The First Oil Shock: A Turning Point in Production and Marketing

Abstract

The sharp increase in the price of oil—first in 1973 and then again in 1979—signalled a change in the structure of the competition, what to produce, and marketing strategies in the car industry. The oil crisis harmed the Big Three badly as American consumers turned to Japanese manufacturers. The oil crisis had pushed Americans to purchase cars on the basis of fuel consumption rather than segmentation based on social class. Having defined social class differences for half a century, the full-sized model market was now destroyed by Americans’ preference for the smaller, more fuel-efficient Japanese cars. The mantra “listen to the voice of the customers” once again generated substantial results. The Japanese began to patiently build up a distribution network in the U.S. and, most importantly, to gain recognition for the quality of their products, their attentive after-sales service, the safety of their vehicles, and their reduction of harmful emissions into the atmosphere. In Western Europe, the consequences of the oil crisis were dramatic. Two trends came to light: (1) more cost-conscious consumers; and (2) the emergence of the German “premium brands”. Audi, BMW, Mercedes, and Porsche developed a new “premium brand” strategy. During the 1970s and the early 1980s, the major carmakers began to extend the perimeters of their brand portfolios. They realised it was possible to serve more segments (through more brands) with great benefits in terms of lowering average costs, but to be able to do so, they needed to be able to sell at different prices in the various segments.