Aston Martin Analysis - Natalie Zajeski Applied Marketing Management November 8, 2017

Aston Martin Analysis

                                    Natalie Zajeski
                    Applied Marketing Management
                                November 8, 2017

Overview
      Aston Martin has carefully crafted a reputation for exclusivity, design, and engineering

among luxury high-performance sports vehicles since 1913. The quality of the cars are

unparalleled, considering over 95% of their total vehicles sold over the past 103 years are still in

running condition today. The engineering of Aston Martin’s vehicles rely on their unique

capability and expertise to create bonded aluminum body structure vehicles; this technology,

used in aerospace design, differentiates the company from its competitors. The aluminum body,

light weight handling, and signature design of Aston Martins have been featured in 13 James

Bond films (Exhibit 3). The movie partnership has generated an enormous amount of brand

awareness, allowing Aston Martin to spend little on communication expenses. However, the

brand has over-estimated James Bond’s ability to convert film features into sales for the

company. Despite Aston Martin’s strong brand equity and unique core capabilities, the company

has struggled to maintain healthy production levels, and achieve consistent profitability for

decades. Aston Martin has continuously failed to innovate, as it may be because of the

company’s problems with constant ownership changes and organizational restructurings.

       This is at a time period, where the auto industry is very mature and highly consolidated.

Larger car manufacturers, such as Ford and GM, have acquired smaller automakers for decades.

One of Aston Martin’s greatest disadvantages is that it is a privately held company and is not

backed by a larger automaker. Consolidation has allowed large automakers to increase their

economies of scale and broaden their portfolio by offering vehicles across market segments

(Exhibit 1). Aston Martin’s primary direct competitors include: privately owned Ferrari,

Lamborghini owned by Volkswagen, and Nismo owned by Nissan. This segment is extremely

small, premium and luxury combined account for less than 14% of global sales volume, however

this segment is highly profitable and commands 60% of total industry profits. Regarding volume,

there is a production limit for luxury vehicles for two reasons: production capacity of facilities,

and the necessity to control the perceived exclusiveness of the vehicles. For example, Ferrari

limits their production level at 7,000 vehicles a year. For consolidated companies, this

production restriction has reduced effects on overall profitability because of the cost synergies

and diversification of the other brands in the company’s portfolio. However for Aston Martin,

low production volume damages their profitability immensely, especially at a time for them with

already low innovation, low demand, and low company growth.

The 7-Year Second Century Plan

       In order to correct failing strategies which have led to dismal earnings for Aston Martin,

the new 7-Year Second Century Plan aims to increase company production volume and

profitability, with a focus on developing new vehicles, and expanding their target market.

       Aston Martin aims to increase total production volume 43%, in only 5 years, Aston

Martin’s primary target market purchases around 40,000 luxury cars annually. Aston Martin’s

2020 production volume goal is 15,000; this will increase Aston Martin’s market share from 9%

in 2015 to 37.5% in only 5 years. This target is very aggressive. Similarly, Aston Martin’s

EBIDTA goal is $658,400 by 2020. Currently, all of Aston Martin’s measures of profitability are

dismal, including EBITDA margin of -30% (Exhibit 5).

       Their first vehicle launch was the DB11 in 2016. This vehicle is an extension to the

already successful DB platform, which highlights the company’s core competences and core

brand identities. This line is one of Aston Martin’s best performing vehicles, the DB9 had the

highest volume growth, 40%, compared to all of Aston Martin’s models. This was a very good,

strategic choice for Aston Martin to signal to consumers and competitors that they are going to

begin competing more aggressively in the luxury sports car market.

The launch of the DBX in 2019 challenges Aston Martin’s position as a luxury brand,

despite their plans choice to remain in the luxury segment, for several reasons. The production

target for the DBX is 5,000 vehicles/year. This is an extremely high goal. The strategic rationale

for creating a crossover SUV, is a shift in consumer trends and preferences; the value a crossover

provides to consumers is very different than the value of owning a Aston Martin’s sports car.

The functional benefits are extremely important in selling a crossover compared to Aston

Martin’s sports cars, which are intrinsically valuable.

       The launch of the DBX also seeks to provide a vehicle for females. In 103 years, less

than 4% of Aston Martin purchases were made by females. Aston Martin recognizes that a high

percent of HNW individuals are women, and they have high influence over purchasing decisions.

Women’s income is at a period of global growth, and fortunately for Aston Martin, the luxury

vehicle market is at a period of global growth as well despite it being a mature industry. Total

sales of luxury vehicles are increasing in geographic regions such as Asia and the Middle East,

and HNW and UHNW individuals are expected to grow by 24% in less than 10 years. Expanding

Aston Martin’s target segment to include HNW women is a very strong, strategic decision.

However, the price of the DBX is expected to be between $197,520- $263,360. Similar products

offered by premium brand competitors include the Mercedes GL-Class and GLS-Class, Porsche

Cayenne and Land Rover. These are premium brands, not luxury, so they are not a direct

comparable to Aston Martin’s DBX. However, these cars range in price from $58,000-$85,000.

Combined, they sold a total 478,000 premium SUVs in 2014. Aston Martin’s production target

for the DBX is 5,000 units annually, which will be about 1% market share. This is only if

demand for a luxury SUV, which is about $150,00 more expensive than what is currently

available in the market, can be met.

The second new vehicle platform Aston Martin is looking to launch is the RapidE EV,

with an expected launch year of 2018. The concept of the RapidE EV is really driven by the

technological trend of zero emissions vehicles in the auto industry. This industry trend is lead by

Tesla, and followed by larger automakers, such as Ford. If the RapidE EV is successful, Aston

Martin will provide the first luxury electric vehicle. The production target is 1,500 annual

vehicles at more than $263,360. This is a very radical vehicle for Aston Martin to create; it

requires a lot of capital investment and it deviates from the brands core capabilities. Although

there is a trend in zero emissions vehicles in the market, strategically it is not a good fit for the

brand. The capital expenditures required to become experts in producing electric cars may

actually be far greater than any green emissions tax exemptions. Additionally, it risks damaging

the brand image, one of Aston Martin’s few strengths. An Aston Martin consumer has certain

associations with the brand, and one of them is power. Luxury vehicle consumers identify with

the “growl” of the engine, they can feel torque and hear the acceleration. The sound and push of

a combustion engine creates a pleasurable experience for sports car owners. Electric cars lose the

signature “growl” and experience consumers enjoy. This difference in experience can dilute the

brand equity, and complicate consumer expectations. Lastly, the Rapide four-door launched in

2010, and has not done well in the market, only 200-300 units were sold in China. Compared to

all of Aston Martin’s models, Rapide actually performed the worst over the past 5 years, -55%.

Aston Martin should not model a new vehicle off a model that performed extremely bad in the

market already.

        Consumer preferences for luxury vehicles are unique compared to other car segment

consumers, such as mass-market or premium. For individuals who purchase luxury cars, such as

Aston Martin, they care more about the intrinsic value of the purchase which may be status,

power, taste, individuality, and so-forth. They are not interested in the functional benefits of the

vehicle, but rather what the car represents and how it relates to their image. Aston Martin’s brand

has earned the companies place among luxury car collectors, but they are typically a third of

fourth car purchase for consumers and never the first. Arguably this is because of Aston Martin’s

inability to innovate. For Aston Martin’s target market, luxury cars for them are meant to push

boundaries in design and technology and companies are anticipated to develop concept cars in

accordance to their brand image. The strategic plan created by Aston Martin will successfully

increase innovation for the traditionally very low innovative company. The new vehicles, DBX

and RapidE EV will push boundaries while the DB11 will maintain the core brand identity.

However, there are still a lot of challenges in these launches, primarily because of the lack of

uncertainty in demand, and the financial and production goals are extremely high compared to

past performance.

Recommendations

       Aston Martin runs the risk of brand dilution by offering vehicles, across different

segments, that juxtapose the core brand image of Aston Martin. In order to minimize this risk,

Aston Martin needs to create a new communication strategy that encompasses and separates the

new vehicles clearly. For example, in order to appeal to more woman, Aston Martin should

expand product placement, beyond James Bond movies. Leveraging their Dover Street store,

Aston Martin can entice women to enter the store by offering exclusive fashion events in

partnership with other luxury brands, such as Jimmy Choo. And on a bigger scale, they can aim

to be featured in a new female-protagonist film iconic rival to Bond, such as Wonder Woman.

       Aston Martin can increase production volume and decrease costs through joint ventures

between them and Daimler. Aston Martin should not use Daimler’s steel platforms and instead

they need to always use bonded aluminum body structures because it part of their core identity,

and differentiation strategy from other luxury and premium vehicles. They can also increase the

use of machines for parts of the production process such as painting. Painting accounts for 36%

of total production assembly time. Using machinery for these activities will minimize costs,

while also maintaining important done by handle activities that customers are willing-to-pay for

such as leather stitching.

       Lastly, Aston Martin can focus further research and development on implementing

service based systems into new vehicles. This technological trend is a good fit for Aston Martin

because it can increase willingness-to-pay without risking damage to their brand. It can also be a

very cost efficient strategy since the cost of electronics and software has dropped by 80%.

Software updates can be sold every few months to existing customers, which could be a very

good source of revenue for Aston Martin versus continuous product launches every three to four

years on average.