USD 600 now. But in uncertain times like these, I think they might opt for the second choice as it ensures some income stream every month.
There are studies which show that people usually opt for the first choice , I am not aware of any study which looks at the behavior of people in these times. Does it change? The Wharton note does not tell you which option people would have taken more. I think it is a good topic for research for behavioral economists. Contact Hyundai officials right away and analyse the data! It could throw just the opposite of what I think, who knows?
What is also interesting is firms are copying Hyundai strategy as well:
Competing automakers and other types of businesses soon followed with similar promises.
Reibstein says the offer was a groundbreaking concept, which was later adopted by other companies. The idea might be used successfully in other industries to inspire confidence among consumers, he adds. Big-ticket durables would likely benefit the most, although he says the idea might also succeed in real estate. Pfizer has a similar program assuring the users of its products that they will be able to continue to receive medication if they lose their jobs.