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Theme 1: Business understanding

Martin Dvorsk, Mateusz Podgrski, Jakub Valnek


Marketing management class 15F
Content
1.
2.
3.
4.

Marketing task
Organization task
Economy task
Appendix (additional pictures)

Pages: 2-3
Page: 4
Pages 5-6
Page: 7

Marketing task
Question:
Explain the strengths and weaknesses of KIA Denmark by using relevant theory. How does KIA
Denmark create value in the KIA Worldwide value chain? How can they improve the value creation for the
customers and what is their core competencies and competitive advantages? Explain KIAs Generic
strategy?
1) STRENGTHS AND WEAKNESSES OF KIA

Strengths

Weaknesses

1.

Model Soul-EV (without tax in Denmark)

Bad brand loyalty

2.

Ecological cars and technology

No factory in Denmark

3.

Strong brand promotion

Inadequate technology for electric cars

4.

High quality service for customers

Strenghts
1. KIA has introduced model Soul-EV, a fully electrical car without a combustion engine. InDenmark is this
car sold without a tax.
2. KIA is an automobile brand, that is concentrated on creating ecological cars. This has anenormous
support in Denmark and it is KIAs strong side.
3. KIA focuses on promotion worldwide, mainly in big sporting events.
4. KIA offers high quality service, 7 years warranty provides assurance for their customers.
Weaknesses
1. KIA has not established a brand loyalty and it is their biggest weakness. Thiscan cost the company
many potential customers.
2. Weak side of KIA Denmark is an absence of a factory. The company has to be focused on supplying cars
from abroad instead of producing here. Having a factory in Denmark would lead to cutting down the
external costs.
3. Development of electrical cars is still in progress, E-cars cannot compare to common cars in many ways.
Profit in selling electric cars has not yet outmatched the development cost. Price of electric cars is high
due to expensive raw materials.
2) HOW DOES KIA DENMARK CREATE VALUE IN THE KIA WORLDWIDE VALUE CHAIN?

1. Kia Denmark helps with covering the Scandinavian area. Customers are starting to recognize brand
name and the services provided by Kia thanks to strong promotion in Denmark.
2. Kia Denmark is also establishing a strong environmental profile. This is helping the brand worldwide in
the time of global warming and shrinking oil resources.

3) WAYS TO IMPROVE VALUE CREATION FOR CUSTOMERS

1.
2.
3.
4.

Bigger focus on higher quality raw-material, which would lead to improved safety and better quality of
the vehicle.
Maximizing the effort of employees by motivation, teaching and training their skills. This would lead to
higher efficiency.
Making the best promotion and marketing for products so the customer can establish brand loyalty.
Improving development processes which would resolve into moving Kia from middle class automobile
brand to higher class and also establishing better brand loyalty.

4) CORE COMPETENCIES

1.
2.
3.
4.

Technology, lot of qualified personnel combined with right technological processes.


Style, special design of model that is hard to copy.
Quality of product - foundation of the company.
Services on high level.

5) COMPETITIVE ADVANTAGES

1.
2.
3.
4.

Prices of cars are convenient. Value/price is one of the best on the market.
Safety and design awards.
Wide-range variety of alternative powertrain vehicles (hybrid / electric / fuel cell)
7-years warranty

6) GENERIC STRATEGY OF KIA

When we are looking on model with narrow market (in Denmark) segment perspective, we can say
that focus strategy of KIA company is clear - to maximize low cost vehicles of as best quality as they are
possible to produce for people in middle class. On the other hand the firm brings something unique still
newer, better, more stylish design with lot of additional services for their customers. The company has
presented new model KIA Soul-EV and another electrical vehicles.
7) PRODUCT LIFECYCLE MODEL (SEE APPENDIX FOR ADDITIONAL PICTURES)

KIA introduced model Soul-EV in 2014 on the market, it is new product with huge perspective and
that is why it belongs to INTRODUCTION in life cycle model. The second model of KIA is Optima. Optima
has a potential to GROW, because of luxury design, strong performance and high quality. Optima can
compare to a big brand like a BWM, Audi. It would make an interest mainly for men in 20-45 years old and
also for families. MATURITY level still keeps KIA Ceed because of their complexity, price and style. At the
end in DECLINE level is KIA Sorento (SUV model) because is too expensive twice more like a SUV KIA
Sportage.
8) BOSTON MATRIX MODEL (SEE APPENDIX FOR ADDITIONAL PICTURES)

Question mark is still Soul-EV. Company does not know yet, how will people react on this new
product, which is on the market from 2014. The level Star belongs to KIA Sportage, which is very popular
car among the customers. Model Sportage is one of the most sold car, it is because of price, which is
convenient considering it is a SUV model. Latitude, performance and quality. The cow belongs KIA Ceed,
Ceed has been the most sold car, but now is not so attractive like Sportage or Rio. The dog belongs KIA
Retona, which is not produced anymore, because this type of car is replaced by newer and better version of
SUV models.

Organization task
Question:
Assess which of Mintzbergs organizational structures fits on KIA Motors and which coordination
mechanism this gives rise to. In the analysis you should as a minimum look at the complexity of the tasks
(simple/complex) and the stability of the market (dynamic/stable). There is not just one right answer. Its
therefore important, that you show your understanding of the theory by justifying and arguing for your choice.

KIA Motors is a Korean automobile manufacturer that succeeded on the worldwide market.
Cars produced by them are advertised as reliable, durable, trustworthy and receive positive
feedback from customers. In the past years, automotive industry experienced growth in profitability
and development. New technologies and methods of production were discovered.
Exact future of the car industry is not certain. Until a major breakthrough in the car industry
happens, there is not much to be done to improve products. Of course, there are still new
improvements for cars and new technologies, but they are not that revolutionary. Taking above
statements into consideration, we can treat automotive industry as stable one.
Tasks in car-manufacturing companies are not by any means simple. Employees have to
undertake many different and difficult procedures while producing a product. They cannot make
mistakes and have to report to supervisors. This is why, when we look at KIA Motors through the
Mintzbergs Five scheme, we realize that this company is Professional Bureaucracy kind of
company.
Decision making in KIA Motors is decentralized. There are many highly specialized people
who are responsible for different aspects of the company. There is not only one person in control,
so company has to cooperate on different levels. There are lots of rules and procedures that
employees have to follow though. This allows company to enjoy the benefits of Machine
Bureaucracy. This organization structure gives rise to Standardization of training coordination
mechanism. This means that coordination is available to reach through standardized training and
education of personnel. This allows employees to know what they can expect from each other and
coordinate in the best way possible. On the other hand, decentralized decision making sometimes
makes it hard to control the company because power and authority are spread down across
hierarchy.
However, KIA Motors is a big company and we cannot assign it to just one organization
structure. Korean company possess some elements of Machine Bureaucracy, for example
Standardization of process and Standardization of output. This means that coordination is
possible to achieve through specifying the work content in rules or routines to be followed, as well
through communication and clarification of expected result. All of those factors stimulate the growth
of the KIA Motors company and help them achieving better results on the car industry market.
To summarize KIA Motors decided not to be narrow-minded and are using different
organization structures in different ways. They merged the structure, solidity and longevity of
Machine type of company with highly trained employees that are characteristic to Professional
Bureaucracy. All of those decisions are making them stronger on the car industry market and help
them realizing their goals.

Economy task
Question 1:
Do a web research on Kia and describe the following. You may also use financial numbers that you can find
in the Income Statement (Excel file) on Blackboard.
1. Identify where in the value chain you see the highest value adding process (Look at the Cost structure).
a. Consider the value adding activities and describe them. Ex. consider the cost structure of Kia
and other types of companies, what must the company consider before it adds new value adding
activities to the chain etc.
When we look at Kia Motors we can see that some parts of the value chain are more emphasized then
others. From the income statement it is clear that Kia spends most money on three things.
1. Inbound logistics and Operations - ca 736M
a. purchase of raw materials
b. helping materials
2. Marketing & Sales and Service - ca 34M
a. 7-year warranty
b. marketing
c. sales
3.

HR development, Firm infrastructure - ca 16M


a. Staff
b. Offices
c. Administration

These three categories are sorted according to how much money they spend, but also how much value they
add to the company.
INBOUND LOGISTICS AND OPERATIONS

When we think about what customers expect from any car selling company it is clear that they want
a high quality car for a reasonable price. Kia does exactly that. Kia spends lots of money on high quality raw
materials and customer can feel that he or she got good value considering the price of the car.
MARKETING & SALES AND SERVICE

Providing good service is very important for Kia. They offer 7-years warranty for all cars sold in
Europe. That could be a order winner for many customers. Kia also sponsors many sporting events, but this
does not create value to the customer.
HR DEVELOPMENT, FIRM INFRASTRUCTURE

From the annual report of Kia, we can see that their turnover dropped by 64M between the years
2013 and 2014. Despite this fact Kia invested more money to their staff department. Cutting the budget for
staff would resolve in releasing employees. Raising the budget means that staff department can continue
doing their work and providing new ideas for future development. All in all HR department can prove very
important in adding value to the customers.

Question 2:
Sales and marketing cost are listed under Distribution costs. In relation to presenting a new electrical car
on the Danish market, Kia wants to introduce a 8 million Danish Kroner campaign to raise awareness to the
car.
The company has expectations for a change in income off 100 million due to the campaign. See budget
below.
Turnover
Variable cost
Contribution
Marketing cost (Fixed cost)
Marketing contribution (Profit)

100.000.000
88.000.000
12.000.000
8.000.000
4.000.000

Use the marketing costs as fixed cost and the marketing contribution as profit and calculate
a. Break even turnover
b. Safety margin
1) BREAK EVEN TURNOVER
In order to calculate Break even turnover, we have to calculate the contribution margin percentage.
Contribution margin (%) = (Contribution / Turnover) x 100
Contribution margin (%) = (12.000.000 / 100.000.000) x 100
Contribution margin (%) = 12 %
Contribution margin shows how much of turnover is not taken by variable costs and is left for fixed cost.
When we are calculating break even turnover we also have to include fixed cost. For this task, fixed cost
was the budget for Marketing campaign, in numbers - 8.000.000 Danish Kroner.
Break even sales turnover = (Fixed cost / Contribution margin (%) ) x 100
Break even sales turnover = (8.000.000 / 12) x 100
Break even sales turnover = 66666666 DKK
Break even sales turnover define how much money company has to earn in order to reach zero and to not
lose any money. In this case, Kia has to sell cars worth 66.666.667 to earn 1 kroner.
2) SAFETY MARGIN
When we know what is our break even sales, we can calculate safety margin percentage.
Safety margin (%) = (Turnover - Break even sales) / Turnover x 100
Safety margin (%) = (100.000.000 - 66.666.666) / 100.000.000 x 100
Safety margin (%) = 33 %
Kias safety margin is 33% This means Kias sales can go down by 33% and the company would not lose
money. Kia can also cut down prices up to 33% percent in order to be more competitive and still reach zero.

Appendix (additional pictures for the marketing task)


PRODUCT LIFECYCLE MODEL

BOSTON - MATRIX MODEL

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