Heavy-Trucks Born with Pre-Planned Second LifeMon, 09/01/2014 - 10:46
As heavy vehicle players up the ante to win more market share, business strategies are undergoing massive restructuring. Volvo Group Trucks is playing its hand with a new business model to obtain 15% or more of the market share in Mexico. “For many years, we held around 3%, but that business volume did not permit us to make needed investments. 15% or more will allow Volvo Trucks the reinvestment capability it needs, so the strategy is designed to get it there and even further,” states Matthew Walsh, Director General of Volvo Group Trucks México. The company is anchoring its expansion on its wide variety of operations in the country, ranging from the Volvo and Mack truck brands, buses, construction equipment, financial services, and its industrial and marine engine division, Penta.
The company’s first bet in the market share game began with the establishment of a diverse product portfolio tailored to domestic market trends. Mack Trucks focused on vocational trucks used in residential and commercial construction, “but we quickly realized it was not performing so well,” comments Walsh. As a result, the product portfolio underwent a massive evolution and now also incorporates highway trucks. According to Walsh, the change “did not have as much of an impact for Volvo Trucks as it did for Mack Trucks, since the first brand already had strength in that area.” In order to tackle this market segment with two products instead of one, the group introduced the Mack Tractor. “Having diversity in one market segment is an effective strategy, since competing with different brands in the same segment allows us to claim a larger market share.” Walsh admits that the company previously made a mistake in other countries by trying to make a decision for the market by only bringing in one brand. “This limits customers’ choices and takes away their power to decide for themselves,” he adds.
Having a strong product portfolio alone is not enough to instill confidence in the client as a strong dealership network is also a requisite. “Although Volvo Group Trucks had the best products, clients were not confident in our ability to support the products,” Walsh points out. To improve their confidence level, the group’s strategy centered on investing in the improvement of the dealer network and pushing private investors to expand it. This strategy helped to build up the market size that private investors need for their retail operations, such as spare parts and service operations. The company has 38 sales points spread across Mexico but its aim is to reach 65 by the end of 2015. Of these, Volvo currently owns six but will seek to add at least 12 over the next two years. Walsh stresses that during this expansion phase, it is important to look for local investors that have the right mindset to drive a truck and bus distribution point. “Being a unique business, investors have to be really committed. If investors are not found, then the company will invest directly. The company will then have one of the largest distribution networks in the country, which is necessary for us to claim a 15% market share,” says Walsh.
Customizing products to customers’ needs and industrial applications ensures the consolidation of the brand within the domestic market. “The Mack product is such a highly customized product that if a client walks into a dealership to look for a simple Mack Truck, they will find it does not exist,” explains Walsh. The trucks are customized to meet the varying needs of clients in terms of robustness and longevity, as they will undergo heavy usage. “The company has a dedicated engineering group that just looks at customization opportunities for the vehicles. It is a very unique solution and it is one of the best in the market for offering a truck that is durable and reliable,” adds Walsh. Mack Trucks are not only customized to withstand extreme conditions but also to undertake different industrial applications, including being used as dump trucks, mixers, concrete pumps, and industrial drills. The main sector that serves as the platform for the group’s vocational trucks is the mining industry. This sector has already seen a Mack Truck adapted with a large 8x4 configuration on a heavy dump body, which can efficiently operate underground with a 45-tonne load capacity. “Other companies’ vehicles need to undergo many post-factory modifications to present something similar, but by incorporating these industrial adaptations into the design of the product Volvo Group is able to offer a truck to the mining industry for US$150,000 less.”
An important quality that customers look for in trucks is the possibility of a second life. This means having a flexible vehicle that can be resold later on, but according to Walsh, a lot of manufacturers build vehicles for a single purpose with no plan for a second life. “Extending the longevity of a vehicle in this way makes sense as the real profit margin is not in the sale of the vehicle but in the parts and servicing,” says Walsh. Longevity thus does not diminish opportunity, according to Volvo Group. It follows the logic that if it puts a durable product in the market that lasts up to 25 years, it can sell parts for that vehicle for that entire period, which means more profit in the long run. Walsh believes that other manufacturers produce throwaway trucks that serve for three-year-long industrial projects before being scrapped. “Volvo Group Trucks represents an investment that gives customers a number of years of revenue without having to pay off the cost of the product.”