Modifying The New Business Model Of Michelin Fleet Solutions (MFS) – A Case Study
Market Saturation in the Tire Industry
Discuss about the Customer segmentation model based on value.
Michelin was the most famous business organization in the tire industry since its launch in 2000. The company offered comprehensive tire management solutions for large European transportation companies and was named Michelin Fleet Solutions (MFS). Since its launch, the company has been selling tires but thought of changing the business model from being product-driven to service-driven. The new business model provided an opportunity for Michelin Fleet Solutions to distinguish them in the market, as the transition seemed distinctively appealing. However, after 3 years the expected rate of growth and expansion was far below expectation. The company encountered huge loss in terms of revenue in spite of seeking help from an external consulting firm. In order to compensate the encountered loss, Michelin Fleet Solutions is now thinking whether to pursue, modify or abandon the undertaken business model.
Based on the given case study, modifying the new business model is recommended for Michelin Fleet Solution (MFS).
Increased number of business organizations providing similar product or service in the market leads to market saturation. This is because the customers get the opportunity to verify the alternatives before purchasing the product. Moreover, the customer opts for the different business organization if they are not satisfied with the credentials of the product or service offered by one company. As commented by Wang (2015), market saturation leads to highly competitive business environment thereby, leading to difficulty for the business organizations to sustain. Market saturation limits the business expansion opportunity of the company thereby, restricting business growth. According to the given case study, it can be seen that Michelin Fleet Solution (MFS) was the unsurpassed business organization in the tire industry since its launch in 2000. However, with time there was a rise in the similar type of business organization in the market selling the similar product that is tiring to the customers. Thus, considering the future of the business organization, the Michelin Fleet Solution (MFS) changed its business model from product driven-firm to service-driven firm. Changing the business model allowed Michelin Fleet Solution (MFS) to distinguish them from the existing market. Thus, implementing the new business model was surely a positive decision for Michelin Fleet Solution (MFS).
As mentioned by Wei, Liu and Mei (2015), the business organizations need to identify and analyze the demand of the market before conducting any business. This provides an opportunity for the business organizations to fulfill the demands and needs of the customers thereby, maximizing their own revenue and sales. However, as argued by Wu (2013), business organizations need to conduct business in the field of their expertise. This allows the business organizations to use their existing resources appropriately and reach the pioneer of the market. According to the given case study, it can be seen that the tire business accounted up to 99% of the revenue the company acquired. This highlighted the demand and need for the tire business in the market, as well as the expertise Michelin Fleet Solution (MFS), possessed that helped them in incurring such profits. Thus, the tire business conducted by the Michelin Fleet Solution (MFS) was a wise choice, as being expert helped them to be a leader in the tire industry business.
Identifying Market Demand and Conducting Business in the Field of Expertise
As commented by Hazen et al. (2016), as the company has to change their business operations strategy completely it makes it difficult for the business organizations to sustain the business transition. According to the given case study, Michelin Fleet Solution (MFS) offer highlighted the concept of charging the monthly fees to the customers based on the number of kilometers driven by the individual vehicle. As a result, the customers were allowed to turn the tire related cost to variable cost that was linked directly linked with the use of the vehicle (Loorbach and Wijsman 2013). However, Michelin Fleet Solution (MFS) failed to convince the customers of this business model and service approach. This is because the customers did not agree to pay for tire management, as they have already paid for the tire while purchasing them. The experts selling the service to the customers also failed in explaining the benefits of the extra activities that kilometers selling brought for them. In addition to, the sales experts even faced difficulties in explaining the price for tire management. Moreover, the Michelin Fleet Solution (MFS) offer even faced open criticism for their offer. Thus, modifying the new business model will be beneficial for Michelin Fleet Solution (MFS), as the new offer has potential value and large scope.
As mentioned by Wilson et al. (2016), marketing is the key technique for creating a unique image in the eye of the target customers by presenting them distinctively from the competitors in the market. Thus, marketing the business idea appropriately helps in the business organizations to increase their sales by maximizing the customer base. The business organizations need to leave an imprint of the business idea in the mind of the target market and customers thereby, convincing them (De Mooij 2013). This enables the business organizations to create a loyal customer base, as the customers solely prefer to undertake the product or service of the particular business organization instead of the alternatives present in the market (Czinkota and Ronkainen 2013). According to the given study, it can be seen that Michelin Fleet Solution (MFS) encountered problems in explaining the larger scope and greater value of the offer appropriately. Thus, unable to satisfy the queries and criticisms of the customers initially hampered the execution of the business model.
Modifying the existing business model implemented by Michelin Fleet Solution (MFS) include explaining the service more appropriately to the customers, explaining the pricing strategy, developing new costing as Michelin Fleet Solution (MFS) underestimated the cost and convince the customers to obtain kilometer sell the process rather than tire sell process. Thus, modifying the business model will provide an opportunity for Michelin Fleet Solution (MFS) to invade new markets, increase the customer base and distinguish them in the existing market.
Challenges Faced by Michelin Fleet Solutions (MFS)
According to Boone and Kurtz (2013), before selling the product or the service to the target market, it is essential for the business organizations to sell their idea to the target customers initially. Selling the idea provides an opportunity for the business organizations to convince the target market and leave an imprint on their mind. Thus, the business organizations need to ensure that the marketing of the idea is extremely impactful so that the target customers purchase the new service or product without hesitation. According to the given case study, it can be seen that the salesman mentioned that difficulty was faced in explaining the customers the offer of Michelin Fleet Solution (MFS). Thus, it is important for Michelin Fleet Solution (MFS) to develop ways for explaining the potentiality of their new business model.
As mentioned by Floh et al. (2014), the business organization need to divide their target customers into smaller groups according to their types thereby, characterizing the sub-groups by specific attributes. In accordance with the segmented customer group, the business organizations need to develop and implement relevant marketing techniques in order to maximize the sales. The customers can be segmented based on the spending pattern, gender, age, occupation and socio-economic group (Hamka et al. 2014). According to the given case study, it can be seen that Michelin Fleet Solution (MFS) offered their new business model only to the large European fleets that are approximately 200 vehicles. This shows that Michelin Fleet Solution (MFS) narrowed down their customer segment largely during the initial stage of executing the model. Though the offer presented by Michelin Fleet Solution (MFS) seemed satisfactory to them, the customers were not fully convinced. Thus, enlarging the customer segment is one of the modifications that Michelin Fleet Solution (MFS) need to consider in order make their new business model successful (Cuadros and Dominguez 2014).
In addition to, the given case study also highlights that the customers were not convinced of the contract offered by Michelin Fleet Solution (MFS). According to the given case study, it can be seen that the customer complained, as they have to pay to manage their tires when they are already paying while purchasing the tire. Thus, modifying the contracting process presently followed by Michelin Fleet Solution (MFS) is also advisable. Thus, Michelin Fleet Solution (MFS) can streamline the structure of the contract into a smaller set that is comprehensive and simple along with fee estimates thereby, making it more appealing and convincing for the target customers.
References
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