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The European economic crisis has changed how Renault, a French car maker, designs and produces cars for European customers. Historically, European car buyers have been sophisticated, demanding well-designed, feature-laden cars from manufacturers. When the economic crisis hit Europe in 2007, automakers saw a dramatic shift in demand. Overall demand dropped, and the customers who did come in to buy became much more cost conscious. In these difficult conditions, Renault has been able to carve out a profitable market for itself, selling low-cost, no-frills cars. Renault responded to this shift by creating an entry-level car group that was charged with designing and producing cars for these more cost conscious consumers. For example, it took an ultra-cheap car, the Logan, that was originally aimed for emerging markets and redesigned it to meet the new needs of the European market. The boxy sedan, which sells for around $10,000, is now one of Renault's best sellers. Its entry-level cars accounted for 30 percent of the cars sold by Renault in 2011 and generated operating profit margins over twice the profit margins of the higher-priced cars Renault sold. What is the recipe for success Renault has found to generate high profits on low-price cars? It uses simple designs that Incorporate components from older car designs at Renault and employs a no-discount retail policy. At the center of its design procedure is a "design-to-cost" philosophy. In this process, designers and engineers no longer strive for the cutting edge. Instead, they focus on choosing parts and materials for simplicity, ease of manufacturing, and availability. This often involves using components that were engineered for prior vehicle designs. When needing a new component, Renault begins by assessing how much customers would be willing to pay for certain features, such as air conditioning or power door locks, and then asks suppliers whether they can propose a way to offer this feature at a cost that matches what customers are willing to pay. As it faces imitation of this strategy by Volkswagen and Toyota, Renault is not sitting idle. As Carlos Ghosn, Renault's CEO, stated, "Our low-cost offering isn't low-cost enough. So we're working on a new platform that will be ultra low-cost." Sources: Pearson, D. 2012. Renault takes low-cost lead.wsj.com, April 16: np.; and Ciferri, L. 2013. How Renault's low-cost Dacia has become a "cash cow." Automotive News Europe, January 3: np Which of Michael Porter's generic strategies did Renault primarily pursue after the economic crisis? Multiple Choice Differentiation Overall cost leadership Breakaway positioning Consolidation Focus Renault's low-priced, no-frills cars can be seen as a form of Multiple Choice O O breakaway positioning mass customization reverse positioning O competitive parity harvesting What is the most likely reason that Renault's strategy might fail to result in a sustainable competitive advantage? Multiple Choice O O The firm is vulnerable to new entrants into the market. Renault's competitive advantage appears to be sustainable. There are many substitute products available to consumers. Renault's strategy could be imitated by competitors. The firm cannot earn enough profit selling low-end automobiles. The economic crisis sent the European market for full-featured automobiles Multiple Choice O into the maturity stage into competitive parity into the decline stage down the experience curve out of the industry life cycle The European economic crisis has changed how Renault, a French car maker, designs and produces cars for European customers. Historically, European car buyers have been sophisticated, demanding well-designed, feature-laden cars from manufacturers. When the economic crisis hit Europe in 2007, automakers saw a dramatic shift in demand. Overall demand dropped, and the customers who did come in to buy became much more cost conscious. In these difficult conditions, Renault has been able to carve out a profitable market for itself, selling low-cost, no-frills cars. Renault responded to this shift by creating an entry-level car group that was charged with designing and producing cars for these more cost conscious consumers. For example, it took an ultra-cheap car, the Logan, that was originally aimed for emerging markets and redesigned it to meet the new needs of the European market. The boxy sedan, which sells for around $10,000, is now one of Renault's best sellers. Its entry-level cars accounted for 30 percent of the cars sold by Renault in 2011 and generated operating profit margins over twice the profit margins of the higher-priced cars Renault sold. What is the recipe for success Renault has found to generate high profits on low-price cars? It uses simple designs that Incorporate components from older car designs at Renault and employs a no-discount retail policy. At the center of its design procedure is a "design-to-cost" philosophy. In this process, designers and engineers no longer strive for the cutting edge. Instead, they focus on choosing parts and materials for simplicity, ease of manufacturing, and availability. This often involves using components that were engineered for prior vehicle designs. When needing a new component, Renault begins by assessing how much customers would be willing to pay for certain features, such as air conditioning or power door locks, and then asks suppliers whether they can propose a way to offer this feature at a cost that matches what customers are willing to pay. As it faces imitation of this strategy by Volkswagen and Toyota, Renault is not sitting idle. As Carlos Ghosn, Renault's CEO, stated, "Our low-cost offering isn't low-cost enough. So we're working on a new platform that will be ultra low-cost." Sources: Pearson, D. 2012. Renault takes low-cost lead.wsj.com, April 16: np.; and Ciferri, L. 2013. How Renault's low-cost Dacia has become a "cash cow." Automotive News Europe, January 3: np Which of Michael Porter's generic strategies did Renault primarily pursue after the economic crisis? Multiple Choice Differentiation Overall cost leadership Breakaway positioning Consolidation Focus Renault's low-priced, no-frills cars can be seen as a form of Multiple Choice O O breakaway positioning mass customization reverse positioning O competitive parity harvesting What is the most likely reason that Renault's strategy might fail to result in a sustainable competitive advantage? Multiple Choice O O The firm is vulnerable to new entrants into the market. Renault's competitive advantage appears to be sustainable. There are many substitute products available to consumers. Renault's strategy could be imitated by competitors. The firm cannot earn enough profit selling low-end automobiles. The economic crisis sent the European market for full-featured automobiles Multiple Choice O into the maturity stage into competitive parity into the decline stage down the experience curve out of the industry life cycle

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