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Tesla Motors Inc.: Target Market Segmentation and Product Strategy

Tesla Motors Inc.: Target Market Segmentation and Product Strategy

Introduction

Tesla Motors Inc. is involved in designing, manufacturing and selling of electric cars, as well as electric vehicle components. Currently, the company strategy focuses on the development of expensive and high-end automobiles targeting affluent customers (Tesla gains new admirers as it heads towards the mass market, 2014). With the maturing of its consumer and products acceptance, there is a need for Tesla Motors Inc. to explore mass markets. Given that Tesla Motors Inc. uses a new technology in the automobile industry, the company had to develop premium products that target affluent consumers. It is a common business strategy adopted by the technology industry whereby the first product versions are offered at high prices, which later drop with the increase in the production volumes and the maturing of the technology. It has been the case with flat screen TVs, laptop computers and cell phones among others (Tesla gains new admirers as it heads towards the mass market, 2014). To this end, the aim of current paper is to develop a new strategy for the products of Tesla Motors Inc. that includes an analysis of the potential customers, market segmentation, selection of primary and secondary target markets and development of product strategies that are aligned with the strategic focus.

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Analysis of Potential Customers

In order for any organization to achieve the highest competitive advantage, there is a need for an organization to have a mechanism that will focus on what it intends to do best and make sure that it is not diverted by other opportunities that may present themselves. Such mechanism is what denotes a firm’s strategic focus. According to Armstrong and Cunningham (2012), strategic thinking poses a need for a firm to recognize its wanted end-state, taking into account all the positive and negative impacts that are likely to have an effect on the achievement of this end-state followed by the devising strategies that can facilitate the achievement of results. For the case of Tesla Inc., the proposed strategic focus is acquiring and increasing its market share in the mass automobile market across the globe. This is a deviation from the current strategic focus that emphasizes on the production of high-end and expensive automobiles for affluent consumers. At present, the target market for Tesla Inc. focuses on individuals looking for high-end cars that are environment-friendly. Due to the price of the automobiles produced by Tesla Inc., the target market is defined by people who do not only want particular features in a car, such as environment-friendliness, but also people with higher income. This makes it somewhat difficult for Tesla to target the mass market.

In line with the aforementioned strategic focus, the potential customers for Tesla Inc. will be from the mass market. Weinstein (2013) defined mass market as a large and undifferentiated consumer market having diverse backgrounds. Currently, Tesla Inc. focuses on a niche market characterized by loyal wealthy customers. Tesla Motors Inc. has been successful in communicating its environmentalist credentials when compared to other cars that have been marketed as environment-friendly, such as Toyota Prius (Tesla gains new admirers as it heads towards the mass market, 2014). The proposed strategic focus for Tesla Inc. is to move towards a mass electric car market. Despite the huge potential in mass market electric cars, it will not be easy for Tesla Inc. to compete with already established petrol cars that market themselves on the basis of reliability, especially for the lowest-cost petrol cars. Therefore, with the emphasis on the mass market, the potential customers for Tesla Inc. will comprise of buyers wanting the cheapest means of transport for moving from point A to point B, while at the same time considering the performance and looks of the vehicle and the specific features of the automobile, such as its environmental-friendliness. There is no doubt that consumers are increasingly embracing “green” lifestyles, and Tesla Inc. can exploit this opportunity by developing low-cost electric cars that target the mass market. Essentially, the potential customers with regard to the proposed strategic focus for Tesla Motors Inc. comprise of buyers who prefer affordable and compelling electric cars, which is contrary to the current high-end and expensive cars offered by Tesla. Nevertheless, it is imperative to note that Tesla Inc. should not do away with the current high-end electric cars market. Moreover, the strategy should aim at expanding its reach to the mass market, while at the same time serving the needs of luxury electric cars market.

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Segmentation of the Market

Market segmentation is a form of a marketing strategy that entails subdividing the larger target market into subgroups of consumers with similar priorities and needs (Armstrong & Cunningham, 2012). Segmentation of the target market is considered as an effective method that can be utilized in the identification of customers’ needs that are yet to be satisfied. Cleveland, Papadopoulos and Laroche (2011) described the features of an ideal market segment, which are adequately important to guarantee profitability and adequately stable to guarantee that the segment will exist longer. The market segment ought to be reachable using the distribution channel, as well as the promotional efforts adopted by the organization. It should exhibit internal heterogeneity so that target customers in the same segment could have the similar priorities and preferences and the market segment must exhibit external heterogeneity so that customers in different market segments could have dissimilar priorities and preferences. Other features of an ideal market segment include exhibiting consistent responses to the marketing stimulus, ability to reach the market segment in a manner that is cost effective, and assisting the organization with respect to the development of the marketing mix (Cleveland, Papadopoulos, & Laroche, 2011).

Various approaches can be used in segmenting the market including demographic, geographic, psychographic, behavioral segmentation, segmentation by benefits and multi-variable segmentation (Cleveland, Papadopoulos, & Laroche, 2011). With respect to geographic segmentation, the target market can be segmented based on geographic criteria, such as postal codes, neighborhoods, cities, languages, countries, regions, states and nations. Tesla Inc. can adopt a regional approach to segment the global electric cars market in terms of the United States and Canada, Western Europe, Eastern Europe, Asia, Latin America, Australia and Africa. In order to have an accurate geographic market segmentation, it is imperative to integrate demographic data to geographic ones in order to make sure that there is a fit between the products that are being marketed and distributed and market characteristics of the various regions. For instance, a luxury electric car is more suitable for the United States and Canada than it is for the African region. Similarly, passenger minivans may be more suitable for the African region than for the United States and Canada markets.

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With respect to demographic segmentation, variables like income levels, gender, age, religion and ethnicity among others are taken into consideration when segmenting the target market. Demographic segmentation is crucial for the automobile sector (Cleveland, Papadopoulos, & Laroche, 2011). For the case of Tesla Motors Inc., the primary demographic variable that can be used in segmenting the target market is income level. With respect to income level, the market can be segmented into high income, middle income and low income segments. To this end, the luxury electric cars should target the high income segment whereas the affordable electric cars should target the middle income and low income segments.

Behavioral market segmentation entails grouping consumers based on such factors as usage rates of a product, indication of how they respond to the product, their attitudes towards the products and their knowledge of it. Other factors that may be taken into account when segmenting the marketing using behavioral variables include loyalty status and the benefits sought (Cleveland, Papadopoulos, & Laroche, 2011). Currently, Tesla Inc. targets affluent consumers who prefer environment-friendly cars. The same approach can be used for the mass market owing to the fact that the underlying motivation for the purchase of an electric car is environmental preservation regardless of the price of the car or other features, such as comfort. Therefore, based on behavioral segmentation, there is only one market segment for Tesla Inc. which comprises of undifferentiated customers seeking cars that are environment-friendly.

Psychographic market segmentation entails studying the opinions, interests and activities of consumers. Essentially, psychographic segmentation is based on lifestyle and is considered to be extremely important to market segmentation, since it recognizes the personal activities, as well as the targeted lifestyle of consumers including the image that these consumers want to project (Cleveland, Papadopoulos, & Laroche, 2011). There is no doubt that electric car customers try to project the image of being an environmental conservationist rather than just going after a car that can take them from point A to point B. For Tesla Inc., the mass market strategic focus implies that it has to segment its consumers based on those who are after projecting their environmental preservation credentials (high-end consumers) and those who are after moving from point A to point B, albeit in an environment-friendly manner (mass market customers). Therefore, an approach that can be adopted with respect to this market segmentation could be producing more than a single variant of the same car model, with each serving the specific needs of the identified market segments. For instance, a product for the high-end consumer could include extra features such as comfort and aesthetics whereas a product for the mass market only focuses on offering means of transport in an environment-friendly manner without any extras such as comfort and aesthetics.

Selection of the Primary and Secondary Target Markets that Support the Strategic Focus

Based on the fact that the strategic focus for Tesla Inc. is on taking the mass market, the primary target markets should comprise of segments having similar characteristics with the ones of mass markets. In this regard, the primary target markets for Tesla Inc. could comprise of all regions (based on geographic segmentation); middle income and low income market segments (based on demographic segmentation); undifferentiated customers seeking cars that are environment-friendly (based on behavioral segmentation); and buyers who prefer cars that move them from point A to point B in a manner that is affordable and environment-friendly without the need for other specialized features such as comfort and aesthetics. On the hand, the secondary target markets for Tesla Inc. could comprise of high income segments (based on demographic segmentation) and buyers who prefer projecting their environmental preservation credentials (high-end consumers) based on psychographic segmentation. The rationale underpinning for such selection of primary and secondary target markets is explained by the strategic focus for Tesla Inc. on mass markets.

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Development of Product Strategies Aligned with Strategic Focus

A product strategy refers to the plan used to market a product, which is based on the nature of the target market. In the context of marketing, a product denotes the service or the item that is being offered to customers. Products usually have three main components which include the core product, formal product and the augmented product. The core product denotes the end benefit for the customer. In the case of Tesla Inc. the product is an electric car, which is an environment-friendly means of transport for buyers when compared to the traditional cars that are available in the market. The formal product denotes the perceived or the physical features of a product, as well as the quality, packaging, branding, styling and any specialized features. For the case of Tesla Inc., the specialized features may include such aspects as comfort and other luxury-related aspects of automobiles. The augmented product denotes the support items accompanying the product offering including aspects like installation and after-sales service. Product positioning is also an important aspect of product strategy, which denotes the manner in which the product is perceived by consumers, as well as how they perceive its crucial attributes relative to other competing products. In this regard, Tesla Inc. can position itself as an affordable electric car that is environment-friendly when targeting the mass market. For the mass market, Tesla Inc. should position itself not just as a producer of environment-friendly car, but also as a company offering affordable and reliable cars.

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Conclusion

The main goal of the strategic plan is to acquire and increase the market share of Tesla Motors Inc. in the mass automobile market globally. This proposed strategic focus is contrary to the current strategic focus of the company, which is a niche market of luxury electric cars. The identified potential customers for the company primarily include buyers who are after affordability. Based on the various market segmentation approaches discussed in the paper, the primary target markets for Tesla Motors include all regional markets, low and middle income markets segments, customers who are after environment-friendly cars and buyers who are not after specialized features in cars like comfort and aesthetics. The secondary target market comprises of high income market segments and buyers who are enthusiastic about environmental preservation regardless of the price of the car. The product strategy makes Tesla Motors Inc. positioning itself as an affordable electric car producer that is environment-friendly when targeting the mass market.

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