An effective industry disruptor often has the potential, if managed adequately, to upend multibillion-dollar industries. Tesla, Inc. is an outstanding example of this. The company based out of Palo Alto, California specializes in designing and manufacturing superior electric vehicles in an effort to transition the world away from internal combustion engines. In this commentary I will analyze three sections of Tesla’s current business strategy, as well as give my suggestions on how they should lead their organization to even further success going forward.
To start, Tesla has a unique approach when it comes to the growth of the organization going forward. It is significantly more interested in marketing the overall “experience of Tesla”, rather than the physical product by itself. Bear in mind that all its apparent efforts are focused around this concept. Tesla’s goal is simple, as its value proposition suggests, “to support the world’s transition to sustainable transport by bringing high tech and compelling electric cars to the mass market.” Although there exists an abundant amount, I will address three major focus points in this effort that Tesla considers effective and includes in their current business strategy.
One of the more prominent aspects that Tesla aims to execute is the idea of “Global Standardization” of its product. In other words, Tesla plans to market its product as “The Gold Standard” of low emission electric vehicles across the globe. In order to achieve this, it incorporates various techniques that help establish itself. One effective strategy Tesla incorporates is to enter at the high end of the market, where consumers are willing to pay the most, and then run down the market as rapidly as possible to greater unit volume and lower rates with each consecutive version. In short, as with almost any other new technology, initial costs are going to be considerably higher before it can be enhanced and smoothed out over time. This idea of entering the market at its peak, is one extremely efficient way Tesla, or any given company can establish itself in a new market. In my opinion, this is an extremely effective way for any company to enter a new market. Tesla does an exceptional job at recruiting consumers to their cause through this technique
Another key component on Tesla’s business strategy agenda is the idea of constantly increasing its perceived value to its consumers. What I mean by this is they are always finding ways to cut down on excess costs and add value to its product. In fact, a study by marketing research firm CEB found that rather than being loyal to a company per se, people are loyal to what that company represents. Tesla achieves major points in this respect because it is fervently dedicated to supporting mass implementation of electric vehicles in plans of one day resolving the world’s energy problem. People feel great about driving a Tesla because they no longer need to purchase gas and are helping our planet in the process.
In addition, Tesla also tries to minimalize switching costs to electric vehicles as much as possible. Switching costs are the expenses a consumer faces as a result of switching brands or products. Yet, producers of electric vehicles across the globe are facing elevated switching costs, primarily because of the high-level quality of the parts necessary. Furthermore, the electric vehicle market is still comparatively early in its progress and therefore a restricted number of high-level suppliers of some components exists. Tesla can lower its switching costs through concepts like Universal Mobile connectors, vast network of superchargers, as well as various methods of charging Tesla. Tesla believes passionately in making it as easy as possible for potential customers to switch to electric vehicles.
Furthermore, if I were the CEO of Tesla there are several recommendations I would bring to the attention of the organization. First, I would focus my efforts on 5-10 high end luxury vehicles. I would have an entrant to every vehicle category that would be the safest and most tech savvy electric vehicle on the market. I would continue to produce the absolute best quality products that would continue to push the boundaries of this industry. Tesla is arguably the most innovative company the world has ever seen, and this is not something that should change. I suggest that their efforts should be focused on paving the way for others to mass produce electric vehicles, not producing them all themselves. What I mean by this is, I would suggest that Tesla look to become a battery and part manufacturer for electric vehicles. These efforts would all be to make producing electric vehicles the only smart choice for automobile manufacturers. This I believe is a feasible way for them to accomplish their goal of transitioning the world away from internal combustion engines.
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