TOMTOM

TomTom
By Johan Buys, Student nr. 20498705

FOR THE SUBJECT OF

STRATEGIC MANAGEMENT

March 8, 2012

TABLE OF CONTENTS
TABLE OF CONTENTS

LIST OF ACRONYMS

1.

THE STRATEGY OF TOMTOM (5) 2

2.

HOW WELL THE STRATEGY OF TOMTOM IS WORKING (10) 3

3.

OPPORTUNITIES FOR GROWTH AND COMPETITIVE FORCES FOR

INDUSTRY MEMBERS (10) 4

4.

THE SWOT ANALYSIS OF TOMTOM (10) 5

5.

THE VALUE-ADDED SHIFT OF TOMTOM AND ITS SUSTAINABILITY (10) 6

6.

RECCOMENDATIONS (10) 7

LIST OF ANNEXURES

LIST OF PHOTOGRAPHS AND PICTURES

PICTURE 1:

The product life-cycle

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ANNEXURE A:

LIST OF GRAPHS AND TABLES

GRAPH 1:
TABLE 1:

LIST OF ACRONYMS

1. THE STRATEGY OF TOMTOM (5)

TomTom is perusing a simplicity, quality and ease of use model for their products.
According to their marketing, the company has reached the early majority
consumers, due to the market in the early maturity phase (See: PICTURE 1). The
company is in the process of diversifying and building a stronger brand, since it was

TomTom has decided to apply a broad differentiation strategy by dividing their

services into four. Overall the company is using a hybrid strategy due to the
differentiation, because of competition, and the best cost strategy to first gain clients

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PICTURE 1: The product life-cycle

Imports

realised that sales are starting to peak with a lot of new competition in the market.

such as commercial fleets before competitors like Garmin.

Firstly, automotive companies installing dash Guided Positioning Systems (GPSs),
which is then at a lower cost on average compared to buying a Personal Navigation
Device (PND) on its own. Secondly, commercial fleets needing the best possible
navigation to improve logistics management. Thirdly, TeleAtlas who are in the
process of innovating different products to stay ahead of competition in segments
such as mobile and internet. Finally, the average PND market where the company is
perusing a low-cost provider strategy.

2. HOW WELL THE STRATEGY OF TOMTOM IS

WORKING (10)
The strategy is working quite well, since the company is gaining a lot of Business to
Business (B2B) clients and innovating with new products such as the TomTom
iPhone application.
They do however have some concerns such as heavy competition from other
platforms using GPS technology such as Google maps and free Google and Nokia
navigation on cell phones. It seems that consumers want an all-in-one device such
as a smartphone that does everything including GPS navigation.
Another major problem the company is facing is the declining PND market in the
United States (US) and Europe (EU). After years of steady growth, sales are starting
to decline. This being the major source of income, the company had massive
decreases in profits due to an overall low-cost provider strategy in this line to stay

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ahead of major competitors like Garmin.

The companies recent take-over of Tele-Atlas has had a large cash burden for a
once cash-rich company. The decision to cut spending and layoff employees are a
danger signal signalling a decline in the market of PNDs. TomTom seems to be in
the right direction, slowly exiting the market of PNDs and moving toward valueadded services.
Tele Atlas is now leading innovation for TomTom, providing value-added services
(innovative new technology at affordable prices) like real-time information such as
traffic updates and weather.
TomTom however, due to the huge capital outlay to acquire Tele Atlas, has a threat
of losing market dominance by reducing staff, as this will hinder future innovation
projects.
In summary, the acquisition of Tele Atlas will have the right effect for sustainability of
TomTom, were competitors might be forced to harvest. It however took place during
the 2008-2009 recession, where having enough capital might be safeguard for

companies afterwards. TomTom can therefore be seen as a high-growth, high risk

company.

3. OPPORTUNITIES FOR GROWTH AND COMPETITIVE

FORCES FOR INDUSTRY MEMBERS (10)
3.1. Opportunities for growth in the satellite navigation industry
There are definitely opportunities for growth, since TomTom released innovative
products such as:
TomTom rider, a portable PND for bikers;

Software including TomTom -navigator and mobile providing navigation

software and digital maps which can be used on most mobile devices; and

TomTom for iPhone.

Imports

New competitors are: cell phones, AT&T navigator, online navigation applications

such as Google maps that can be used directly on your cell phone, built-in car
physical maps.

Google Inc. has recently lanced Google maps and a navigation software product
which is at no cost on their Android phones and most other mobile producers
products. TomTom is however a different product since their applications provides

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navigation devices such as those TomTom supplies to Renault and the traditional

more value-added innovative but worth-while benefits and need to be bought at

premium prices to utilize. They include traffic updates, user feedback to update
maps and traffic cameras as well as weather.

3.2. Competitive forces industry members are facing and the outlook for
industry profitability
Due to the vast array of new options to navigation for consumers, the PND market is
declining in sales. This may cause various companies in this segment such as
Garmin to loose a lot of sales and compete by means of price wars. The fact that
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there was a huge battle between TomTom and Garmin to acquire Tele Atlas is a
signal of dire desperation in selling PNDs.
One can however not dismiss that PND car GPSs will still be sold readily since
many consumers might prefer this method of utilizing satellite navigation. TomTom
and Garmin are in a price war within this segment and a GPS device now only costs
$99, were it once was almost $1000. All competitors are differentiating the products,
providing extra benefits such as security, various colors and pouches.
Due to the value of a GPS, many clients are targeted who have a mount-on device
on their windows and their devices get stolen. This has motivated them to opt for
models that include safety features that will de-motivate criminals, such as a
password.
It seems clear that companies in the PND market face the decline phase and should
retain some of this market, but innovate in other areas of the satellite navigation
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industry, utilizing new opportunities for growth.

4. THE SWOT ANALYSIS OF TOMTOM (10)

4.1. Strengths

Excellent brand name and reputation;

A consistent increase in operating revenue due to increased innovative

capabilities and resources of Tele Atlas; and

Market leader in the satellite navigation industry to always be first to supply a

new innovative product.

A Value-added service provider to maintain sales of PNDs and service B2B

clients such as automotive producers and fleet managers.

4.2. Weaknesses

Huge long-term debt burden in a recession due to an acquisition of Tele Atlas

at a premium price;
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A restructuring and staff reduction needed due to the high debt burden to
decrease operating costs, which leads to less intellectual capital; and

A general decrease in sales of the main product which is the PND.

4.3. Opportunities

Utilising the currently acquired Tele Atlas resources to create innovative new
technologies at affordable prices;

Increasing services to the B2B market which includes fleets and automotive
manufacturers; and

4.4. Threats

Losing brand power and first-mover advantage due to reduced staff and
expenditure;

Losing out on the PND market outside of North America and Europe due to
decreasing PND devices as a portion of revenue to rapidly.

Imports

The mobile software industry which include tablets and cell phones.

Insolvency due to no additional available capital in bad market conditions

such as a recession;

Due to the size of the company, a flatter organisation structure is needed.

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TomTom can learn a lot from the Google model, which harvests creativity.

5. THE VALUE-ADDED SHIFT OF TOMTOM AND ITS

SUSTAINABILITY (5)
Shifting focus to value-added services is definitely a move into the right direction,
since TomTom has new increased innovative capabilities and resources of Tele Atlas
to produce new products and PND devices sales are decreasing. In addition
TomTom operating revenue is steadily increasing, an indication of definite future
sustainability.
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The strategy is however not consistent with the needs of consumers outside NorthAmerica and Europe. This market is quite new to the PND and the company should
have rather focused on penetrating these markets further, before so rapidly
decreasing their PND sales as a percentage of total revenue.
In overview the shift is one in the right direction, since new products in the GPS
market emerge every day. Examples of these are Nokia navigator and Google maps.
Users might also use other cheaper products like these in Africa, but mostly PNDs
will be bought for their value-added benefits as covered by TomTom.

6. RECCOMENDATIONS (10)
TomTom should have expanded their PND sales focus in countries outside North
America and Europe, while keeping in mind to decrease PND as a percentage of
total revenue in the near future.
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The acquisition of Tele Atlas was a good move due to the mentioned innovative
technological improvement within the company, but too much capital was employed
to do this, just before a recession, and sales did slump. Other options could have
been considered were more capital could have been reserved, such as what Garmin
eventually decided to do. This is especially true for the markets outside North
America and Europe where consumers buy PNDs for the value-added benefit if they
can afford it, even though this is a cheap price for first-world countries.
TomTom should definitely continue with current efforts to provide their three basic
services to create better value for the client and their strategy for PND devices in
markets outside of North America and Europe, could have rather been a best cost
provider, rather than a low cost provider strategy. The company needs to make the
strategies more tailored for each country.
New products due to the technologic capability of Tele Atlas might include a latest
map service, such as Google maps, that can be developed to be sold on the cell
phone App stores.
Augmented reality applications are another route the company can take. Maps and
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navigation can be combined with detailed information, photos and visuals of

destinations including hotels. There are obviously endless possibilities in new
segments such as tourism, were parents can keep track of their small children or pet
locators.
Other ideas might be to include a PND in a digital watch for mountain bikers and
hikers. It is probable that in these cases those consumers who like gadgets might
buy these at premium prices. TomTom can install technologies such as laser

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Imports

holograms to show information and map navigation.