The New Beetle: Market Segmentation and Potential Market

1.How would you segment the market (remember that a segmentation scheme must consist of mutually exclusive categories, and that the set of categories must be exhaustive)? A market can be segmented based on demographic (age, income, generation, education), geographic (region, city size), psychographic (activities, hobbies, interests), or behavioristic (brand loyalty, price sensitivity) variables. The data from the Arnolds Communication research can be helpful in segmenting the market for the New Beetle case.

This research shows that Volkswagen consumers are typically young, slightly more affluent, more educated than the average car purchaser, and typically enjoy a more active role in driving. It seems that in this case we should segment our market based on households; specifically, those that are in the market for a small vehicle and those that are not. This market should further be segmented into households that are price sensitive and those that are not. It is likely that the baby boomers will fall into the non-price sensitive category. Furthermore, the more affluent younger generation is likely to be less price sensitive than most other households their age.

2. Who would you target? Why them? The New Beetle target market should be younger (18-34), slightly more affluent, and more educated than the average car purchaser. They should also have unique lifestyles, and exhibit qualities such as confidence, individualism, and a love for driving. Although the New Beetle also attracts baby boomers, due to their cherished memories of the original Beetle, this is likely not the New Beetle’s target audience.

This is because the baby boomers typically have a preference for larger cars, as their lifestyle now necessitates. Although they may feel a connection to the New Beetle it is likely that most of the baby boomers have families and a small car is not a practical choice. Furthermore, VW has a goal of bringing the Beetle back into the mainstream and targeting a younger generation will likely facilitate this.

3.For this target, what is the total potential market? If people buy a new car every 6 years, what share of the annual sales to your target market must the Beetle achieve to sell out their 55,000 cars? From the 2000 census, the U.S. population was approximately 281,421,906. The population between the ages of 18-34 was about 62,899,703. If a sixth of these individuals were in the market for a new car our total potential market could be 10,483,284. To sell 55,000 cars, the New Beetle would need only 0.5 percent market share. However, it is likely the Beetle’s market is significantly smaller.

The New Beetle is competing in the small size car industry in the U.S. market. In 1997, the total small car sales were 2,217,812; this is a five percent decline from the previous year. Therefore, if there is a similar five percent decline, we can estimate the total small car sales to be 2,106,921. For the Beetle to sell 55,000 cars in this market they would only need 2.5 percent market share. However, it is likely the Beetle’s market is even smaller, because the Beetle is more expensive than most other small cars.

The case states the Beetle’s immediate competitive set is the Chevrolet Cavalier, Ford Escort, and Saturn; in addition the Corolla and Sentra are also contenders. New Beetles are also listed in the $17,000-$18,000 price range. So, if we sum the sales of the listed Beetle competitors, and include the VW Golf and Jetta, the market sales are 1,225,009 (with a five percent decline).

To sell 55,000 cars, the Beetle would need 4.5 percent market share. However, if we only sum the sales of the competitors with a similar price (the Chevrolet Cavalier Z24 at $16,210, the Nissan Sentra GLE at $16,239, and the Nissan Sentra SE at $17,239), and the VW Golf and Jetta, the market becomes significantly smaller, being only 210,050 cars (with a five percent decline). In this more likely case, the Beetle would need 26.2 percent market share to sell 55,000 cars.