RENAULT ESPACE ODYSSEY

« With the Espace, they hit the jackpot… but it was an accident »

Renault executives about Matra

1/ WHY WAS THE ESPACE SUCH A

SUCCESS?

•A success built on an ambitious differentiation

strategy.

•Which found its own consumers.

•Helped by market circumstances.

AN AMBITIOUS DIFFERENTIATION

STRATEGY

Renault ESPACE is a revolutionary car:

Exterior characteristic:

Elegancy

Dynamism

Lightness

Similar to a TGV

Intern characteristic:

Movable and pivoting seats

Flat floor

High position

Tablets

Motor characteristic

Speed (185km/hr)

WHICH FOUND ITS OWN CONSUMERS

Consumers are attracted because of: The seat flexibility

The “insurance policy” for special use

Pleasant view for children

Feeling of safety and domination of the road

Interior comfort

Relative rapidity

Characteristic of those consumers:

65% are 35-49 years old (study made in 1993)

Large families

30% of women

Those consumer represent a huge market:

They were born between 1944 and 1958 = BABY BOOM

After 70’s crisis people are looking for differences (Fordism crisis)

HELPED BY MARKET CIRCUMSTANCES

Marketing strategy:

Bad start

Good welcome from specialized media

Positioning as a top of the range product

Fit well with Espace II (good quality)

Competitors failure:

The few earlier competitors are not good enough

Very bad reactivity

An inertia effect (high renewal rates)

Leads to a big competitive advantage

CONCLUSION

To sum up:

Renault ESPACE is totally new

Lot of people are interested

A huge competitive advantage

Favorable socio-demographic environment

= Success

Advantages of a successful differentiation strategy?

Protect against competitiveness

Loyal customers

Strong defense against substitution product

Above all: prospect of huge profitability

2/ HOW DID THE ESPACE

PROFITABILITY EVOLVE OVER TIME

BOTH FOR RENAULT AND MATRA?

•Global tendencies

•Market share/ correlation analysis

GLOBAL TENDENCIES

We could also describe: Two product cycles:

A big one (84-96)

A more contrasted one (96-01)

A break point (96)

A correlation between market share and profitability (above all for Matra)

-100%

-80%

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

80 85 90 95 00

Profitability Matra

Profitability of Renault

Market share

At first sight: A relatively bad start

Error of timing

A huge growth of profitability

Which melts away with time

CORRELATION ANALYSIS OF MARKET SHARE

AND MATRA PROFITABILITY

The graph show

an obvious

correlation

Coefficient of

determination :

R²= 0,7843

• Interpretation:

78% of the market share variations explains the Matra CA ones

Matra takes huge advantages of the differentiation success

But Matra profitability is very depending on Espace Market

share

R² = 0,7843

-40%

-20%

0%

20%

40%

60%

80%

100%

120%

-0,1 -0,05 0 0,05 0,1 0,15

Matra/Market share Linéaire (Matra/Market share)

CORRELATION ANALYSIS OF MARKET SHARE

AND RENAULT PROFITABILITY

The correlation

is less obvious

Coefficient of

determination

R²=0,0906

Interpretation:

Less than 10% of Espace Market share explains the Renault CA variations

Renault profitability is less depending on the market share

R² = 0,0906

0%

20%

40%

60%

80%

100%

120%

-6% -4% -2% 0% 2% 4% 6% 8%

Renault/Market share

Linéaire (Renault/Market share)

CONCLUSION

The global trend show that: After a huge growth, profitability has slowly

decreased for both of Renault and Matra.

Matra profitability has much bigger variation.

Correlation analysis shows the Matra’s profitability huge dependency on Renault ESPACE.

The profitabity evolution for Matra and Renault shows:

The success of the differentiation strategy

That Matra health depends on Renault ESPACE

That Renault is less depending on Renault ESPACE

The two firms share the same product, but their level of dependency is different

3/ WHY DID RENAULT DECIDE TO

RENEW THE MATRA ALLIANCE FOR THE

ESPACE 2 AND ESPACE 3, BEFORE

BREAKING IT FOR THE ESPACE 4?

•Basis of a strategic alliance

•1988 & 1993: Renewal of the alliance

•1995-1996: Breaking of the alliance

BASIS OF A STRATEGIC ALLIANCE

What they have to do?

Matra:

Architect and creator

Buys components to Renault

Manufactures the car (Romorantin)

Sells it to Renault

Renault:

Supplies some components

Supplies its network

Supplies its brand

Why do they need this?

Matra:

They need Renault network to sell the car

Renault

They need the Romorantin’s knowledge of SMC

1988 AND 1993: RENEWAL OF THE ALLIANCE

First re-negociation:

Possibility to use the AMC network to sell Renault

ESPACE (As They did for Renault 9 & 11).

In this case Romorantin would not give a sufficient

production

But the investment is too costly

Matra shows again its creative skills (the P36 project

won)

Second re-negociation:

Renault is much more hesitating, but:

Volvo-Renault merger is a failure

Scenic project will also decrease market size

Matra won the architecture contest (P52)

Volumes are not sufficient to launch an automatic

steel production

1995-1996: BREAKING OF THE ALLIANCE

Ambition of Renault: 600 units a day

decreasing the price by €2.300

Steel technology

But:

Matra is only equipped for SMC

SMC fixe cost are lower than steel one

SMC variable cost are higher

SMC and steel cost are approximately the same for a 450-500 unit production

What can propose Matra? 400-450 units a day

SMC technology

Refusal of Renault: The alliance no longer exists.

CONCLUSION

A successful alliance based on:

network-technology sharing

A core activity concentration for each firm

An obvious imbalance based on:

The Matra dependency with ESPACE

The Romorantin’s plant limits

For Renault it is as everything was about volumes

4/ WHAT ARE THE PROSPECTS OF

SUCCESS FOR THE AVANTIME AND

THE M72?

•Difficulties of the Avantime focalisation

strategy

•M72 an encouraging project?

DIFFICULTIES OF THE AVANTIME

FOCALISATION STRATEGY

Encouraging marketing studies: You love or you hate it

For adventurers and technology likers

People older than 50

Fan of espace which no longer need all the modularity

25% of:

Ex-ESpace

Coupé

Sedan

Sporty estate cars and SUV

= there is a market

But lots of troubles: Costs higher than expected

Launch with only a V6 manual transmission

People confound Avantime and Vel satis

Coupé

Other Sedan

Ex Espace

Avantime

M72, AND ENCOURAGING PROJECT?

Innovative characteristic:

Low price of the m72: € 6,000

Original style

Open bodywork, a two seat format, rear wheel drive, reminiscent of the Mini Moke

Possibility for the 16 years old to drive it 20hp version

First car to bear the Matra brand name since the Rancho:

New way to sell the product:

Internet and independent garages, instead of selling its car to exclusive dealers

IRR of more than 13% because of low production costs

CONCLUSION

Matra has understood the risk of having only one

product:

=Diversification

Matra cannot invest or produce a lot:

=Focalization strategy

So Matra has exchanged a « only one product

risk » to a « very little market » risk.

What is happening?

In spite of encouraging market studies, the

Advantime start is bad.

m72 could be very profitable (13%)

5/ WHAT STRATEGY WOULD YOU

RECOMMEND TO MATRA FOR THE

FUTUR

•Our suggestion

OUR SUGGESTION

Priorities

Insure the future of the plant

Conserve our SMC skill

Find a way to have access to a network

Diversify the risk is the key solution.

Strengthening Renaults Alliance with the plant

devoted to the Advantime car

The brand Advantime should sponsor sports events

Positioning : live your times, feel free, Advantime !

M72 becomes the Mstreet

Beginning of a new strategic alliance with Sony

Growth and characteristics of Asian market

small cars’ market expectations are optimistic

Matra-Toyota “just in time” agreement

THANKS

Matthieu AUCLAIR

Walid B

Jean François J