Marketing Plan
Marketing Strategy presented in Question and Answer Format
How can MLP be sure the CSOs will want the SRC ?
Mobility For A Living Planet (MLP) will study the operating conditions and business practice of European CSOs. Top of the list is the parking situation. For example : what percentage of shared cars are parked curb side, open lot and parking garage ?
If 90% are parked in groups of only 2 at curbside then perhaps the SRC needs to have a different body design.
What is the typical width of a curbside space ? Could a short enough vehicle park perpendicular to the curb ? How expensive would it be to install a curbside electrical charging station ?
If a large fraction park in parking garages then what is the ceiling height limitation ?
Other questions to consider are seating capacity, cargo capacity, and trip length.
What is the distribution of trip lengths over a week ? If most days are spent making many short trips totalling only 30 miles, then a plugin hybrid with conventional batteries would be able to operate for most of the time in all electric mode. Although the average miles per day is 50 for some CSOs, the median day in a week might only be 30. It only takes one day of long trips, say 170 miles, to drive the weekly average up to 50.
MLP will seek to obtain information on all costs of operation for European CSOs. Then a cost model based on the SRC will be shown to be lower in cost than leased conventional cars.
How can MLP make money with a SRC design ?
MLP will persuade an auto maker to mass produce the SRC and pay royalties.
By 2013 I expect some auto maker to be making 70,000 SRC a year and paying MLP $35 million in royalties. In 2020, auto makers will make 1.8 million cars and pay $ 542 million in royalties. Royalties per year are forecast in the section Royalty Revenue Forecast.
The numbers of potential users, upon which the royalty revenue forecast is based
is estimated in Projected Car Share Users.
The initial patent will expire in 2013. Follow on patents filed between 2005 and 2008 will not expire till 2025-2028. The car company will have a protected market for about 20 years.
The car company could have a healthy
profit per car because no other maker would be licensed to use the design and hence there would be no competition and no cut throat pricing.
When recruiting a car company, MLP will approach the majors, but also look at the smaller firms that can turn a profit on only 10 thousand cars per year. Given that there is no demonstrated, pre-existing market that absorbs 60,000 SRCs per year, it might be better to start with a small plant that makes only 10,000 per year. This small maker would have an exclusive license to make and sell in geographic area of 20 million or less. If they sell well, then it will be easier to convince a major, like Honda, to start making 60,000 a year.
Why would an auto maker want to take a risk on producing the SRC ?
MLP will prove SRC demand exists with test marketing to end users and CSOs. By the end of the test
market phase there will be hundreds of end-users, dozens of CSOs and dozens of parking providers
that will attest to the SRC's market potential.
Any mass produced car is a risk. Especially when competing with many other car makers for a slice of a market flooded with different models. Think of all the companies that make sedans, pickup trucks, economy cars, and SUVs.
But the SRC will be protected by patents and so a car company that makes the SRC will have protection from the 37 other car companies making generic economy cars.
While it is true there is no large existing market it is also true that the market potential is huge. About 245 million people around the world are potential car share users. The development of this market has been hindered by the lack of a car like the SRC. Conventional cars are not designed to take the abuse of rental operations while surviving for 10 years. The cost of providing shared cars is higher than it could be. The SRC will bring costs down and tap this huge market.
Remember, at one time there was no existing market for overnight package delivery or for personal computers. The market potential was there. The fundamentals were right. But until an economy of scale is achieved, it is difficult to prove, to all doubters, that a market exists. MLP will demonstrate that the market exists with market studies, focus groups and random sampling.
Several car companies that have already noticed the market potential of Car Sharing are listed in a later section.
How can MLP demonstrate that a market exists?
MLP will convince several parties of the SRC's market potential :
MLP will show that end users will rent SRCs and CSOs will lease or buy them. MLP will test market SRCs with a large random sample of end users in several markets.
MLP will prove there are 245 million potential car share users and that within test markets there are a high percentage that would rent the SRC. In survey work by Peters, Scott and Burkholder ( CSMFS ), they found find 12% of a Portland neighborhood of 40,000 would use Car Share.
MLP would work with CSO consultants to build a cost model for SRC rental operations and compare this to a cost model for CS operations with conventional cars.
MLP will recruit CSOs to help test market the 10 SRCs. A market research firm will be contracted with to help MLP work with CSOs, and end user focus groups, to characterize and quantify the market potential.
Users will be trained to drive the SRC and then allowed to use it for a few hours of typical errand running.
Each test consists of a 2 hour training and practice session on a test track plus 2 hours of errand type trips. The trainer would ride with the test subject on errand trips as a security measure. The SRC prototypes would be too expensive to be lost and are at risk of theft because of industrial espionage.
After 2 hours of using a SRC, a trial user would be asked to estimate the percentage of trips by SRC and conventional car for 4 different price levels. At all pricing plans the Honda Civic is $8 for one hour and ten miles. The SRC pricing varies from $5 and hour up to $8 an hour.
For example at pricing level 1, with SRC at $5 an hour, the test subject might estimate that they would use the SRC for 75% of errand trips and Honda Civic for 25%. At Pricing level 4, when both are $8 an hour the response might be 95% for Honda Civic and 5% for SRC.
If they say 75% of trips would be by SRC then a CSO would need to
have a fleet composed of 75% SRCs to be competitive.
The CSO could charge less for the SRC and yet make more due to parking density, numbers of cars rented and economy of scale.
The marketing firm will also determine the extent of SRC acceptance by parking providers such as universities, city governments, businesses, apartment buildings, and transportation facilities.
This acceptance will be quantified in terms of how many free spaces, for SRCs, will be provided per 1000 students, workers, tenants etc. And if free spaces are not offered then parking providers would be asked to estimate how much they would charge a CSO to rent spaces and how many spaces would be available.
Institutions, which will be asked to provide parking space, will be made to understand and appreciate the benefit of high parking density and low emissions. A college can make the campus experience more attractive to students by providing SRC parking.
Transport facilities that serve train and bus lines can
attract more riders by making station access easier. High rise apartment buildings can provide car-like mobility to more tenants, at a lower rent. Governments , in urban areas with air pollution, will have to be convinced that the SRC deserves free parking. In all of these examples, an institution, a housing area, a transit station, there are benefits for providing parking to CSOs and in particular to the SRC.
MLP plans to document the degree of acceptance by end users, CSOs and parking providers. MLP will then present this documentation to car companies and the news media.
How big must the random sample of end users be ?
The market research firm, employed by MLP, will use sampling theory and methods to predict market share.
They will collect a random sample of test subjects from a large population.
Random sampling is data collection in which every person in the population has a chance of being selected which is known in advance. Normally this is an equal chance of being selected.
Using an on-line sample size calculator (http://www.surveysystem.com/sscalc.htm) I have determine that :
With a confidence interval of 4% and population of 15 million, we would need
600 randomly selected test customers & drivers ( or samples ) to get to a 95% confidence level.
The confidence interval is the plus-or-minus figure usually reported in newspaper or television opinion poll results. For example, if you use a confidence interval of 4 and 47% percent of your sample picks an answer you can be "sure" that if you had asked the question of the entire relevant population between 43% (47-4) and 51% (47+4) would have picked that answer.
The confidence level tells you how sure you can be. It is expressed as a percentage and represents how often the true percentage of the population who would pick an answer lies within the confidence interval. The 95% confidence level means you can be 95% certain; the 99% confidence level means you can be 99% certain. Most researchers use the 95% confidence level.
When you put the confidence level and the confidence interval together, you can say that you are 95% sure that the true percentage of the population is between 43% and 51%.
So 600 test customers must evaluate the SRC.
One SRC, with trainer, could process ten (10) test customers per week.
In six weeks the SRC and trainer would train 60 test subjects. A fleet of 10 SRCs, at one CSO, in one test market, could be tested with and evaluated by 600 trial customers in six weeks.
Where will the SRC be test marketed ?
The SRC will be test marketed in China, Germany, and USA. Within these markets they will be tested
at universities, high rise apartment clusters and beachside hotels.
China is the largest potential market. To test there, MLP will hire a marketing firm
that specializes in the Chinese market. Of course they will have several
employees that can speak Mandarin and English.
Our marketing person, employed at MLP, might also be fluent in both Mandarin and English.
Likely cities are Shanghai, Honk Kong and Beijing.
Within those cities MLP will set up shop near major universities,
and clusters of high rise apartment buildings.
China will present a special problem in that most potential customers will have never driven before. They will be given a quick driving course,
preferably with 10 hours of practice, in a conventional car, on a test track.
Germany has favorable conditions and the largest number of existing users. These conditions, as described earlier, include high fuel costs, expensive and scarce parking, and good public transportation.
MLP will test market in USA on college campuses and beachside hotels. There are 15.8 million college students in the US, most without access to on campus parking.
MLP would also test market at beachside hotels.
Hotel customers have flown in from some other city and have to rent some form of car. The beachside hotel is built on expensive beachfront property. The hotel owners could reduce the amount of land they use for private parking and instead provide 10 SRCs for rent. The SRC, with plastic body panels, will not rust.
In order to progress from easiest to hardest, MLP will first test market in USA, then Germany and finally China.
What is a sufficient volume of SRC production to justify the cost of an auto plant?
I estimate 10,000 to 60,000 cars a year would be a sufficient volume.
The potential market for SRCs has to be at or above some minimum number before a car company can justify building, or re-tooling a manufacturing plant. I estimate that minimum number to be 600,000 cars. The next two paragraphs explain how I get this number.
Total annual US auto sales are about 16 million cars, trucks and vans. The number of makes and models for sale in US is about 280. This averages out to 57,000 units per year for one model. The typical rate of auto plant production is 60,000 cars per year for a full scale auto factory. If the plant is worked two shifts, or 80 hours per week , then it will produce 15 cars an hour or one every 4 minutes.
The amount to be amortized for a new or retooled plant, without a painting line, is estimated at $400 million. Amortizing this at 7 % and 10 years is 55.8 million per year. If the plant makes 60,000 cars a year the cost per car, just for factory, is $930.
If instead the plant makes only 10,000 cars per year the amortization per car is $5580. The bulk of the car cost is then in the parts, such as body panels, that are made by subcontractors.
The question of sufficient volume depends on projected selling price. At 60,000 units a year the SRC should sell for under $25,000. At 10,000 units a year the cost would be closer to $30,000. And at 100 cars per year the cost would be in the $60,000 range.
Assuming the same style is kept for 10 years and the plant produces 60,000 cars a year for 10 years, the total amount produced is 600,000. MLP has to show that the market would absorb at least 600,000 cars over 10 years. The likely user group is 245 million. This group would share 24 million cars. The market could absorb 24 million cars, or 40 times the minimum needed to justify one manufacturing plant.
If the SRC is feasible, why haven't the auto companies done it already ?
It is hard to say.
Large companies have large sunk costs.
That is they already have invested hundreds of millions of dollars in the way they do business.
It is hard to break out of that trap.
But there are plenty of examples of outsiders changing the way big business does business. Think of Federal Express with overnight delivery and Apple Computer with personal computers.
Why didn't IBM think of the personal computer ? Apple proved it to be a popular item, not IBM. Maybe IBM viewed the mainframe computer as sacred.
Maybe the major auto companies think that private ownership is a sacred, a given. Maybe they view public transportation as competition only.
The SRC arose out of a systems approach to solving the typical transportation related problems faced by large urban areas : Air pollution, Parking scarcity and Traffic congestion. The SRC would be part of a well integrated system of mass transit and personal mobility.
Auto companies , in general, do not think this way. They want to sell a product that has style, speed, and other features that revolve around private ownership.
Exceptions to this rule are car companies such as VW, Honda and Toyota.
The SRC stacking ability provides the low parking cost of a six foot long car while also providing the collision protection of a 16 foot long car.
Urban populations are increasing. The relative value of land, and the cost of parking, will only go up.
The Stackable Rental Car (SRC) is the only car designed to minimize the high cost of parking while still protecting its occupants from collisions with heavier vehicles at realistic speeds.
SOURCES
CSMFS : Market Feasibility Study : Car Sharing In Portland, Oregon, by Jane S. Peters, Ph. D. Steven Scott, P.E. and Rex Burkholder, July 10, 1997
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There is no large existing market.
Is the SRC just a niche market item ?
There are several problems with the car sharing efforts listed above. None of these contemplate a robust vehicle that can take the abuse of rental operations. And the vehicles are either small like the e-com or regular size like the Honda Civic. None of these provide the parking density of a small car and the collision protection of a large car.