Volvo Memo
Volvo Trucks (A): Penetrating the U.S. Market
Executive Summary
The strategic problem is that Volvo is not creating superior value (Appendix 1) for its customers in the US market by utilizing its existence from early 70’s and thus has the poor market share of 11% relative to the top 3 competitors within the industry. The strategic opportunity is to increase the market share from 11.6% to 20% by 2001 by creating a product differentiation advantage. Through the acquisition of a technologically advanced company, Volvo will be able to gain competitive advantage in the industry. Volvo has not been able to grow their market share above 12% since they entered the US market in 1975 and thus they find themselves ‘stuck in the middle--which equals death’ (4) because they are neither able to provide a cost nor a differentiation advantage.
Strategic Alternatives:
- Focus on small market customer segment (approx. 45%)
- Focus on product cost or differentiation advantage (Appendix 2)
- Gaining competitive advantage by focusing on R&D or acquiring a technologically advance company.
Another insight is that Volvo’s position in the Ansoff matrix (Appendix 3) (existing product + existing market), does not provide any further growth potential through the market penetration strategy because the market is saturated and highly competitive. Therefore, the implication is to move into product development (new product in existing market). The critical insight for Volvo portrayed in the Wiersema’s customer intimacy model (Appendix 4) shows that Volvo currently does not have a clear advantage or focus on any of the three dimensions. Volvo needs to clarify and sharpen their value proposition (Appendix 5) and restructure the company based on that new strategy. The high cost allocation towards R&D ($337M in the year 2000) contributes to a lower operating margin. Volvo needs to cut R&D costs or come up with a disruptive innovation that will allow them to gain
Executive Summary
The strategic problem is that Volvo is not creating superior value (Appendix 1) for its customers in the US market by utilizing its existence from early 70’s and thus has the poor market share of 11% relative to the top 3 competitors within the industry. The strategic opportunity is to increase the market share from 11.6% to 20% by 2001 by creating a product differentiation advantage. Through the acquisition of a technologically advanced company, Volvo will be able to gain competitive advantage in the industry. Volvo has not been able to grow their market share above 12% since they entered the US market in 1975 and thus they find themselves ‘stuck in the middle--which equals death’ (4) because they are neither able to provide a cost nor a differentiation advantage.
Strategic Alternatives:
- Focus on small market customer segment (approx. 45%)
- Focus on product cost or differentiation advantage (Appendix 2)
- Gaining competitive advantage by focusing on R&D or acquiring a technologically advance company.
Another insight is that Volvo’s position in the Ansoff matrix (Appendix 3) (existing product + existing market), does not provide any further growth potential through the market penetration strategy because the market is saturated and highly competitive. Therefore, the implication is to move into product development (new product in existing market). The critical insight for Volvo portrayed in the Wiersema’s customer intimacy model (Appendix 4) shows that Volvo currently does not have a clear advantage or focus on any of the three dimensions. Volvo needs to clarify and sharpen their value proposition (Appendix 5) and restructure the company based on that new strategy. The high cost allocation towards R&D ($337M in the year 2000) contributes to a lower operating margin. Volvo needs to cut R&D costs or come up with a disruptive innovation that will allow them to gain