To Make Great Cost Reductions Start With A Global Perspective
Topics: cost, profit, speed, improvements, entrepreneur, leader, manager, planning
Everyone today is excited about the opportunities to sell products to China’s more than one billion people. To turn that opportunity into reality will require substantial changes in your offerings. How can you use cost reductions for beneficiaries, users, and customers to expand the size of the market for your offerings by 20 times while earning an attractive profit?
Imagine that you are a vehicle manufacturer. In most developed countries, the annual operating and depreciation costs of a fairly new vehicle total around $4,000. How can you as the vehicle manufacturer eliminate more than 95 percent of that cost for the new Chinese customer?
You quickly notice that there aren’t enough roads in China for everyone to be driving around at the same time. In fact, many roads are already filled to capacity with bicycles and motor scooters, which take up much less room than cars, trucks, and SUVs. In addition, most of these prospective customers don’t make much money.
People work long hours in China’s factories and service businesses. When they are done, they have little time for leisure. Because most people walk or bicycle to their jobs, people have to live close to their work. That’s a problem for Chinese people who recently moved to the expanding industrial cities but want to be able to see their elders, who often live far away in agricultural areas. Wouldn’t a Chinese person’s heart be thrilled by being able to drive home for a weekend visit?
Long before someone could afford to buy a car and take such a jaunt, many could afford to take driving lessons and rent small, but attractive, vehicles for such homecoming visits. In the countryside, the roads aren’t as good . . . but they are less crowded. The pleasure and pride that come from being able to visit the elders more often would soon be associated with the car, creating the potential for a powerful brand that people would also want to use when they are more affluent, particularly if step-up models are later offered.
Let’s look at the car first. It needs to be rugged to work well on those country roads. But it also needs to convey status and family reverence. If the car uses little gasoline, that’s good. It can be hard to find gasoline in some rural areas of China.
Perhaps it would be a good idea to have great fuel efficiency and a large gas tank. With many Chinese nuclear families having only two or three people in them, the car could be a four seater. That would allow room to take three rural family members for a spin while back in the ancestral village.
What you are describing is a Chinese-styled, updated version of the popular Ford Model T in the United States and the original Volkswagen beetle in Germany . . . with a few more amenities.
You also need a rental network that’s well run. If as a vehicle manufacturer you own the network, you will be able to exclude competing cars while you are establishing brand loyalty.
To make your brand more appealing, you may also want to sponsor festivals that are associated with honoring family elders and ancestors.
To appeal to the step-up market, you will want to have another car model that’s sportier looking and faster. This would be a good model to use in auto races, following on the U.S. NASCAR model of racing.
You seem to have a pretty good business model for slashing annual costs through auto rentals. What have you forgotten?
People working in newly industrialized areas in other underdeveloped countries also want to visit their families and home villages by car. If you design your vehicle in the right way, the car can be inexpensively customized in appearance for each of the other large-population underdeveloped nations such as India, Indonesia, Brazil, and Nigeria. With that base, you are in a position to be the dominant vehicle manufacturer of the future as the bulk of the vehicle market shifts from the developed to the emerging market nations.
Based on creating a way for a family to take a trip home by car for less than $200, you have opened up a vast new rental market that will ultimately become an ownership-based market as affluence broadens and more roads are built.
What cost-reduction opportunities does considering the global market open up for you?
Donald Mitchell is an author of seven books including Adventures of an Optimist and The 2,000 Percent Squared Solution. Read about creating breakthroughs through 2,000 percent solutions and receive tips by e-mail by registering for free at
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