How To Understand The Strategic Innovation Of A Tainanese Advertising Agency

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1 Research on the Strategic Innovation of Taiwanese Advertising Agency A Case Study of Luxgen Automobile Jong-Sheng Horng, Jih-Shyong Lin Tatung University 0117 The Asian Conference on Psychology & the Behavioral Sciences

2 Agency A Case Study of LUXGEN Automobile HORNG, JONG-SHENG Department of Ph.D Program of Design Science Tatung University, Taiwan 1. Introduction LIN, JIH-SHYONG Associate Professor Department of Ph.D Program of Design Science Tatung University, Taiwan Ever since entering the 21 st century, the world has undergone major events. In 2008, the Lehman Brother bankruptcy led to a worldwide financial tsunami, creating major financial confidence crisis in the global financial markets. In Taiwan, after undergoing significant changes in the structure of the industry, Taiwan s advertising agencies have gradually been acquired by international advertising agencies. In 2010, China s advertising market has become the second largest market in the world, with size second only to the US market. With the rise of China, many global brands have moved their marketing resources to China, being attracted by China s large market size. With media agency services being spun off from advertising companies, most of the profits are loss. In addition, with the new form of digital marketing and the entry by public relation companies into the market, Taiwanese advertising companies face massive competitive pressures. With decreasing amount of budget and slim profits, the challenges for domestic advertising agencies to survive have increased significantly. Under these chaotic and challenging times, there is a tremendous need to upscale their management abilities, whether at organizational or strategic levels. Therefore, existing advertising agencies must seek differentiation and build their own brand premium in order to create a new niche instead of competing only of the basis of prices. Looking at the sales figures in Taiwan s automobile market for the last 10 years, the peak was reached in 2005, with sales of over 510,000 vehicles. Afterwards, with changes in the macro environment, the number of vehicles sold since 2006 has decreased. The bottom was reached in 2008, with 229,497 vehicles sold in 2008 because of the financial tsunami. 133

3 TABLE 1 Sales Figures for Taiwanese automobile market from Unit:No. of vehicles Year Vehicles sold 366, , , , ,615 Source:Taiwan Transportation Vehicle Manufacturers Association During the height of the financial crisis in Aug 2009, Taiwan s Yulon Group announced the establishment of the indigenous automobile brand, LUXGEN. The LUXGEN7 MPV that was released used Brand Taiwan in the first stage as the core for its advertising strategy to enter the market. It also used the marketing strategy of emphasizing The world s first intelligent and technological advanced vehicle. This strategy deeply implanted itself in people s minds, and LUXGEN 7 MPV became a key player in the highly competitive MPV category in Taiwan, with 3139 vehicles sold in only 6 months. TABLE 2 LUXGEN7 MPV Number of vehicles sold per month Unit:No. of vehicles 2009/ / / / / / Developing a brand takes long term effort. Even though the macro environment was unfavorable at the time, it was actually a good timing for a new brand. At the start, Yulon differentiates its market by using innovative marketing campaign, to quickly develop the brand equity by developing a good feel for its vehicles. Given the large market opportunity, a precisely targeted strategy helped it create a market advantage. This research swill review the how LUXGEN uses innovation and strategy to differentiate its product position from its competitors. 2. Literature Review 2.1 The current status and development of Taiwanese local advertising industry Advertising agencies are independent service companies that are entrusted with requests from advertisers. The advertising industry is an ecosystem that consists of advertisers, advertising agencies, and broadcast media, with a division of work among each of them. There is a complex relationship of cooperation and competition among these 3 parties. The emergence of the advertising agency is sourced with the need of integrated market and sales promotion services from advertisers, to lower its advertising costs, and to achieve a greater media effect through the search of a unified 134

4 marketing and sales service (Hsu, 2001). In Taiwan, the industry as developed from division of work to full service period, where there is full integration and unification of the industry. Hu (2002b) discovered that multinational advertising agency groups globalization strategies include: M&A to scale up their sizes provide integrated marketing and sales services, joint venture or cross investments, regionalize their operations, implementation localization and cooperation through competition. Between , the Taiwanese advertising market displayed a high degree of concentration, with local advertising agencies being acquired by multinational firms. Over 70% of ad revenues belonged to multinational groups. The research has shown that the continual expansion of multinational ad firms in Taiwan, local SME ad agencies are placed in increasing difficult positions marketwise, leading to major shifts in the Taiwanese advertising ecosystem. TABLE 3 The ranks of Taiwanese local integrated advertising firms in 2010 RANK AGENCY Gross Gross Income(10 Thousand) CAPITAL No. Income/Staff (10 GROWTH Staff (10 Thousand) RATE Thousand) (%) 1 United ,028 28,872 26, Hsu 9 2,404 1,000 21,639 10, Shape ,000 14,900 11, Ideology 4 Toplan ,500 11,950 12, Eastern ,000 11,560 11, The A Team ,500 11,080 9, Target ,250 9,763 8, BDM ,388 7,600 9, Proshine ,800 5,646 6, Uni-Smart ,500 4,436 5, STW ,895 3, Source:brain(2011),420:96-99 The global M&A trend in advertising agency industry is inevitable, with larger firms getting bigger and greater market share. In addition, many advertisers have shifted their focus and investment towards the Mainland China market. Under the consideration of global investment and market scale, they have gradually reduced their budget for the Taiwanese market by shifting their focus to China market. Therefore, the positioning and management of local ad agencies face significant challenges and difficulties. 135

5 2.2 The definition of Strategy The word strategy originated in the Greek word Strategos, which means the art of the general. With the emergency of Game theory in the 1950 s, strategy has gradually been used in business management, as more and more enterprises emphasize the use of strategy in their business operations. In 1980, Michael Porter advocated the idea that competitive strategy means being different, or choosing a unique mix of value from different activities. Strategy s value and purpose lies in giving companies a better positioning in a competitive environment, either through taking a more aggressive or defensive positioning or actions. In 1984, Kenichi Ohmae advocated that the value of strategy lies in understanding customer needs and to truly make effort to satisfy their customers. The true value of strategy lies in creating customer value, and one that provides true customer satisfaction. In 1985, Aaker proposed that strategy is composed of product, scope of market, direction of growth, competitive advantage, synergistic market combination, and level of investments. 2.3 Competitive Advantage from Innovation Innovation is a concept that Joseph Schumpter proposed in the field of economics. He believed that the realization of any new combination can be viewed as innovation (Schumpter, 1984). In the process of innovation, companies must break market rules while creating new value for the market. Parsons (1992) believed that a successful innovator will use place innovative activities as the central part of a company s strategy, and truly innovative companies innovated through the company s systems. He developed 3 different types of innovative strategies based on competitive background and innovative opportunities: a. Big Bang Leader Based on the competitive structure of an industry, the company will develop new technologies as there are sufficient opportunities to innovate. In terms of competition, the company is a market leader. By investing and setting technology standards, these types of companies will bear the costs and risks associated with innovative R&D in search of new S curves. b. Fast follower or incremental refiner: Once a company understands its own advantages as choosing to develop new technologies with sufficient conditions to become a market leader: to become a fast follower. Or in terms of innovative opportunities, choosing to capitalize on micro changes and advantages to lead the industry: becoming an incremental refiner. These strategies allow a company to quickly respond to and lead in terms of specifying 136

6 technical standards and new competitive products, with other companies sharing part of the R&D cost, instead of developing all by itself. c. sprinter The strategy used by these types of companies is to develop technology faster than other companies. In terms of competition, as long as there is fair competition, competitive advantages can come from within or without. Changes from within comes from innovation. Innovation not only creates competitive advantages, but also can subvert the cornerstone of other companies competitive advantages. By using brand new experiences, products, or distribution, Strategic Innovation creates value for customers through different combinations. 2.4 Industry Analysis and Competitive Advantages Porter (1980) believes that competitive strategies can be differentiated into the 3 following categories and their required conditions: Overall Cost Leadership Strategy, Differentiation Strategy, and Focus Strategy. He provided a simple and clear way to classify typical competitive strategy, and provided the industry practical ways to do a simple classification and analysis using available information, to help develop their strategies. Kotler (1984) proposed to classify competitive positioning by the role different companies play in terms of targeted market. There are 4 categories based on the size and status of the competition: a. Market leader: These companies occupy the highest market share and influence other competitive brands by their strength and dominance in the market. These influences are seen in terms of current product innovation, distribution channels, pricing ability, product standard and specifications, etc. Strategies used include: targeting the enter market, maintaining and expanding their market shares. b. Market challenger: these companies are usually No. 2 in the industry, and have enough resources, ambition, and strategic capabilities to develop an offensive strategy to acquire larger market share. Strategies typically chosen are aggressive and offensive strategies. c. Market follower: These are usually No. 3 or 4 in the industry, and follow the market leader to maintain their current market share. d. Market nicher: these are small companies that service a particular niche or segment of the market, and they usually use guerrilla warfare tactics and strategies. 137

7 2.5 Strategic Planning to redefine the value chain The concept of value chain was proposed in Porter s 1985 Book, Competitive Advantage. He classified business operations into 5 basic activities: Inbound Logistics, Operations, Outbound Logistics, Marketing & Sales, and Service. Through the value chain model, one can analysis the source of a company s competitive advantages. In addition, one can systemically evaluate all of company s internal activities and how these activities link together. Because different companies have different core asset values, they will emphasize different aspects of its operations. Also, given different timing and situations in different industries, different companies will make different strategic choices at different stages and create different values. 3. Research Method This research focuses on the topic of innovative strategies of Taiwanese domestic advertising agencies, with core research on the innovative strategies of LUXGEN automobile commercials. Other topics are not touched upon. This research uses an exploratory method, and research methodology includes: literature review and analysis, in-depth interviews. By interviewing the advertiser in depth, the research hopes to understand the views by the advertiser on current status and on market competition. Because the interview content involved sensitive topics involving competitive relationships and business secrets, information obtained may not be complete. 1) Literature Review and Analysis This method uses the objective description of literature content. This method allows the researcher to get information from related industry research and literature for the research. 2) In-depth interview This method of research uses an open style and nonstructural approach to conduct research. By having an in-depth discussion between 2 people on a common topic, the research guides, leads, & gathers information the researched party to understand the researched party s view from the discussions (Taylor & Bogdan, 1984). This method allows the research to acquire first hand information, and when compared with the closed form Q&A format provides a more diversified answer. Therefore, to make up for the lack of collected information, this research supplements the study through the in-depth interview method to get industry information that is not provided by literature. As the research targets are advertising agencies, the focus of the research is on the development of that industry in terms of its process and management strategies. Therefore, when choosing interview targets, this research focuses on key management to understand the impact of industry changes on the advertising industry in Taiwan. 138

8 TABLE 4:Table People interviewed Company Title Person interviewed Shape Ideology CEO Nakakawa Hsieh LUXGEN Motor Industry Experience Interview Date /12/29 Vice President Calvin Lee /2/9 4. Result and Discussion The Taiwan Yulon Group s LUXGEN Brand released its first vehicle LUXGEN7 MPV in July 2009, and then released its second vehicle the LUXGEN7 SUV in Sept In contrast to the marketing of new vehicles, Yulon Group was able to reach NT$11 Billion in annual revenues for the year 2010 with its innovative and strategic product positioning. 4.1 Using the Think Ahead Branding for Initial Positioning 1) The CEO of the advertising agency for LUXGEN cars, Nakakawa Hsieh of Shape Advertising, stated: Before the R&D of its product, its positioning is very clear. LUXGEN combined the parts from the 2 words, Luxury and Genius, giving its vehicles a combination of the attributes of luxury and genius. Simply stated, what LUXGEN hopes to convey is the message that the driving sensation is a combination of luxury comfort of innovative and advanced technology. Just as the A.I. robot in the commercial is a metaphor of the 2 aspects of 1 entity. Based on this core value, the DNA generated from the LUXGEN Brand Positioning is Think head. By positioning the brand as a combination of Luxury and Intelligence, the LUXGEN 7 MPV received favorable reviews and acceptance by the general public and the consumers. 2) Facing the developed Taiwanese automobile market, LUXGEN must not only think domestically, but internationally. According to Calvin Lee, Marketing division VP of LUXGEN, LUXGEN automobiles hardware must be able to compete with global brands and exceed domestically produced vehicles at the same time. Whether the main body of the vehicles provide safety through vehicle engineering, or in terms of comfort and texture of interior, intelligence must be included into them, to become a winning product. By using the IT technology where Taiwan has a major competitive advantage, LUXGEN is able to produce vehicles that differentiate itself from others with its intelligent functions. 3) The role of advertising agencies clearly knowing the initial brand positioning, whether it is at VI, CI, or Event distribution channels, both parties need to know what each other wants. According to Nakakawa Hsieh, he said We must be more flexible 139

9 than others. Not only in terms of commercials, but also in terms of event and channel design, to fulfill the one stop shopping needs of customers. These apply to the LUXGEN Branding most appropriately. According to Calvin Lee, our agency is not to follow our operations, but participate at the first stage of development of the product. As shown in Table 5, the LUXGEN branding DNA of Think ahead is to be consistent throughout. When consumers are choosing a vehicle, each stage of the process is a potential entry point for the manufacturer to strengthen the consumer s impressions on the product. Nakakawa Hsieh stated: Inconsistent strategies will lead to unclear branding positioning. Think Ahead applies not only to the product, but also to the commercials. The ad agency links together all resources and organizations related to the customer, to play a role of a good brand manager. Table 5 Taiwanese Ad Agencies and Participation in terms of Customer Side Operations Product Channels Image Traditional Ad Agencies * Shape Advertising * * * 4.2 Mastering the Core Strategy of Customer Value Required 1) What is the relationship between LUXGEN automobile product uniqueness and creative and innovative commercials? Lee stated: Innovative products lead to innovative agency. The Yulon Group has 50 years of car making experiences and also subsidiaries such as Haitec, Altek, and Sanyi Production to support the R&D and manufacturing. Each attribute of the golden triangle of product, image, and channel is required (see Figure 1). In the process, the ad agency is faced with many challenges. Traditional ad agencies will see that the Figure 1: The 9 major principles behind the LUXGEN s Golden Triangle product definition is already completed, and can work on only the implementation and execution aspect. If they are not strong in the 3 areas, they can depend only on promotions to accomplish sales. Developing a brand must take sufficient effort in each attribute of the golden triangle to stand above the crowded competition. In terms of the detailed attributes for the key 3 areas, there are a total of 9 elements. For product, the 3 elements are quality, design, and value. For image, the 3 elements are 140

10 advertising, PR, and reputation. For channel, the 3 elements are sales, service, and customer satisfaction. One must use long term vision with Think Ahead to position all 9 elements. For certain automobile branding, their channels are strong, but products are not good. For some, they have strong products, but weak channels and sales location. These will lead to poor sales and eventual withdrawal from the Taiwanese automobile market. 2) LUXGEN Sales Location have a unique atmosphere not only are the ideal locations chosen, but also the sales process emphasis warmth to customers. By use of the pioneering Experimental Theater, customers are able to simulate all types of conditions met when driving. Hsieh stated: Our products are intelligent vehicles. These attributes can not be seen in a static demo. Therefore, for LUXGEN vehicles, a brand new experiential channel is created. Customer service representatives use the ipod Touch and Bluetooth System to introduce the functions of the vehicles, and letting the customers actually experience the driving sensation of driving a high tech car. 3) Utilizing the Think Ahead Product Positioning to the extreme, by pre-conceiving what customers need, such as View+ 360 surround imaging system, Side View + blind spot monitoring system, Night Vision + night driving image enhancing system, LDWS + lane departure warning system, unresolved and problematic issues that driving customers face are finally resolved. To further capitalize on the product advantages, using innovative ad strategies to deliver unique messages to influence the targeted outcome. According to Lee, innovation without the right strategies is not good creativity. Putting the automobile innovations into ad, such as QR Code into paper format, and combining the new media with HTC handsets will let the consumers sense the charm of intelligent vehicles. These marketing moves and strategies allow the innovative and creative nature of LUXGEN cars to be shown fully. 5. Conclusion and Suggestion When developing Advertising strategies, one must first identify the target audience and set the advertising objectives. Next, the product position must lead the strategy, with clearly defined advertising positioning and further communications with the consumers. Successful cases of innovative strategic advertising in recent years include the Nike s Just Do It and Nintendo s Wii products. 1)LUXGEN automobiles have clear product positioning and competitive products. From the development of brand strategy, to product positioning strategy, brand advertising strategy, and image creation strategies, its ad agency proposed a complete set of plans at the start of the product and executed effectively. With its clean, 141

11 intelligent technology, LUXGEN was able to established Taiwan in the global stage. With the role of Taiwan s domestic Brand of Ad Agency, following in the footsteps of its customer, LUXGEN, in terms of internationalization, there is a chance for domestic ad firms to become an international player. Mr. Hsieh, CEO of Shape Advertising, said that Taiwan s successful experience will enter a positive cycle, and like other global brand, have more of abundance of resources, and attract more talents. 2) Local Brands are rising, with local ad agencies having a chance to follow its customer to become global ad agencies, stated Calvin Lee, Marketing division VP of LUXGEN. Lee said: A major challenge for ad agencies lie in understanding the new media, recruiting creative teams for the new media, and understanding the habits and needs of local consumers. 3) LUXGEN started from Taiwan, and uses its intelligent capabilities and green technologies to support its brand positioning. LUXGEN wants to use Intelligent and Technological Advanced Cars to ensure that its product positioning combined Auto with IT and aims to give consumers of the new generation experience a different driving sensation and a convenient lifestyle. The next step is target the Mainland China market and to utilize the supply chain that exists between Taiwan and China. By increasing the economy of scale to lower the costs, it plans to develop a key cost advantage. Mr. Hsieh stated: Every year, there will be a new vehicle, with complete product line, creating a complete portfolio for brand power. People from different areas of life can all enjoy the value provided by intelligent vehicles, and LUXGEN aims to become a future premium and global brand. Taiwan vehicles will introduce its technology and special business model into Mainland China. In addition to strengthening the competitiveness of Chinese vehicles, LUXGEN s next steps into the global market are topics worthy of future research to follow. References Aaker, D. A. (1991), Managing Brand Equity : Capitalizing on the value of a brand name, New York Free Press Hsu, A.Q. (2001), Integrated marketing communications cited theory. Taipei:P.E.Press Hu, G. X. (2002), Research of International Advertising Industry - International advertising companies, globalization, regionalization, localization.taipei:wu Nan Press (in Chinese). Parsons, A. J. (1992). Building Innovativeness in Large U.S. Corporations, The Journal of Consumer Marketing. 9(2), 35-50, 142

12 Porter, M. E. (1980), Competitive Strategy, New York, NY: Free Press Robert Grant. (2010), Comtemporary Strategy Analysis. Hoboken, NJ : John Wiley & Sons Taylor.S.J.,& Bogdan,R(1984), Introduction to qualitative research methods: The search for meanings. New York: John Wiley & Sons, Inc. The author would like to thank the National Science Council for subsidizing the research financially, without which the research will not be completed. The research plan numbering is NSC I

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