Calvin Thompson Dr. Frias
Paul Phillips 930-1050
Jason O’Neal Team 4

Land Rover North America

Land Rover President and CEO Charles Hughes was facing a daunting business challenge in 1994: How does He make North America the number 1 Land Rover market worldwide? In this case study we will examine how he decided on positioning and marketing The Discovery and Land Rover in North America to create a buzz about its fascinating new vehicle. The history of Land Rover is extensive and very precise, Land Rover was initially started as a bicycling company in 1860, but it wasn't until 1947 that the first concept 4WD utility vehicle was born. Initially competing with Jeep, but it was advertised as a more utilitarian versatile vehicle. It was sold to military customers and even within 5 years of its launch, 80% of Land Rovers were going to third world countries were the vehicles functionality could be greatly appreciated. In 1970 the Range Rover was introduced and sort of set the status quo for what was considered tasteful and sophisticated, a symbol for the affluent population. There was a growing concern as worldwide sales from 1983 to 1985 were plummeting due to what was called the "Japanese Invasion", there SUV's were crumbling and putting a cap on Land Rover sales in their core markets, this combined with the oil crisis, parts supplies being restricted, and repair services not being up to par in foreign markets left Land Rover in a tight spot. What Land Rover had overlooked, the Japanese were actually able to capitalize on the growing 4 by 4 leisure sector. After careful review Charles Hughes had to make a decision on how to regain brand recognition and popularity worldwide, and take back the leisure sector from the Japanese and thus a decision needed to be made. This is how the Land Rover Discovery was born. The Discovery is supposed to be the saving grace for Land Rover, they decided that they could hit on both consumer needs in the 4 by 4 leisure sector by offering an alternative on the chassis of the Discovery. It was made for people who were not only young professionals who needed a vehicle that showcased their current status in life, but also for families and the older generation. The design appeal that separated the Discovery aesthetically was the elevated roof line and the alpine windows which made it popular to consumers. In it's initial 1989 U.K. launch, the Discovery was marketed as the most advanced 4WD vehicle that exhibited comfort and authenticity. The sales numbers did not lie, they were 50 percent above target, and had even outsold the market leader Mitsubishi Shogun by two to one. 60 percent of the sales went to first time 4WD buyers. These were compelling arguments to state that the Discovery was just the answer Land Rover needed to stay competitive in the World Wide SUV race, and to try and take over North America as the number 1 SUV seller.
In order to successfully launch the Discovery, LRNA had to identify a target market. The influx of Japanese models proved that consumers clearly wanted an SUV. As with any successful product launch, it was imperative for LRNA to identify its target market. The American market was dominated by Jeep and Ford at the time. Land Rover decided that they could deliver a product that would satisfy consumers as well as compete with the market leaders. Analysis of research data revealed that two separate groups of consumers were the most likely to be in the SUV market. The first group is comprised of young, childless adults. Generally affluent and upwardly mobile, they wanted their vehicles to portray a symbol of status and image. This information appears to belie the data found in exhibit 8. For example, when consumers intending to purchase an SUV were surveyed on the most important attributes before buying, they scored status/image among the lowest. These results, however, were considered biased because people are less likely to admit in person that they bought something for the status it provides. The second segment of consumers who were likely to buy an SUV were older, middle-class Americans that valued practicality and utility over image and status. They wanted a vehicle that was dependable and carried a strong road presence. Further market research revealed even more information about the type of consumer that intended to purchase an SUV. For total SUV buyers in 1994, they were married people who had attended college and who averaged about $63,000 dollars per year in annual income. In fact, For Land Rover vehicles specifically, however, the numbers revealed that their customers tended to earn a significantly higher income than the rest of the SUV consumer base. Average household income for Range Rover owners was $256,000 and for the Defender the average was $113,000. This data and the ensuing analysis began to paint the picture for Land Rover North America of the type of consumer that they would need to target in order to make the Discovery launch successful.
As mentioned above, LRNA’s main competition in the SUV category was Ford and Jeep. The market for sport utility vehicles was heating up and the ability to differentiate itself from the market leaders was imperative for Land Rover. Americans had over 30 different brands to choose from at widely varying price points. Even more automotive companies were conducting studies on possibility of launching their own products. Jeep was deeply entrenched within the minds of Americans in the SUV category. Jeep got its start in the early 1940’s as a utility vehicle for the United States Army. Throughout the decades it solidified itself into a unique vehicle with a heritage very similar to Land Rover itself. Jeep has a very distinctive style that it has retained throughout different models and scored very high among consumers’ perceptions of aesthetics and creature comforts. On a scale of 1-10, scored a 7.5 on attributes of aesthetics and comfort and convenience. Its second highest product attribute was its status/ image, which scored an impressive 7.4. In a automotive review, Road & Track Magazine described the Jeep Grand Cherokee as the most “car-like.” In short, Jeep offered a very unique line of products to consumers and would be a formidable competitor for LRNA.
Ford decided to focus its efforts on offering an SUV with luxurious features and creature comforts. Not surprisingly, the Ford Explorer scored the highest among all SUV’s in the creature comfort category with an impressive 7.6. Ford also scored well on attributes such as quality, safety, and aesthetics, with scores of 7.4, 7.4, and 7.5, respectively. Ford offered American consumers a familiar brand in a product category that many consumers were buying into for the first time. Taking market share from this American stalwart would also prove to be a difficult challenge.
In order to gain market share in the competitive SUV arena, Land Rover had to make sure that its products paralleled the spectrum of potential consumers. The premium brand in Land Rover’s lineup was the Range Rover. This was the first Land Rover vehicle that was introduced to Americans and many, in fact, considered them to be the flagship brand. LRNA already had the advantage of brand equity in the Range Rover because they had launched their line in th1980’s. Connotations that followed the Range Rover were often of luxury, elegance, refinement and generally evoked the feelings of British royalty. Status conscious Americans knew what they were buying into when they purchased a vehicle with an MSRP of about $52,000. The next price point that LRNA wanted to bring to America was the mid-sized Discovery. The Discovery was expected to compete directly with the Ford Explorer and the Jeep Grand Cherokee. Sales were impressive and the Discovery became LRNA’s top selling vehicle. The Discovery had a price point of around $28,000, a very competitive package in relation to its competitors. The lowest priced vehicle that LRNA would offer was the Defender. The Defender was Land Rover’s answer to the Jeep Wrangler but derived its competitive advantage from the upscale, high-quality umbrella brand that Land Rover provided.
The Discovery has three possible positioning strategies. In an effort to maximize sales, the Discovery was introduced with a dual positioning strategy. The two positions were the “Definitive Family 4x4”, and the “Logical Evolution of the Legendary Land Rover.” Another positioning consideration was to market the Discovery as the “More Affordable Range Rover.” These positioning strategies each had unique problems facing them, and conversely opened new doors for LRNA. For a short time the positioning option of the more affordable Range Rover was considered. However, this notion was discarded after some debate. All the management team had to do was remember what happened when the Hunter was introduced, and they gave up on this positioning strategy. The Hunter was introduced to the American market as an alternative to the Range Rover. The Range Rover was previously the only model offered in North America, but LRNA thought there was a market for a cheaper Ranger Rover. The manufacturers removed a great deal of the gadgetry and expensive features of the Range Rover and created the Hunter which “was, in effect, ‘a cheaper stripped down Range Rover.’” The Hunter failed and was removed from the product line right away. The Hunter was not in-line with the corporate strategy that LRNA was trying to achieve. The Hunter detracted from the exclusivity associated with the Range Rover brand in North America. Management recognized that to position the Discovery as the more affordable Range Rover would be to make the Hunter mistake all over again. Positioning the Discovery as the definitive family 4x4 creates one great big problem. According to exhibit 19 only 38% of discovery buyers have children. Although 38% is a good portion, focusing on this positioning strategy excludes over half of the customers, and could potentially forfeit those customers’ future sales to competitors. The most effective positioning strategy for the Discovery is to market it as the logical evolution of the legendary Land Rover. One problem facing this positioning strategy is that Land Rover does not have the history in North America that it does in Europe. Therefore, referring to the Discovery as the evolution of the Land Rover may not carry as much weight in the states as it does in Europe. However, according to exhibit 19, 83% of Discovery customers have college degrees, and of that group, more than half have advanced degrees. Educated people tend to be more worldly and cultural knowledgeable. Educated people are also more apt to do the research necessary to make an informed decision. The most positive thing about this positioning strategy is that it does not completely forfeit the customers that would be attracted by the definitive family 4x4 position. The family capabilities are apparent when the product is positioned as the evolution of the Land Rover. The positioning of the Discovery as the evolution of the Land Rover also aids in the effort to reduce the cannibalization of sales of other products in our product line. The Discovery was introduced in 1994, in the first half of that year, 2,055 units were sold. During that time, LRNA saw a decrease in sales of the Range Rover by 705 compared to the 6 months prior to the launch of the Discovery. Conversely, there was an increase in sales of the Defender by 440 compared to the 6 months prior. The Defender benefitted from the hype that the Discovery was creating. Positioning the Discovery further away from the Range Rover will help reduce the cannibalization of sales. The Range Rover yields the greatest returns and it is extremely detrimental to allow potential Range Rover customers to buy the far cheaper Discovery. This will be achieved through the differentiation of the two models. The advertising strategy needs to be to advertise each product individually. While ford benefits from advertising for the corporate brand, this would be detrimental to LRNA since there is a greater difference between the prices of the products offered. If potential customers see all models in the same commercial, it implies that they are of equal value. This might create some confusion among consumers and prove counter-productive to their marketing efforts. Our recommendation based on the case analysis is that independent LRNA dealers should make the investment into Land Rover Centre facilities. When Land Rover North America first arrived in the United States, it required that the dealers invest $60,000 in capital expenditures before they could begin selling Range Rovers. The expected payback period was 90 days, or 3 months. This averages out to a cost of $20,000 per month to be able to sell highly profitable vehicles in a white-hot SUV market. In comparison with that initial investment, the risk is almost the same for a Land Rover Centre investment decision. The initial cost would be $500,000 with the initial payment being repaid in 25 months. This also averages out to $20,000 per month in costs. Although the timeframe is longer, we believe that the reward potential available for this additional risk is too great of an opportunity for Land Rover to pass up. LRNA is trying to ramp up their sales from the 4,000-5,000 units to the 40,000 unit per year category that automotive giants such as Ford and Jeep achieve. In order to hit these numbers, Mr. Hughes has dicided to allocate more funds to his marketing efforts. This includes funding for traditional marketing outlets like advertising to new, exciting public relations campaigns like the La Ruta Maya expedition. Campaigns like these are designed to showcase the capabilities of the Land Rover product line and broaden the appeal of their vehicles to a wider consumer base. We believe that this campaign will bring new customers into the cult-like following that Land Rover has achieved with its current customer base. All recent data implicate that this would be a financially healthy decision and that sales along with the demand for Land Rover’s products would drive significant profit growth. Land Rover had already exceeded its quota by 10% in the first year and although data is only out for the first 2 quarters of the current year, LRNA is on track to have its best year in North America.
In summary, we believe that the opportunity is too great to pass up and that dealers should make the investment into Land Rover Centres. The SUV market is beginning to solidify among its most successful brands and this investment represents a way to offer a unique product to a customer base that clearly demands it.