1. CIRCUIT CITY-Selling used cars like stereos By Chaitanya Bansal Diwakar Kumar Pankaj Pandey G.Revathi Shashwati Sen Siddhesh Bhatewara 3. Introduction…
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  • 1. CIRCUIT CITY-Selling used cars like stereos By Chaitanya Bansal Diwakar Kumar Pankaj Pandey G.Revathi Shashwati Sen Siddhesh Bhatewara
  • 3. Introduction <ul><li>Circuit city is a company that has succeeded in selling electronic items through its 650 retail superstores in 45 states. </li></ul><ul><li>In 1993 Richard Sharp, the head of Circuit City and W. Austin Ligon , Senior Vice President (Corporate Planning) came up with the idea of applying the “Big Box” retail concept to the selling of used cars. </li></ul>
  • 4. Contd… <ul><li>The company's stores typically contain roughly 500 used cars not more than six years old. </li></ul><ul><li>CarMax operates 80 used car superstores and 17 new car franchises. </li></ul>
  • 5. Contd… <ul><li>This led to the birth of CarMax , the Auto Superstore. </li></ul><ul><li>CarMax operates a chain of used car lots and new car franchises. </li></ul><ul><li>CarMax's used car lots are patterned after the mass-merchandising business model of Circuit City Stores, Inc., operating as &quot;superstores.&quot; </li></ul>
  • 6. Industry Analysis
  • 7. CARMAX <ul><li>Statistics: Public Company Incorporated: 1993 as CarMax Group Employees: 5,910 Sales: $3.2 billion (2002) Stock Exchanges: New York Ticker Symbol: KMX NAIC: 441120 Used Car Dealers </li></ul>
  • 8. Why “CARMAX”??? <ul><li>Opposing management consultants advice of “sticking to their knitting” Circuit city came up with their idea of CarMax …… </li></ul><ul><li>The reasons are as follows: </li></ul><ul><li>New car prices </li></ul><ul><li>Abundant supply of used cars </li></ul><ul><li>Consistent demand </li></ul><ul><li>Unsophisticated Management Practices </li></ul>
  • 9. Used CarMax Sales Stable
  • 10. The Growth Story… <ul><li>The first store opened in October 1993 in Richmond, Virginia . </li></ul><ul><li>The store had: </li></ul><ul><li>1) 500 cars on display, not more than 5 years old and each with not more than 70000 miles on its odometer. </li></ul><ul><li>2) A service shop and sales people offering a refreshing approach to used car sales. </li></ul>
  • 11. <ul><li>3) Computer kiosks delineating the lots inventory and particular details about each vehicle. </li></ul>
  • 12. Contd… <ul><li>By October 1995 , recording $ 77 million in sales for the previous fiscal year. </li></ul><ul><li>New superstore openings had lifted CarMax 's unit count to four lots, with two superstores in Atlanta and one in Raleigh, North Carolina, having joined the fold. </li></ul>
  • 13. CarMax Results : (1997-2002)
  • 14. 2001-2007
  • 15. CarMax Superstores
  • 16. 2001-2007
  • 17. Strategies <ul><li>Developing a process to monitor inventory (make, model, colour) and pricing. </li></ul><ul><li>The strategy centered on: </li></ul><ul><li>Broad selection of merchandise. </li></ul><ul><li>High volumes business. </li></ul><ul><li>Economies of scale. </li></ul><ul><li>Sharply honed management methods. </li></ul><ul><li>No Haggling Policy. </li></ul>
  • 18. Contd… <ul><li>By the end of the company's 1995 fiscal year, sales had increased substantially, soaring from $ 77 million to $ 304 million, which exceeded analysts' estimates of between $ 200 million and $ 278 million. </li></ul><ul><li>CarMax 's robust sales growth was pocked by a $ 7 million loss for the year, however, perpetuating speculation that the mass-merchandising approach to used car sales was not a sound business model. </li></ul>
  • 19. Contd… <ul><li>The company opened its fifth and sixth lots in 1996 and announced ambitious expansion plans. </li></ul><ul><li>The markets slated for expansion included Miami, Tampa, Dallas, Houston, Washington, D.C., Baltimore, Chicago, Los Angeles, San Francisco, and Tidewater, Virginia. </li></ul><ul><li>The company projected an 80- to 90 unit chain by 2001 . </li></ul>
  • 20. Sacramento Los Angeles San Antonio Houston Tampa Jacksonville Va. Beach Raleigh Charlotte Greensboro Charlotte Greenville Las Vegas Fresno Fresno Tucson Large markets (9) Mid-sized markets (28) Small markets (1) Store Growth: • FY07  10 stores  +15% • FY08  13 stores  +17% (Est.)
  • 21. Tucson San Diego Los Angeles (2) Modesto Newport News Baltimore Charlotte ) Atlanta • FY08  13 stores
  • 22. <ul><li>By the mid-1990s,the company acquired its first new car franchise in 1996, a Chrysler-Plymouth-Jeep store located in Atlanta. </li></ul><ul><li>Although Circuit City had contributed to CarMax 's startup, the company's financial assistance to CarMax essentially ended there. </li></ul><ul><li>At the end of 1996, the pair announced that Circuit City would sell a portion of the CarMax subsidiary to the public. </li></ul>New Car
  • 23. <ul><li>The initial proposal called for offering between 15 and 20 percent of CarMax to the public, a stake that was expected to raise as much as $300 million. </li></ul><ul><li>At the time of the offering, the company had seven superstores in operation, which generated nearly $450 million in revenues. </li></ul><ul><li>By mid-1998, there were 23 superstores in operation, enabling the company to record $1.47 billion in sales for fiscal 1998. </li></ul>Contd…
  • 24. <ul><li>When the financial results for fiscal 2000 were announced, the company generated $2.01 billion in revenues and a profit of $1.1 million, the first time CarMax ended a fiscal year in the black. </li></ul><ul><li>The profit total was meager, but it suggested there was financial viability in the “Big Box&quot; used car retailing concept. </li></ul>Contd…
  • 25. <ul><li>As CarMax's 10th anniversary approached, In fiscal 2001, sales leaped to $ 2.5 billion, but the most impressive gain was achieved in CarMax's profit total, which by far eclipsed the symbolic $ 1.1 million recorded in 2000. </li></ul><ul><li>Ligon expected to post between $ 40 million and $ 43 million in net income in 2001, but the company did better, posting $ 45.6 million in profits. </li></ul><ul><li>In 2002, the results were equally as sanguine, as revenues swelled 28 percent to $ 3.2 billion and net income nearly doubled, jumping to $ 90.8 million. </li></ul>Contd…
  • 27. <ul><li>In the spring of 2002, Circuit City announced it intended to spin off its CarMax subsidiary into a separate, publicly traded company, part of the consumer electronics chain's plan to focus on its core business. </li></ul><ul><li>The spinoff, completed in October 2002, created CarMax Inc., a corporate entity distinct from Circuit City with Ligon serving as its chief executive officer, a title he gained at the time of the spinoff. </li></ul>Contd…
  • 28. Important Dates <ul><li>Key Dates: 1993: The first CarMax used car lot opens in Richmond, Virginia. 1996: CarMax acquires its first new car franchise. 1997: A portion of CarMax is sold to the public. 1999: CarMax records its first annual profit. 2002: CarMax is spun off from Circuit City Stores. </li></ul>
  • 29. <ul><li>Capturing more than 40% of the U.S market </li></ul><ul><li>They are aiming to increase the share by 15%-20%. </li></ul><ul><li>Therefore are the clear Market leaders. </li></ul><ul><li>aim at: </li></ul><ul><li>Expanding the total market through rigorous geographical expansion strategy (80 stores today in more than 20 states. Increase it by 15%-20%) </li></ul>DEALING WITH COMPETITON
  • 30. <ul><li>Defending the market share through their market differentiators like: </li></ul><ul><li>No haggling policy. </li></ul><ul><li>125 point inspection system. </li></ul><ul><li>Easy financing. </li></ul><ul><li>Repair and reconditioning of vehicles. </li></ul><ul><li>Guaranteed quality. </li></ul><ul><li> . </li></ul><ul><li>Continuously expanding the market share. </li></ul>
  • 31. <ul><li>Due to these differentiators CarMax creates a high entry barriers for the new companies to enter into used cars business. </li></ul><ul><li>In the past, AutoNation (NYSE: AN ) tried out the superstore-for-cars approach that CarMax has made such a success, but it later ditched the idea. Now comes little Lithia Motors (NYSE: LAD ) to take another stab at the concept. </li></ul>
  • 32. <ul><li>AutoNation and Penske (NYSE: PAG ) may have an edge over CarMax on sales today, but perhaps not for long, the way things are going </li></ul>
  • 33.   Revenue ( M)   Profit Margin (12 mos)  Employees  Market Cap (M)  Sonic Automotive, Inc . $7,972.1 2.3% 11,200 $992.1 CarMax, Inc $7,465.7 4.5% 13,736 $4,633.5 Copart, Inc. $560.7 38.8% 2,536 $3,349.6 America's Car-Mart, Inc. $240.3 1.0% 800 $140.8 Strategy International Ins. Group, Inc. $5.7 -126.1% 19 $0.4
  • 34. Auto Nation <ul><li>AN is America's largest Automotive Retailer. Headquartered in Fort Lauderdale, Fla., </li></ul><ul><li>AutoNation employs approximately 26,000 people at 257 dealership locations representing 331 new vehicle franchises across 16 states. </li></ul><ul><li>With over $ 19 billion in annual revenue, AutoNation ranked #112 on the 2005 Fortune 500 and is America's &quot;Most Admired Automotive Retailer&quot; five out of the last six years, outselling all other automotive retailers in the U.S.  </li></ul><ul><li>In March 2007, AutoNation sold its 6 millionth vehicle, the only auto retailer to achieve this milestone. </li></ul>
  • 35. Contd… <ul><li>Mission To be America's best run, most profitable automotive retailer. </li></ul><ul><li>Values A positive experience for our customers. </li></ul><ul><li>Rewarding careers for our associates. </li></ul><ul><li>Industry leading performance for our manufacturer partners. </li></ul><ul><li>Superior returns for our shareholders. </li></ul>
  • 36. United Auto Group,Inc. <ul><li>Statistics: Public Company Incorporated: 1990 Employees: 13,000 Sales: $ 8.67 billion (2004) Stock Exchanges: New York Ticker Symbol: UAG NAIC: 441110 New Car Dealers; 441120 Used Car Dealers </li></ul>
  • 37. <ul><li>United Auto Group, Inc., is a leading acquirer, consolidator, and operator of franchised automobile and light-truck dealerships and related companies. </li></ul><ul><li>In terms of total revenues, the company is the second largest publicly traded retailer of new motor vehicles in the United States. </li></ul>
  • 38. <ul><li>Mission: </li></ul><ul><li> To turn the company's dealerships into supermarkets where customers could buy any car make, new or used, and get any kind of part or service. </li></ul><ul><li>Strategy: </li></ul><ul><li> To acquire dealerships in geographic clusters. </li></ul>
  • 39. <ul><li>The company owns and operates nearly some 140 franchises in the United States and abroad, many of them focusing on the retail of foreign and luxury automobiles. </li></ul><ul><li>United Auto Group's franchised dealerships include integrated service and parts operations. </li></ul>
  • 40. <ul><li>Subsidiaries engage in the purchase, sale, and servicing of automobile loans, as well as in marketing a complete line of aftermarket automotive products and services. </li></ul>
  • 41. Market Analysis
  • 44. Marketing Concept Core concepts Need/ Want/ Demand Product (goods and services) Value/ cost / Satisfaction Exchange/ Transaction Relationship/ Network Private mode of transport Sale & purchase Of used cars & Selling of New car Good quality at less price Luxuri ous/ Econom ical Satisfied customers by High quality service Purchasing & Selling of cars for money Manufacturer Finance Companies
  • 45. Establishing strategic business unit <ul><li>Car max is the divisional level unit of circuit city, the electronic goods retailer and fortune 500 co. </li></ul>
  • 47. Technology used Customer need Customer group Middle and upper middle class Americans Reliable cars with no haggling over price 110 point inspection system- huge and exhaustive data base for inventory
  • 48. WHY Plan new business ????? <ul><li>Opportunity for diversification growth ( according to GE model). </li></ul><ul><li>Followed conglomerate diversification. </li></ul><ul><li>Diversification opportunity was good because: </li></ul><ul><li>(1) Demand consistent: </li></ul><ul><li>(a) high new car prices </li></ul><ul><li>(b) New car no more a status symbol. </li></ul>
  • 49. <ul><li>(2) Supply abundant: </li></ul><ul><li>From dealers </li></ul><ul><li>Through auction </li></ul><ul><li>From individual customers </li></ul><ul><li>(3) Company possessed the required business strength. </li></ul><ul><li>Brand reputation </li></ul><ul><li>Distribution network </li></ul><ul><li>Promotion effectiveness </li></ul><ul><li>Managerial staff </li></ul><ul><li>Technical knowhow </li></ul>
  • 50. Consumer buying behaviour <ul><li>AS </li></ul><ul><li>Cars are bought infrequently </li></ul><ul><li>Consumer is always at disadvantages while using used cars. </li></ul><ul><li>And is speculative…. </li></ul><ul><li>So </li></ul><ul><li>Consumer behaviour tends to be “ COMPLEX BUYING BEHAVIOUR” </li></ul>
  • 51. <ul><li>To carter to the complex behaviour company provides increased CDV </li></ul>
  • 52. CDV provided <ul><li>110 point inspection and thorough cleaning, even cleaning the engine. </li></ul><ul><li>Repairs made as needed to provide a flawless car which is durable. </li></ul><ul><li>Touch screen computer providing full list of the cars meeting consumers criteria. This augments easy Learning. (learn) </li></ul><ul><li>All similar vehicles located on the same area ( not haphazardly ). Thus consumers get to see and feel the product. (feel) </li></ul>
  • 53. <ul><li>Extra benefits such as 5 day money back guarantee and 30 day comprehensive warranty. </li></ul><ul><li>Finance arrange in 20 minutes. </li></ul><ul><li>No haggling over price. </li></ul><ul><li>No hidden or extra costs. </li></ul><ul><li>The above points along with hiking car prices act as stimulators to force the customer to purchase. (do) </li></ul>
  • 54. Segmentation <ul><li>Identify/ profile distinct buyer group who may require separate product and marketing mix. </li></ul><ul><li>Different levels of segmentation are: </li></ul><ul><li>Mass marketing </li></ul><ul><li>Segment marketing </li></ul><ul><li>Niche marketing </li></ul><ul><li>Local marketing </li></ul><ul><li>Individual marketing </li></ul>
  • 55. <ul><li>Car max followed segment marketing as: </li></ul><ul><li>The company was not willing to customize its product to each individual customer. </li></ul><ul><li>Hence the company tried to isolate some broad segments that make up a market. </li></ul><ul><li>The pattern of segmentation was homogeneous as all customers had roughly similar preferences. </li></ul>
  • 56. Target segment <ul><li>Middle and upper middle class, </li></ul><ul><li>Fullnest {2}, Fullnest{3} </li></ul><ul><li>Fulfillers, Strivers and Makers </li></ul>
  • 57. Market targeting <ul><li>Once the company has identified the market segments and its opportunities it should do market targeting </li></ul><ul><li>The pattern of market targeting can be: </li></ul><ul><li>Single segment concentration </li></ul><ul><li>Selective specialization </li></ul><ul><li>Product specialization </li></ul><ul><li>Market specialization </li></ul><ul><li>Full market coverage. </li></ul>
  • 58. <ul><li>Carmax concentrated on a single product (used cars) that it sells to several segments. </li></ul><ul><li>Therefore it selected the product specialization pattern of targeting its segment. </li></ul>Mkt Pdt M1 M2 M3 P1 P2 P3
  • 59. Positioning <ul><li>Once an organization has identified the segments, profiled them and decided which segment to be in (S&T), the next step is to position its product. </li></ul><ul><li>In order to position it is necessary to: differentiate the product/offering from competition. </li></ul><ul><li>Developing/communicating positioning strategy. </li></ul>
  • 60. Product differentiation Carmax differentiated its product under two main dimensions Services Differentiation Personnel Differentiation
  • 61. Service differentiation <ul><li>Over 500 used cars on display </li></ul><ul><li>Attended child care area </li></ul><ul><li>Exhaustive data base of
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