Tesla’s Disruptive Business in the Context of Marketing Management

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Executive Summary

The business environment of the 21st century is highly changeable, which is why companies across sectors must adjust their operations to meet the public’s demand. Technological progress and innovation have been an integral component of the contemporary business and marketing strategies, and Tesla serves as an excellent example of such an approach.

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This organization can be considered a disruptive innovation in the area of marketing, as is demonstrates several particular features. First of all, Tesla engages in direct communication with its customers on all levels, including its CEO, which enables a better understanding of the market’s requirements. Secondly, the company positions its product as a revolution in the field of automobile production, which aims at competing with the renowned leaders of the entire industry.

Tesla’s marketing has redefined the image of an electric vehicle, making it a viable alternative to combustion engines in the eyes of the public. Finally, the organization’s marketing model fully utilizes the potential of online media, reducing its expenses. Tesla should remain loyal to its current course, increasing the emphasis on green technologies and converting new customers into electric car users.

Introduction

Today’s business environment can be characterized by its changeability, which poses additional challenges for organizations. Accordingly, the competition grows, and it becomes vitally important to make correct business decisions on the strategic level, as competition leaves no room for mistakes. Therefore, current market leaders are capable of setting the right vision and implementing effective measures in terms of attaining their marketing goals.

However, some of these approaches do not correspond to the conventional understanding of business activity management and marketing concepts. Such cases are often named disruptive innovations, as progressive companies’ courageous business models introduce a new perspective to the rules of the industry.

Tesla Motors is one of such organizations, which utilizes new, disruptive concepts in terms of marketing and development, making it an interesting case study subject. The purpose of this paper is to study the example of Tesla as a contemporary disruptive innovation based on theoretical literature findings and the company’s marketing model analysis.

Literature Review

In today’s complex business environment, it is important to select an adequate strategy, which would correspond to an organization’s goals. This idea gains particular importance in regards to marketing, as this sphere has been rapidly evolving in the past decades. There exist a great variety of marketing concepts and models, making it difficult to distinguish the one which would fit a particular company’s situation. Accordingly, substantial theoretical research is required to determine the correct approach.

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Within the framework of the present study, an integrative review of literature was conducted to research key theoretical points of the discussed topic. The list of reviewed sources comprises seven articles written in recent years and exploring the primary aspects of the topic. The list of considered notions included the contemporary understanding of marketing concepts, disruptive business innovation, and Tesla’s image in the business community. The review provided substantial theoretical findings, which were utilized during the following stage and applied to Tesla’s practical example.

The Article by Si et al. (2020)

The first study is devoted to the general concept of disruptive innovation and entrepreneurship in the modern environment. Si et al. (2020) lay an emphasis on emerging economies, which are expected to be the driving force of future economic growth. The authors begin by listing the key challenges, which are faced by contemporary industries.

The list includes “intense global competition, rising market volatility, constantly changing consumer demand, and shortened product life cycles” (Si et al., 2020, para. 1). Accordingly, modern companies have to overcome significant barriers on the way to sustained growth and quality development.

In order to respond to these challenges, the organization must select an appropriate business model in terms of marketing, and this choice will determine its success or the lack thereof. As stated by Si et al. (2020), disruptive entrepreneurship has become a necessary instrument for companies willing to stand out in the market and attain success in the industry. These findings imply that Tesla’s disruptive business model is, in fact, justified by today’s competitive environment and responds to current challenges.

The Article by Christensen et al. (2018)

The concept of disruptive innovation and entrepreneurship has served as an area of intense interest for researchers across the globe. Christensen et al. (2018) note that the term is widely used in the business community and becomes particularly relevant nowadays, as companies, such as Tesla, introduce new perspectives on their industries. On the other hand, the authors argue that the current understanding of disruptiveness is not exactly accurate (Christensen et al., 2018).

The authors state that disruptive business innovation as a theoretical concept is severely underused, despite its high potential in terms of maximizing the company’s profits. In addition, while the concept of disruptiveness has existed for a significant amount of time, the related literature remains fragmented and diverse.

The article by Christensen et al. (2018) aimed at addressing the existing inconsistencies and providing a consolidated theoretical framework, which would acknowledge the complexity of the notion. The presented findings make it possible to suggest that the use of the disruptive business model by Tesla is an elaborate choice, as the management understood its potential in terms of profitability.

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The Article by Petzold, Landinez, and Baaken (2019)

The third study examined in the course of this review developed the theme introduced in the previous one. Petzold, Landinez, and Baaken (2019) conducted a systematic review with the intent to emphasize the complexity of disruptiveness in business and marketing. It is said that the current research is scattered, and the majority of scholars describe the phenomenon from a linear point of view. Such an understanding of disruptive business implies that a new company enters the market and rapidly gains customers by demonstrating a better, more efficient performance.

According to Petzold, Landinez, and Baaken (2019), the actual phenomenon of disruptive business innovation is more complex than it is usually described. In fact, the authors propose a new, non-linear dynamic model of disruptiveness in business. According to the proposed model, the process comprises several phases, such as entering the market, filling the product niche, and becoming part of the mainstream. The authors provide valuable insight into the complex nature of disruptive innovation, and their framework can be applied in the case of Tesla.

The Article by Vecchiato (2017)

Article number four examines the challenges faced by incumbent companies in the modern business environment characterized by an increasing incidence of disruptive innovations. Vecchiato (2017) investigates the topic in relation to managerial cognition and technology competition outcomes. According to the author, many existing organizations do not manage to identify the potential challenges and promising avenues introduced by the phenomenon of disruptiveness.

As a result, they fail to adapt to the new reality and lose the competition to the organizations, which are more prepared to venture into the new territory. Within the research, Vecchiato (2017) described disruptiveness and managerial cognition as two separate areas of study. Indeed, the two concepts rarely intersect, thus forming a knowledge gap.

A better understanding of the possible relation between managerial cognition and disruptiveness would provide a valuable reference point for business and marketing researchers. Vecchiato (2017) crossed the two research fields and concluded that managers’ inability to recognize the change of needs within society becomes the crucial factor of failure. Accordingly, companies, such as Tesla, are able to identify the needs of the customers, turning the disruptive innovations into accurate implementations of new techniques.

The Article by Adams, Bodas Freitas, and Fontana (2017)

The area of research explored in article five is related to the topic of the previous study. Adams, Bodas Freitas, and Fontana (2017) investigate the possible correlation between a company’s strategic orientation, marketing management, marketing mix tactics, and innovation performance. These concepts are highly relevant within the framework of the present research, as their in-depth understanding allows for better analysis of Tesla’s model.

According to Adams, Bodas Freitas, and Fontana (2017), there exist three types of strategic orientation, which are “customer, technology, and combined customer/technology orientation” (p. 129). The empirical side of this article comprises an analysis of 1603 French companies, and this sample improves the accuracy of the final results. All in all, Adams, Bodas Freitas, and Fontana (2017) concluded that it is less profitable to focus on one single aspect of the business.

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Instead, the combined customer-and-technology orientation allows an organization to demonstrate better performance rates in the long term. In addition, such an approach to marketing management is said to have a positive effect on a company’s innovativeness. This theoretical framework appears useful in the context of Tesla and its disruptive model, as the company’s model confirms the findings.

The Article by Falát, and Holubčík (2019)

The contemporary business community has recognized the importance of marketing and effective communication with the public. Indeed, the social aspect of the business has gained additional importance in the 21st century, as today’s activities become more and more customer-oriented. As it becomes evident from the previous study, focus on the customers allows organizations to show positive results, but it is unwise to ignore the product aspect completely.

Nevertheless, quality interaction remains a crucial component of 21st-century entrepreneurship, and Falát and Holubčík (2019) wanted to determine the correlation between marketing communication and an organization’s financial performance. As it is stated by the authors, the concept of marketing communication implies that selected information can be provided to the customers in the most efficient and convenient form.

A company, which utilizes its communication channels effectively, is believed to have higher chances of outstanding financial performance. Interestingly, Falát and Holubčík (2019) studied the case of Tesla Motors and concluded that the company presents a high-end disruptive force capable of changing the public’s opinion through effective communication. Therefore, the concept of marketing communication remains highly relevant within the framework of the present study.

The Article by Kim, H. (2020)

This systematic review comprises seven pieces of academic literature exploring current trends in business and marketing management. The final article by Kim (2020) is devoted to the innovation capability of Tesla. As a matter of fact, the mere concept of innovation is often discussed today, as the world and society desire new, efficient solutions to previous problems.

First of all, the public remains concerned about the issues related to the environment, which is why the majority of companies look for new sustainable growth opportunities. Similarly, Kim (2020) related the current demand for innovation to the sphere of green technology and acknowledged Tesla’s considerable success in this regard. The company is presented as an excellent example of today’s innovative, environmentally-aware organization.

The very concept of a popular electric automobile corresponds with sustainable development goals, and the company’s policy contributes to this “green” image. The author of this article puts renewable energy sources and high-tech communication patterns on the list of effective innovations of the 21st century. Accordingly, it is possible to investigate Tesla Motors within the framework of theoretical concepts mentioned above.

Application of Theory to Practice

Tesla’s Marketing Management Concept, Processes, and Strategies

In order to review the effectiveness of the marketing techniques presented earlier, it is useful to focus on a specific example of an actual company. Tesla is a relatively new player in the industry, making its case of success particularly interesting. According to the company’s official website, it was launched in 2003 by a group of engineering enthusiasts (Tesla, 2020). Their primary objective was to prove that “electric vehicles can be better, quicker and more fun to drive than gasoline cars” (Tesla, 2020, para. 1).

In other words, Tesla wanted to redefine the image of electric cars, which were mostly disregarded by serious drivers. The company’s CEO Elon Musk promised to outperform gasoline-based sports cars using a secret “master plan” (Andersen et al., 2016). Despite open doubts regarding the company’s sustainability, Tesla managed to demonstrate considerable development rates and admirable growth.

In the course of the following decades, Tesla introduced several new models, which quickly gained popularity, including Model X and Model 3. Its new inventions comprise an even wider variety of electric vehicles, such as the famous Cybertruck (Tesla, 2020). In the end, the company managed to attain considerable success.

Tesla’s remarkable achievements were enabled by the company’s proper strategic management and marketing concept. As a matter of fact, the organization’s approach to marketing per se is a disruptive innovation, as it contradicts traditional corporate paradigms in several ways. First of all, according to Rahman (2020), Tesla Motors “has no marketing team, no chief marketing officer (CMO), and no advertising agency.” As a result, the company does not have any marketing expenditures at all, which allows it to redirect those funds to other purposes (Figure 1).

Instead of conventional promotion strategies, Tesla’s management has been able to recognize the potential of modern communication technology, namely, social networks (Rahman, 2020). This way, Elon Musk has been promoting his ideas and products to the global audience without unnecessary expenses. Simultaneously, Tesla constantly improves its product and even invests in related infrastructures, such as a network of charging stations (Andersen et al., 2016).

This implies that it utilizes a combined, customer-and-technology approach described by Adams, Bodas Freitas, and Fontana (2017). Overall, Tesla overtly utilizes its image of a fresh, innovative company, which aims at confronting centuries-old leaders and redesigning the industry through modern technology.

Marketing Expenses in the Automobile Industry
Figure 1. Marketing Expenses in the Automobile Industry (Rahman, 2020).

Tesla Marketing Mix Evaluation

Tesla Motors uses an ambitious marketing model, relying on its disruptive innovation potential. Its marketing mix includes alternative free promotion channels, including social networks, combined with non-existent marketing expenses. The company manages to realize the potential of its eccentric CEO, Elon Musk. Folschette (2020) states that the customers endorse such an image of Musk, who appears to be down-to-Earth in terms of social interaction while being extremely progressive science-wise.

Besides, Andersen et al. (2016) write that the majority of automobile producers choose not to interact with their customers directly. Tesla has opted for an opposite approach, as the entire company, including the CEO, is not above communicating with its customers. The public positively responded to this model, which definitely contributed to the organization’s positive image and overall success.

The combination of direct marketing, progressiveness, and high-end technology has proved to be highly beneficial for Tesla. Therefore, it appears possible to evaluate the effectiveness of its marketing mix in positive terms. Elon Musk and his employees willingly disrupted the conventional industry model, and they did so with a complete understanding of their objectives.

Role of Marketing Models, Tools, and Techniques in Tesla’s development

In order to assess Tesla’s performance, it is possible to use Porter’s models of five forces. The organization in question occupies a peculiar position in terms of its competition. In fact, initially, the number of potential rivals within the sphere of electric vehicle production was small. Nevertheless, Elon Musk and the rest of his company did not want to limit their operations to this particular segment. Consequently, Tesla engaged in an open competition with renowned masters of automobile production, including gasoline-based ones. Tesla’s industry possesses strong barriers for new entrants, demanding considerable financial contributions.

Therefore, its position appears secure in terms of new entrants’ potential. Simultaneously, Tesla’s supply chain is stable, as the company is primarily based in two locations: Fremont, California, and Gigafactory Shanghai (Tesla, 2020). The company can boast a loyal, affluent customer base constituted of people who endorse its progressive business model. Finally, Tesla’s vehicles have little or no replacement risks due to the unique nature of innovation applied in them. Therefore, the company’s position appears solid within Porter’s framework of five forces, as far as the present situation is concerned.

At the same time, it possible to review Tesla’s operations through the prism of the Product Lifetime Model. As a rule, the model comprises four stages, each posing particular challenges for companies. Tesla has passed the Introduction stage, during which it managed to communicate its business strategy to the global audience and attract a customer base. Then, the growth phase allowed the firm to secure its position in the automobile market while introducing new models and products.

Previous findings suggest that Tesla is currently on the verge between Growth and Maturity. As it moves to the third stage, the company must retain its immense customer base while preserving its positive image of a progressive organization. The Maturity phase will determine whether Tesla will be severely affected by the Decline. As of now, the company’s primary challenge consists of preparing a sufficient safety net of financial success and reputation, which would allow it to survive possible turbulences.

The Product Lifecycle Model
Figure 2. The Product Lifecycle Model (Wright, 2020).

Conclusions and Recommendations

In conclusion, today’s business environment is characterized by an increasing number of disruptive innovation models. As research suggests, intense competition and rapid globalization leave little or no second chances for companies, which is why it is crucial to set the right strategic vision. Tesla’s marketing philosophy has proved effective, as the company economized considerable resources be relying on cheap, online word-of-mouth marketing. Simultaneously, as Tesla specializes in electronic vehicles, it will benefit from a stronger emphasis on environmental protection initiatives.

Educating the global public on the advantages of green technology, will convert users of combustion-based automobiles and attract new customers. As more companies enter the competition in the electronic car segment, Tesla must promote its expertise as the world’s leader in the area. Additionally, it may be profitable to expand the company’s operations and encompass other types of vehicles, such as boats and motorcycles, in the long-term. This way, Tesla will retain its competitive advantage in the 2020s, as the public devotes more attention to the environment and green technology.

Reference List

Adams, P., Bodas Freitas, I. M., and Fontana, R. (2019) ‘Strategic orientation, innovation performance and the moderating influence of marketing management’, Journal of Business Research, 97, pp. 129-140. Web.

Andersen, M., Dauner, T., Lang, N., and Palme, T. (2016) What automakers can learn from the Tesla phenomenon. Web.

Christensen, C. M., McDonald, R., Altman, E. J., and Palmer, J. E. (2018) ‘Disruptive innovation: an intellectual history and directions for future research’, Journal of Management Studies, 55(7), pp. 1043-1078. Web.

Falát, L., and Holubčík, M. (2019) ‘The influence of marketing communication on financial situation of the company – a case from automobile industry’, Procedia Engineering, 192, pp. 148-153. Web.

Folschette, C. (2020) Tesla’s marketing strategy shows that it’s time for CEOs to get social. Web.

Kim, H. (2020) ‘Analysis of how Tesla creating core innovation capability’, International Journal of Business and Management, 15(6), pp. 42-61. Web.

Mangram, M. E. (2012) ‘The globalization of Tesla Motors: a strategic marketing plan analysis’, Journal of Strategic Marketing, 20(4), pp. 289-312. Web.

Petzold, N., Landinez, L., and Baaken, T. (2019) ‘Disruptive innovation from a process view: a systematic literature review’, Creativity and Innovation Management, 28(2), pp. 157-174. Web.

Rahman, T. (2020) Why Tesla pays $0 for their marketing. Web.

Si, S., Zahra, S., Wu, X., and Jones, R. (2020) ‘Disruptive innovation and entrepreneurship in emerging economics’, Journal of Engineering and Technology Management, 58. Web.

Tesla. (2020) About Tesla. Web.

Vecchiato, R. (2017) ‘Disruptive innovation, managerial cognition, and technology competition outcomes’, Technological Forecasting and Social Change, 116, pp. 116-128. Web.

Wright, G. (2020) How to use the Product Life Cycle (PLC) marketing model. Web.

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