Nissan Demand Analysis

DEMAND ANALYSIS MEMO:

NISSAN VERSA

(PANAMANIAN MARKET)

Group 4

Mariel Alvarez

Manuel Falcon

Avinash Khemlani

Edgar Largaespada

Fernando Larios

Yessika Monserrate

Sergio Siso

For:

Competitive Strategy (FIN6446)

Professor Manuel Lasaga

Company Overview: Nissan is an automobile manufacturer based in Yokohama, Japan, with several assembling plants around the world (Japan, Mexico, United States, United Kingdom, Thailand, Brazil, and others). Since 1999, the Nissan-Renault alliance has been progressively growing towards becoming one of the largest automobile manufacturers in the world; currently it holds the 4th position. Its operations in Panama are controlled by its authorized dealer, Excel Automotriz (largest car dealer in Central America, representing 16 different brands). We are analyzing the demand in Panama of one of its key products, the Nissan Versa.

Identification and analysis of the key demand factors: The automotive industry in Panama has been growing steadily in recent years. Several new competitors have entered and new products are launched year after year in the different vehicles segments, which turns the market more competitive each day.

The market is divided by segments and sub-segments of vehicle categories. One of the most competitive segments is Sedans Type “B”, where Nissan Versa competes in. Its main competitors are the Toyota Yaris, Suzuki Ciaz, Kia Rio and Hyundai Accent (Kia and Hyundai competing in a lower range of prices). The most relevant aspects affecting the demand for new vehicles are

QDv = F(Pv, R, I, Ps, Ad, Pc, Po, Pcy, TCo, Tx, Fn), where each variable stands for:

• Price of the vehicle (Pv): Price has a negative correlation with the quantity demanded; that is, should the price be increased, the effect on the quantity demanded should decrease. In this particular case, we find this effect to be magnified as a consequence of the availability of substitute goods (direct competitors), which increases the elasticity of the demand curve.
• Interest Rate (R): For the purpose of our analysis, we define the variable of “Interest Rate” as the average rate charged by financial institutions when granting loans for the purchase of vehicles. This variable also poses a negative correlation with the quantity demanded, which is given by the fact that at a higher rate, the total amount payable by the customer rises considerably. During our research we found that in Panama’s recent years, there has been a downward trend in the market’s interest rate, progressively decreasing from an average of 8.26% in 2011 to 7.03% in 2016. This trend has had its corresponding effect on the market, which has seen its total sales constantly increasing from approximately 46,000 units in 2011 to an estimate of 70,000 in 2016.
• Income (I): In order to analyze the effect of potential customers’ income level on the demand curve, we resorted to the examination of the country’s GDP for the past few years. As it represents the total output of the country’s economy, it poses a direct reflection of the market’s incomes level, which have a positive correlation with the quantity demanded. This comes from the critical assumption that with higher income, more people would enter the vehicle market, thus increasing demand. In recent years, Panama’s economy has experienced a continuous growth, averaging approximately 7.9% growth rate in its GDP over the past 5 years. This has had a tremendous effect over the demand curve in the vehicles market, as evidenced by the results of our research, which show a steady increase year after year of total units sold (addressed in the previous point).
• Price of Substitutes (Ps): For the purpose of our analysis, we defined the variable of Prices of Substitute Goods as the price set for vehicles in direct competition with the Nissan Versa. During our research, we found this is a factor of formidable importance as a relevant change in it would greatly affect our demand curve, making the Quantity Demanded – Price of Substitutes relation an elastic one. It is important to note that Ps poses a positive correlation with demand; this means that as it rises, demand for our product will also increase as it serves as a substitute to the goods for which prices are rising. A perfect example of this interaction is found in our research in the year of 2014, where a dramatic decrease in prices of some of the direct competitors of the Nissan Versa resulted in a sizeable decrease in the demand curve.
• Advertising (Ad): It is inferred that advertising poses a positive correlation with the quantity demanded. This comes from the assumption that by increasing advertising activities, the product is introduced to more potential customers and thus demand should increase. Since the advertising activities area is considerably broad, we chose to focus our research in specific one in which all major competitors compete, the Panama Motorshow and Vehicle Fair, which is presented every year in October. This is arguably the most important activity for the Panamanian vehicle market in terms of advertising and publicity. It has such an impact that market sales show a pronounced peak during the month of October every year. Other important variables are depicted as follows;
• Price of Complementary Goods (Pc): Positive correlation. When Pc increases, QDv increases (Automobile Insurance, Fuel, and Spare Parts).
• Population (Po): Positive correlation. When Po increases, QDv increases.
• Product Cycle (Pcy): Negative correlation. As the product life cycle advances, QDv decreases.
• Total Cost of Ownership (TCo): Negative correlation. When TCo increases, QDv decreases.
• Related Taxes (Tx): Negative correlation. When Tx increases, QDv decreases.
• Fleets Necessity (Fn): Positive correlation. When Fn increases, QDv increases .

Recommendations: In order to improve quality and remain competitive in the Panamanian market:

• Focus on continuous improvement in quality maintenance services and spare parts (value for money) provided through their concessionaires.
• Provide better incentive plans to consumers for trading in competitor’s brands.
• Foster strategic alliances with financial institutions to share discount or cashback costs on the sale of new vehicles.
• Consolidate business alliances with mass transportation companies such as UBER, Cabify, and others to provide incentives to new customers.
• Build strategic alliances with insurance companies to offer discounts to new customers.

Sources:

• Nissan Motor Corporation
• World Bank
• Superintendencia de Bancos de Panamá (SBP)
• Asociación Nacional de Automóviles de Panamá (ADAP)

ANNEX 1

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ANNEX 2

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