Sanger Automotive Company wants to build an exclusive franchise agreement with Fisker Automotive inc. Fisker produces plug-in hybrid electric vehicles which are not well known in the market. The firm’s managers seek to collaborate with Sanger, a well known vehicle dealer operating in Florida and Georgia to sell their new Karma Sedan models in the area.
Fisker manufactures Karma Sedan, a plug –in hybrid electric vehicle which targets consumers who are more sensitive about toxic emissions. However, Sanger executives need to look at the impact of establishing this franchise on their long term operations. The consumer demand for electric vehicles is still unpredictable and as such, the firm may incur huge losses if it agrees to have Fisker’s franchise (“Sanger Automotive” 196).
The market for this type of car is still young because many consumers have little information regarding how electronic vehicles will suit their lifestyles. The vehicle industry is dominated by consumers who purchase electric vehicles based on what they know about specific brands.
Most buyers of electric vehicles have high household incomes and as such, this model is not suitable for the mass market. This is likely to affect Sanger’s operations because the firm is likely to sell fewer Karma Sedans every month. An issue which needs to be looked at is the incremental operating costs which Sanger is likely to incur if the franchise agreement succeeds(“Sanger Automotive” 196).
The firm needs to assess expenses it is going to incur in the franchise and how it will recoup them in its operations. This will enable the firm determine the viability of this franchise to its long term operations.
Sanger has a reputation for selling high quality luxury brands in the market. It caters for clients who have good average incomes. The firm will incur significant costs if it decides to sign up for the franchise agreement with Fisker. However, a market analysis shows that only 5% of potential customers are willing to spend more than 55,000 dollars on electric car models.
The tax credit of 7,500 dollars may fail to attract new buyers to the Karma Sedan because it has a market price of more than 96,000 dollars; a price which very few consumers can afford. The market is still indifferent to this model which may affect the uptake of these vehicles by consumers if the franchise agreement is successful.
This is because the Karma Sedan is a luxury model and other luxury models have registered less impressive sales figures in the past few years. If the franchise deal is agreed upon, Sanger will incur additional costs which are needed to make the new dealership operational (“Sanger Automotive” 197).
Sanger can pursue alternative courses of action to help it make its operations more competitive. The firm needs to conduct a market study in areas where its clients live to determine market perceptions regarding the Karma Sedan model. Information gathered will help the firm plan effective market strategies to help it serve the clients’ needs within these areas effectively.
Therefore, the firm needs to conduct a thorough market analysis to determine how it will add value to its potential customers in the market. It needs to come up with a business model which suits its operations to enable it make a positive return on investment.
Sanger needs to target specific markets which have customers that appreciate environment- friendly car models (“Sanger Automotive” 198). This can only be achieved through marketing drives that target specific client segments, which the firm seeks to attract.
Sanger needs to use its reputation as a luxury car dealership to help it achieve the growth it desires in the market. This will enable the firm manage relationships it has with its customers effectively, to help the Karma Sedan gain more following in the market. Sanger should advertise this model in its target markets to make more customers aware about its qualities.
The firm needs to estimate the value which will be attached to this vehicle brand in the market and how this will have an impact on its earnings.
The firm should hire dedicated sales staff who can make more customers appreciate the quality of this model. This will help the firm to engage clients more effectively to purchase the Karma Sedan. The firm needs to have strong market strategies to help it recoup money spent on other incremental costs before setting up the franchise (“Sanger Automotive” 198).
The qualitative criteria to be used include market studies which will be used by the firm to understand customer profiles and how they react to different vehicle models. This will help the firm plan effective market strategies to enable it grow its reputation in the market. However, a market study does not influence consumption patterns.
It can only be used together with other business strategies to help the firm grow its influence in the market. The firm’s unoccupied location helps the firm reduce costs which would have been incurred on setting up a new dealership.
The location has the required infrastructure needed to make the firm carry out its operations effectively. The cost factor is an important one when deciding on this decision (“Sanger Automotive” 199). This will help the firm reduce initial costs required to make the dealership operational.
Participation in luxury motor shows is a god way by the firm to make more customers aware of what it does in the market. The need to increase sales volumes is the quality criteria used to make this decision. The firm needs to look for market strategies which help it increase sales revenues it gets by selling these models.
This will make it possible for the firm to create demand for its products in the markets and this will help it increase its earnings. The firm should also find ways to train its sales staff to handle its clients well. This will help to improve customer relationships the firm has with its clients (“Sanger Automotive” 199).
This is an approach intended to increase the number of these vehicle models which the firm sells in the market. Sales staff need to have more knowledge about various attributes of design of the Karma Sedan. This will help them explain to customers properly about how the vehicle functions and how it is suitable to their lifestyles.
A market study will help the firm understand the profiles of different customers better. It also helps the firm to understand their lifestyles to determine products which are suitable for them. A market study may fail to reveal crucial information about the consuming public. Some potential consumers may be loyal to other car models. Furthermore, a market study does not influence consumption patters.
It only helps a firm formulate effective market strategies to enable it sell more products. The existing unoccupied location enables the firm to establish a dealership without incurring a lot of expenses.
The location hosted a previous dealership and has existing service facilities which the firm can renovate to help it serve its clients better (“Sanger Automotive” 200). However, the uptake of electric cars remains low and it may take time before the firm recoups the money it spends on establishing this dealership.
The firm’s strategy to market the vehicle as a high quality electric powered model, may earn it loyal customers in locations it operates. However, this approach may limit its earnings because the niche target market may be smaller than expected. This will have a negative effect on the firm’s earnings in the industry.
Marketing the vehicle in motor shows may be beneficial to the firm because it is likely to generate interest in potential consumers, which may drive sales revenues upwards.
However, this approach may fail to improve consumer perceptions towards the car because other competing models may be more attractive to potential consumers. Various attributes in the vehicle’s design may encourage more customers to be attracted to the model. However, the firm’s staff may not be able to explain these functions clearly to clients (“Sanger Automotive” 201).
Table 1: Advantages and Disadvantages of Major Decisions Selected
Sanger is likely to incur an estimated total of more than 320,000 dollars before setting up the dealership. These costs exclude marketing and the prices of each individual units. It should be noted that Fisker will be delivering vehicles to the showroom at a price 10% less than the market price.
This makes it possible for the firm to get a positive return on investment. Since the price of this model is very high, the firm should only display few cars to evaluate the way customers respond to it. The firm should also ask Fisker to offset some of the costs which will be incurred in marketing, advertising and branding. This will make it allow the firm make more customers aware about this model (“Sanger Automotive” 202).
The dealership will be beneficial to the firm in the long term. Sanger needs to sell other vehicle accessories manufactured by Fisker which work with this model. This will strengthen the franchise relationship the firm has with Fisker.
Additional services which will be offered at the location will encourage more customers to purchase the Karma Sedan, which will improve its value in the market. Other marketing options do not guarantee the firm a positive return on investment. They are likely to make the firm incur a lot of expenses which it may not be able to recoup (“Sanger Automotive” 203).
The firm needs to look at returns it makes from its dealership annually to understand different market trends and consumer behavior.
The firm also needs to assess earnings it makes from the franchise to forecast future performance of this vehicle. It also needs to evaluate profiles of customers who purchase this vehicle to establish strong relationships with them. This will help the firm understand the needs of its customers in the market effectively.
Works Cited
“Sanger Automotive Companies: The Fisker Franchise Decision.” Case Study (2013): 196-205. Print.