Identify and discuss the stage of the product life cycle as it relates to the Model 3.

What
are the implications for channel management when in that stage? Do the actions of
Tesla for the Model 3 distribution mirror the recommended channel management
behaviors? Discuss.

Tesla is currently in the development stage. The Model 3 was designed to appeal to a broader
audience than the niche Model S, Model X, and Roadster. Early Adopters to Early Mortality are their
target customers. During this stage, Tesla is continuing to raise awareness and educate customers. A
successful new product usually has a progressive climb in its sales curve during the market
development period. 400,000 of the 500,000 Teslas would be Model 3. A significant boost in
customer demand occurs at some point during this surge, and sales take off. This marks the start of
Stage 2—the market expansion stage.

Tesla sales are not considerably higher than the average gasoline car, but they are increasing rapidly
on their own. Product and brand distinction begin to emerge currently.
Tesla's market share is rapidly increasing; it is in a blue ocean and benefits greatly from being a first
mover in the electronic automobile sector.

They don't have many rivals. However, the entire electric vehicle business has been rapidly expanding
over the last few years. Because global warming is one of the most pressing issues all around the
planet. People and governments are becoming more concerned about the environment and air
pollution. Zero-emission targets are a long-term worldwide climate protection aim. This is a
challenge, but it is also a business opportunity for many businesses. The future is green market (and
digital), and this type of green and environmentally beneficial product will acquire a lot of
government support, leading the company to a disruptive market.

The ensuing battle for the consumer's support presents the initial manufacturer with a completely new
set of issues. Instead of focusing on how to convince consumers to test the goods, the creator must
now focus on how to get them to like his brand. This often necessitates significant adjustments in
marketing tactics and methods. The presence of rivals both demands and limits what can be easily
attempted, such as assessing the ideal price level or channel of distribution.

As customer acceptability grows, it becomes increasingly simple to develop additional distribution

channels and retail stores. The resultant filling of distribution pipes enables overall industry factory
sales to climb faster than retail sales. This provides an exaggerated picture of profit potential,
attracting additional rivals. Some of these will begin to charge cheaper prices as technology develops,
production shortcuts, the necessity to accept lower margins to gain distribution, and so on. All of this,
in time, forces the industry to enter a new phase of rivalry.

Tesla does not always adhere to the recommended channel management practices. To keep up with
rising market demand, the recommended channel management behavior promotes extending
distribution networks. Tesla was the only automaker in the United States that did not use independent
franchised dealers to reach customers. Despite the fact that Tesla vehicles were sold online and then
delivered to customers in their home states, Musk preferred company-owned dealership facilities.
Most jurisdictions, however, severely forbade vehicle manufacturers from holding dealerships. Musk
had successfully challenged the law in many states, but organized opposition had grown in a number
of others. To stay up with the product, Tesla is maintaining high levels of product quality and
increasing customer service activities. For example, Tesla is releasing software upgrades for its
vehicles in order to improve performance and eliminate faults in the system. The Tesla channel in the
United States consisted of 110 company-owned facilities spread over five retail formats: 56
dealerships, 33 dealerships with service centers, 19 galleries, 1 gallery with a service center, and 1
stand-alone service facility. Dealerships that specialize in car sales. The exhibition locations solely
supplied product information: no price, financing, or test drive options were permitted. Minor
automotive repairs and maintenance were handled by service centers.

Elon Musk can choose to continue with his existing vertical marketing system
(corporate channel) approach. Discuss the reasons for developing this type of channel
structure. Does the sale of Tesla cars align well with this structural design? Discuss.

There are several reasons why Tesla is following an existing vertical marketing system (corporate
channel) approach that fits their product effectively. In many ways, pursuing the standard franchise
dealership model would be easier; Tesla could save a lot of money on building and acquire global
distribution instantly. Existing franchise dealers face a basic conflict of interest between selling
gasoline automobiles, which account for the great majority of their business, and selling new electric
car technologies. It is tough for them to demonstrate the benefits of adopting electric without
jeopardizing their traditional business. This would deny the electric car a fair chance to make its
argument to a new audience.

Anyone who has driven a Tesla Model S recognizes that it is unlike any other vehicle. It is developed
with the goal of being the best car of any kind, not just the finest electric car. Despite being entirely
electric, it has a faster 0-100 time than BMW's top-of-the-line M5 and can travel extremely great
distances. Having a Supercharger-enabled Model S means unlimited long-distance travel on their
high-speed charging network. Given the exorbitant expense of gasoline, only an electric car firm can
do this. The Model S also sports the world's largest automobile touchscreen and the ability to install
new features and capabilities over the air, similar to a computer or mobile phone. This is a car that
will improve with time, making it difficult for dealers who still have to sell a big number of obsolete
technology gasoline cars. Most people have already determined what automobile they want to buy by
the time they go to their local dealer, which is usually the same make as their old car. At that point, it's
mostly a matter of bargaining with the dealer on pricing. As a new carmaker, Tesla would have few
opportunities to educate potential buyers about their technology if they were placed in normal auto
dealer settings.

That is why Tesla purposefully places their store and gallery sites in high foot traffic, high visibility
retail venues, such as malls and shopping districts, where customers frequently visit in a somewhat
open-minded purchasing mentality. This enables Tesla to communicate with potential customers and
educate them about our vehicles from Tesla Product Specialists before they pick which new car to
purchase. Product Specialists are also trained to handle basic questions about electric vehicles, not just
Teslas.

Tesla stores are designed to be instructive and participatory in a fun way, unlike a standard dealership
with hundreds of cars in stock that a commissioned salesperson is entrusted with selling. Tesla's
technology is unique, as are their vehicles, and as a result, their retail locations are purposefully
unique.

Elon Musk can choose to transform his current channel design into a contractual
system by using franchising. Discuss the reasons for developing this type of channel
structure. Does the sale of Tesla cars align well with this structural design? Discuss.

There are several significant reasons why Elon Musk could use franchising to turn his present channel
design into a contractual structure. Tesla might use franchising to capitalize on franchisees' funds as
well as managerial and local skills. With access to these resources, Tesla would be able to overcome
resource scarcity and swiftly achieve economies of scale in advertising and purchasing. It is expensive
to monitor the conduct of company-employed managers who work in remote places. Franchise
contracts, on the other hand, provide franchisees residual rights on their outlet's profits, encouraging
franchisees to work hard without direct supervision from the franchisor. Because franchisees have
more local knowledge, franchising might help Tesla connect more locally. Despite the fact that
franchisees have an incentive to "free ride" by doing acts that improve local earnings at the expense of
the franchisor's reputation, the monitoring cost benefits of franchising appear to exceed free riding
concerns. When the costs of supervising managers are considerable, franchising might be a good
option for corporate ownership.

Tesla has 125+ retail outlets in the United States, 75+ service centers, and various call centers. Tesla
acquired the land or space for these properties, then designed, built, and outfitted them to create this
network. The company then hired, trained, and staffed local salespeople to sell and deliver vehicles, as
well as experienced technicians and service personnel. However, under a franchising model, Tesla's
dealers would be responsible for building and staffing Tesla retail locations, call centers, and service
centers in compliance with the company's brand standards. Dealers pay traditional automakers
immediately after a vehicle leaves the production floor. As a result, automakers are not accountable
for the cash (or balance sheet debt) for vehicle inventory, which includes vehicles utilized for test
drives at dealerships. Even with its build-to-order strategy, Tesla could eliminate the expenses and
balance-sheet debt associated with new automobiles. Carrying costs for new car inventories will
become increasingly more difficult as Tesla continues to boost sales, especially with its aggressive
production targets.

Tesla might benefit from franchisees' funds and local managerial resources. The major resource,
however, is a local manager who is so driven to maximize performance that there is no need for an
expensive middle management structure to visit, monitor, and evaluate local managers on a regular
basis.

Although Tesla makes a valid point in claiming that franchised dealers cannot adequately market
electric automobiles, franchising might work well with Tesla car sales. If Tesla stopped publicly
displaying its stunning vehicles and instead enabled customers to test-drive and drive them home,
they might be more inclined to buy one. Tesla could increase its market share if it used a franchise
model. If Teslas were sold at franchise dealerships, consumers would spend less money. Tesla may
generate more money on average per car; consumers would have a better shopping and overall
experience if the business switched to a franchise model - which would also drive up Tesla's profits
over time. More automobiles sold = more profit = better shopping and ownership experience. Tesla
will eventually build cars that are better and more inexpensive by focusing on innovation and
outsourcing rather than swimming upstream with its direct-sales model.

Elon Musk can maintain his existing channel structure, change to a franchising system,
or implement a dual distribution approach which contains a corporate channel and a
franchise channel. What are the pros and cons of each choice for Tesla?

Corporate Channel
Pros:
• Have complete control over the product as it leaves the factory.
• Allows Tesla to communicate with potential customers and educate them about their vehicles from
Tesla Product Specialists before they make a decision on which new car to purchase.
• Tesla's own technicians service and maintain the cars, ensuring that they are always in top condition.
Cons:
• To establish this network, Tesla had to first acquire the land or space for the properties, then design,
build, and equip these places.
• Recruited, trained, and staffed local salespeople to sell and deliver vehicles, as well as skilled
technicians and service personnel.
• As Tesla's sales continue to rise, especially in light of its ambitious manufacturing targets, new car
inventory carrying costs will skyrocket.

Franchising System
Pros:
• Tesla might profit from franchisees' funds and local managerial resources.
• Tesla would be paid immediately by dealers as soon as a vehicle left the factory floor,
saving costs.
• Can concentrate completely on the production element and on "core competencies."
Cons:
• They will lose control over the selling and distribution of their products.
• It is impossible for dealership sales representatives to communicate the benefits of turning
electric without hurting their traditional business.
• Existing franchise dealers face a basic conflict of interest between selling gasoline
automobiles, which account for the great majority of their business, and selling new electric
car technologies.

Dual Distribution approach

Pros:
• Would assist Tesla in reaching a big market base.
• It would reduce the Teslas' capital requirements, operating costs, monitoring costs, and so
on.
• Encourages effective brand marketing operations in the market while also increasing sales
volume
• Tesla might increase its market share.
Cons:
• Dual distribution is costly and might lead to unhealthy competition.
• Limits or minimizes direct client engagement, preventing consumers from learning more
about the vehicle.
• Tesla releases software changes on a regular basis, which contradicts the dealer's desire to
keep selling new technology every year.
• Tesla's franchise laws are unfavorable.

What course of action from question 4 should Elon Musk take and why?

Tesla should consider franchising. Tesla will eventually build cars that are better and more
inexpensive by focusing on innovation and outsourcing rather than its direct-sales model.
While Tesla's approach of window shopping-style showrooms helps illustrate to consumers
that Teslas are unique, different isn't necessarily better, and it's never enough. Customers seek
experience, and by visiting shopping-style showrooms, customers are unable to sit in the
front seat of an identical model at a dealership in the mall, therefore destroying the new-car
buying experience. Rather than deliberately opposing an infrastructure that has been in the
United States since automobiles first touched the road, Tesla should understand the benefits
of utilizing it. Tesla sets its own rates, with no downward pressure from shops selling its
product, because it owns every step of the process from the moment manufacturing begins to
the day the client receives the keys. One of the frequently touted public-welfare benefits
franchise law is designed to bring is manufacturers' capacity to meet consumer expectations
of accessible sales and servicing facilities, which is absent from the Tesla model. Several
states only have one Tesla service center, while others have none. As a result, one of the most
common concerns about Tesla ownership is excessive wait times for vehicle service. Setting
up its own stores and delivering automobiles across the country is costly, as are the protracted
legal battles with states that prohibit direct automotive sales. If Tesla reversed course, it
would be able to pass huge savings on to customers and investors.