AB Volvo is the mother company of the Volvo Group of companies with its head office in Gothenburg, Sweden. The company was formed in 1924, with the first Volvo truck rolling off the production line in Sweden in 1928. The Volvo Group is one of the worlds leading suppliers of transport solutions for commercial use, also providing complete solutions for finance and servicing. The mission statement of the company is ‘By creating value for our customers we create value for our shareholders. We use our expertise to create transport-related hard and soft products of the superior quality, safety and environmental care for demanding customers in selected segments. We work with energy, passion and respect for the individual’. Volvo as a group is tremendously proud of the core corporate values of, Safety, Quality and Environment and has retained and lived by these values from the start of the organisation. These three values are evident in every aspect of the business.
The main problem Volvo cars is facing is the external pressures and changing perceptions and requirements of its customers. Volvo who strategy of “Safety” was very popular during 1990’s but with the changing needs of its customers and external environmental factors, the strategy of Volvo did not change hence Volvo has faced such a downturn in its sales during the period of 2004 to 2006. The external challenges are demanding for a more reliable, fuel-efficient and eco-friendly cars, which Toyota have understood the need of its customers and hence have concentrated heavily on fuel-efficient and eco-friendly cars, and therefore have become the world largest and most successful car manufacturer. Moreover, most of the car manufactures have integrated safety into their product design and hence “safety”, key element or the core positioning strategy can no more help Volvo to retain its position in this fierce competition.
To outline the strategies for the Volvo cars, Ansoff product/ market grid model is used. This model would help the business identify the strategy that gives business the way to grow their business. The four strategies proposed by the Ansoff let us find which would help the Volvo cars to improve their business. This model helps to identify what have to be marketed and at what time and risk involved in marketing these products.
The alternatives available to the Volvo cars are:
- Price strategy, as the cars of Volvo is unaffordable for the common man and hence has to introduce such a model of car for the middle class people. This is the market penetration strategy where with the same product and same market the company has to reduce the cost and hence in turn can reduce the price of its products compared to its competitors.
- Market development strategy, where the same product is sold in different markets.
- Product development strategy, where a new product is developed and is sold in the current and existing markets, extensions in the product features which make it different from its competitors and this can also be called as product differentiation.
- Diversification strategy is one where the new product is sold in new markets, but this is more risky then the market penetration.
Let us find which will be best strategy for Volvo cars from the available alternatives from the Ansoff matrix.
- Market penetration strategy, this strategy of selling its same products in the same market, for lower price by reducing the costs may not be useful for Volvo cars, this is because challenges Volvo is facing is the price rises of complimentary goods and environmental protections laws, which have changed the preferences of its customers from large engine luxury cars to the fuel-efficient cars because of government taxation policies, etc. hence, reducing the price of the cars will not be the best solution to face the challenge.
- Market development strategy, If Volvo adopts this strategy may not succeed as most of the current markets of Volvo is the developed countries and hence the consumers are in position of afford to buy a premium car. But, if Volvo looks for a market in developing and under developed countries, there is much risk factors involved for the growth of the industry.
- Diversified strategy will not have a positive effect on the growth of the business as this is risky, and Volvo which is facing a huge performance crisis should not be risk taker but should be risk averter.
- Product development strategy, this might be the best strategy for Volvo, as in this strategy there is product development according to the changing trends and requirements and hence this would help the Volvo for growth, if it produces cars not only safety and reliability its cars, but integrating safety, fuel-efficient, styling, performance and this leads to differentiation among the players in the industry. If the company integrates all the requirements of the demands of its customers, would automatically increase sales and will enjoy a rapid growth for the business. Volvo being the wholly owned subsidiary of Ford motors enjoys shared research and development. Therefore an investment for further product development is easy and hence it can meet the requirements of the customers. There are Volvo’s flexi-fuel cars which distributes only to certain geographical areas, and hence Volvo should even have to perform certain product development programs and innovations in these flexi-fuel cars and there should make improvements in distribution networks for these cars so that they are available to all the 120 countries, where Volvo has its network.
The reasons for choosing the product development strategy as the best alternative for Volvo cars is, because product development is the only alternative which meets the target customer’s (especially Volvo’s target segment of last 15 years) needs and this is the only possible solution to withstand with the challenges Volvo is facing, and Volvo should also consider the some of the aspects like the competitors of Volvo has already met the needs of the customers who are seeking fuel-efficient cars, and hence Volvo have to integrate all the aspects like safety, performance, reliability, fuel-efficient, with low carbon emissions and comfort to compete with their competitors, as Volvo is already reputed for safety and reliability, Volvo has to some other elects in list of product design to provide a best alternative for its customers. Volvo’s introduction of Flexi-fuel cars to reduce the sales shrink as the customers are moving to fuel-efficient cars shows a positive sign in its performance in the future. Future Product development programs also helps Volvo to achieve its programs like Volvo 2020, where it is trying to differentiate itself on two factors safety of both the environment and driving. Volvo should conduct a budgetary process on the available resources as product development process requires an excess investments into many aspects like research and developments and raw materials and advertising campaigns.