How Tesla Used a $0 Marketing Strategy To Dominate a Market

Tesla, Inc., formerly known as Tesla Motors, has produced over 600,000 cars in its lifetime as a company, and overall earned $2.2 billion in cash and cash equivalents, as of the first quarter of 2019. Somehow, this was accomplished with Tesla boasting a $0 marketing budget.

How on Earth is this possible? The truth is, of course, that Tesla does spend some money on marketing; but it spends considerably less than its competition. For example, Tesla spent $58.3 million on marketing costs in 2015, while Audi and BMW spent $195 million and $196.6 million respectively.

Tesla’s marketing strategy, then, goes against the trend of developing TV advertisements and pushing its products onto consumers. Instead, Tesla focuses on word of mouth advertising, and referrals. Essentially, Tesla markets to its customers by not directly marketing to them. It encourages others, namely customers, to do the selling for them.

 

Introduction & Table of Contents

This strategy of relying on word of mouth and referrals turns Tesla’s customers into its marketers. Because of this, the company has an enormous need to provide a great product and create an amazing experience around purchasing and owning that product.

 

Tesla’s vehicles and batteries are already proving to be great and reliable products. What we will explore then is how Tesla crafts positive customer experiences around them to encourage selling to others, and how the company stays in the public consciousness via the media, and social media. On top of that, we will take a look at how Tesla’s commitment to its mission of creating environmentally sustainable methods of transportation plays into its marketing strategy, and furthers its brand.

Here’s a comprehensive list of what we’ll cover about Tesla, organized around these topics:

• Customer Experience
  • Tesla’s Referral program
  • Sales centers
  • Tesla Rangers, and Tesla servicing
  • Design and Development of the vehicles
• Spreading the word
  • Press test rides
  • SpaceX, and cross-promotion
  • CEO on Twitter
  • Exclusivity of the vehicles
• Adherence to the Company Mission
  • Marketing sustainability
  • Products outside of the vehicles
• How this plays out in Metrics
  • Sales
  • Net Promoter Score
• The Big Picture

 

Marketing through Customer Experience: Tesla’s Referral program

Like many companies, Tesla has a referral program to encourage customers to get the word out about their cars. In exchange, customers get something they want or need, adding to their enjoyment of working with the company.

In Tesla’s case, what the company offers in exchange for a referral is often evolving. Before the end of October 2015, the referral program let the person referring others get $1,000 in credit towards a new Tesla, or a Tesla service or accessory, for every purchase made from their recommendation. YouTuber Bjorn Nyland became the first person on Earth to refer 10 people to Tesla under that program, getting him an additional $10,000 bonus on top of the $10,000 he got from the referrals, plus a tour of the Tesla Gigafactory, and a free Founder Edition Model X.

These were all rewards that match the luxury status of Tesla, appealing to its customer base, and they continued in some form or another for a while as secret rewards, only available to those who made a large number of referrals. A version of such a reward included a discount off the base price of the Founders Series Roadster when it became available for order; Ben Sullins, another YouTuber, used his channel to refer viewers to Tesla, and managed to get Tesla $12 million in sales. In return, Mr. Sullins got two free Founder’s Series Next Gen Roadsters directly from Tesla.

These referral rewards got Tesla tons of press coverage, and encouraged a lot of promotion from Tesla owners. There was so much promotion, though, that in 2019, Tesla had to give away 80 new Roadsters for free, which meant the referral program had to change for Tesla to keep affording it. You can see this in the recent referral program available until February 2, 2019; if you referred a friend to Tesla who then made a purchase, you would be eligible to have your photo launched into deep space orbit. If you had two referrals, you could get a Radio Flyer Tesla Model S car for kids, or a black, signature version of the Tesla charger. For three referrals, you could get new wheels for your Tesla vehicle, or one week with a Model S or Model X car for yourself, or for a friend. Four and five referrals got you priority access to vehicle software updates, and an invitation to a Tesla unveiling event, respectively. Much like the recent secret rewards of getting to see a SpaceX rocket launch, race a Tesla semi truck, or even launch a personal time capsule into space, these rewards are still great, but they’re dialed back considerably from getting a free car from ten referrals. Vehicle rentals, test drives, and the cost of transporting individuals to Tesla or SpaceX events, all cost the company a lot less, and so have had to become the new normal.

Still, the free car remains a possibility; under the current referral program, you get 5,000 free Supercharger miles for each referral, as well as five chances to win a Founders Series Model Y or Roadster supercar. If you have free Supercharging, you instead get ten chances to win one of these vehicles. It’s just a chance now, instead of a guarantee.

Dialing back on the referral program, but not eliminating it entirely, is like Tesla striving to make more affordable cars—the company wants to stay afloat, and be accessible, so it’s doing what it can to keep manufacturing cars, and still give customers a good experience. The company needs its customers acting as promoters, after all, so the referral program needs to stay somewhat noteworthy to keep generating word of mouth and press attention.

Since Tesla is, at the moment, still somewhat forced to be a luxury car company, they get customers of considerable means buying their vehicles, and so they design the rewards to them, and their needs and wants. For Tesla, it pays off in more sales, even with the referral program shift. For customers, even under the newer program, they get rewards they can’t easily get from other companies, or even on their own. Customers therefore have a good experience recommending Tesla to others, and therefore have a reason to keep doing it for the exclusive prizes, whatever they evolve into being.

Sales centers

 In an effort to correct what the company calls a “conflict of interest,” Tesla does not have dealerships—instead, it has sales centers, which are sometimes combined with Tesla service stations, and online sales. The “conflict of interest” refers to salespeople at franchise dealerships who are incentivized, via commission structures, to upsell customers, rather than just get them the vehicle they need.

Tesla salespeople who work at the centers—which are designed by George Blankenship, the person who also created the designs for Apple retail stores, and created the centers to be “clean, approachable, comfortable, and exciting” to make buying a car more pleasant for customers, another move made to improve customer experience—earn no commission from making sales, so this conflict of interest doesn’t exist at the sales centers. Nor does it exist online, where consumers can also customize and purchase a Tesla vehicle.

Tesla is currently shutting down many of its stores to make its sales program exist exclusively online. Service centers will still exist for the vehicles, but the goal is to make sales entirely digital, so you have little to no interaction with salespeople at all. By removing pushy salespeople egging you on to upgrade your vehicle in ugly dealerships, Tesla seriously differentiates itself from its competition. It removes some of the most annoying parts of buying a car, which certainly makes for happier customers. It also puts customers in charge of the buying experience, which further improves their experience with Tesla. They’re buying this car on their terms, from salespeople that can be purely informative and helpful, or from the comfort of their own homes. What customers don’t enjoy that? And happy customers are good at passing on the word to others, so Tesla has its marketing team in the form of its buyers.

Tesla Rangers, and Tesla servicing 

Purchasing a car is often only the beginning of a customer’s relationship with a car manufacturer. If a customer chooses to go to a dealer for repairs, the relationship continues for as long as that customer has a car from that manufacturer.

Tesla knew, by being the first purely electric car on the market, they would be forcing people to use their service stations for an extended period of time. Mechanics would eventually catch up, of course, but in the meantime, customers would be obligated to return to Tesla service centers for longer than they perhaps would have otherwise chosen.

The company responded by ensuring that, much like with purchasing a Tesla, getting a Tesla vehicle repaired would circumvent or correct many common issues with getting a car repaired. One of the big issues Tesla addressed in this was the problem of having to go to a mechanic with your vehicle, and then being stuck at the mechanic. Many repair shops, particularly dealerships, can help with free car rentals, or getting you a free cab/Uber. But Tesla had a more creative solution.

Tesla developed the Tesla Rangers, a mobile service team that can meet you where you need a repair. This can be on the road, but it can also be at your home; pretty much wherever and whenever it is convenient for you.

Additionally, Tesla made each Model S manage and report its own data in such a way that you may not even need to bring in an expert for a fix at all. You can call a Tesla technician, who can access a vehicle’s data remotely, and talk you through a repair. All of these approaches to service correct some long-held car frustrations, making the customer experience with Tesla second to none. Which brings us back to their primary marketing strategy, word of mouth. As said by Fred Reicheld, the godfather of net promoter in this 1992 HBR article, happy and satisfied customers are more likely to recommend your product or service. It’s no wonder Tesla has chosen to focus on providing an outstanding and effortless customer experience from the point of sale all the way through their service touchpoints to ensure word of mouth spreads, and fast.

Design and Development of the vehicles

 As we said above, Tesla set out to be a luxury car company from its founding, as this allowed for the price point necessary to make high-quality electric-powered cars, retain margin and not worry about mass production (yet). Though they limited their initial customer pool, Tesla banked a hefty sum on each car initially sold, which ultimately allowed them to do more research and development, and create cheaper electric cars.

 

Though this system ultimately worked, it seriously depended on Tesla creating a fantastic product, and a major part of that was focusing on the design of its vehicles. Tesla was aiming to prove electric cars could have serious power to them, and in the luxury car market, that would be especially important. Tesla delivered on that, developing a vehicle as fast as a Porsche.

In fact, take a look at this video of Tesla absolutely destroying muscle cars of all kind…they didn’t just make an electric car, they’re challenging the very definition and concept of the muscle car.

But they didn’t just stop at speed and other amazing features, they delivered (any alleviated) many other common pain points for car owners across the US.

A big part of Tesla’s vehicle designs is having a ton of cargo space. The lack of engine allows Tesla cars to have a front trunk (a “frunk”), as well as a rear one. This takes something that stands out about a Tesla, particularly amongst competing cars, and showcases it in a highly positive light. Having enough trunk space, after all, is a covetable thing for most consumers, as it can be hard to find. Battery placement in hybrid vehicles, for example, can make a vehicle lose space, because they still have an engine to contend with. Not so for the Tesla.

Speaking of the battery, the Tesla’s battery placement also gives the car a boost in performance. The battery is heavy, so it’s placed low, in the center of the car, so the weight can help with tight turns.

Tesla vehicles these days have an autopilot mode, which allows your car to steer, accelerate, and brake automatically based off of data it picks up from its sensors. The vehicle isn’t entirely autonomous, you still have to drive it, but it makes driving a little easier, helping you make tight turns by turning with you, and helping you navigate by steering you towards highway interchanges and exits you need to be at, as well as adjusting if you end up behind slow cars. Autopilot also lets your car turn out of your driveway and stop in front of you, with no one in the driver’s seat. See autopilot at work in the video below:

The autopilot feature helped Tesla vehicles gain some virality recently (the above video has 1.9 million views), and Tesla vehicles definitely get some design features and modes that help the car be talked about in social media. Check out Tesla’s dog mode, or ludicrous mode, for examples of this, plus Tesla’s numerous other easter eggs hidden in the design of the cars.

Dog mode keeps your dog, or other furry friend, nice and cool or warm in the car while you’re out of it. The display in the car puts out a message in this mode that assures passers-by, who might otherwise worry about your pup and break a window to help them breathe or escape, that the animal is fine, and you, the owner, will be back soon, even reading out what temperature it is inside the car. A sweet dog mode video was made by Tesla, and can be seen below:

Ludicrous mode, meanwhile, has allowed Tesla vehicles to break acceleration records, letting the car go from 0mph to 60mph in 2.28 seconds. Videos of users using this mode are quite popular, and one such one can be seen right here:

If dog mode and ludicrous mode weren’t enough, there are also easter eggs that Tesla drivers have been all too happy to share online, spreading information about the car, and also helping to market it. One such easter egg is the fact that Tesla cars with doors that open upwards can activate a mode where they play music, and the doors flap like wings. Another easter egg is if you tap a coloring book icon (available from the Tesla update page in the car’s display screen), you, or someone in your car, can draw on the screen while parked, or while driving. Check out this video (that has 2.5 million views—Tesla’s secret features are certainly popular and certainly help with marketing) to see everything the cars can currently do:

In addition to their viral-marketing inducing features, Tesla vehicles have 17-inch, easy-to-use electronic displays to control each car, from temperature to music to GPS and telling you the weather. It’s one of the highest-rated car displays on the market with 86% customer satisfaction, so customers are having a good experience with it. This cool, futuristic feature goes well with Tesla’s sleek car exteriors, which add to the cars’ overall luxury and sportiness. Tesla vehicles tend to draw the eye when out on the street, and when combined with a giant internal display, it makes for a futuristic package anyone would be proud to own. Roll this into one sleek package and it tends to make most witnesses into potential or wannabe customers.

Tesla is also made-to-order and highly customizable. A customer can make sure it has the exact features they want and need, while still being a powerful car that gets them wherever they need to go on a charge. Want to focus on being able to go farther? You can get a Long Range Tesla vehicle base. Want a black exterior, and white interior, but no autopilot? That can be arranged. All of this lets customers get a better experience because they get exactly what they want. And with the ability to share what the car may look like, a customer can brag about their future vehicle, and promote Tesla in the process.

Since day one, Tesla focused on design and the end-user experience which, in turn, creates a raving loyal fanbase…much like Apple did before them. It’s hard to keep that kind of satisfaction a secret, and Tesla sales get to flourish because they took the time to develop, and care about design.

Marketing through Media/Social Media Attention: Press test rides

A clever way Tesla got the word out initially about the Model S was inviting members of the press to test ride the vehicle, and then write about it. Considering that test-driving a Tesla vehicle from a sale center requires a $5,000 deposit, this was a solid offer, and it let the media put Tesla’s claims about the car to the test.

Following the same method for the Model 3, Tesla has gotten some positive reviews from media sources like MSN and Fox News, helping spread good word of mouth about the car to a variety of potential customers. It was a marketing move that came very low cost to Tesla—all they had to do was provide a vehicle. Or, as in the case with the Fox review, they didn’t even have to do that—Fox contacted a Tesla owner, who happily lent the car to a writer for an afternoon. Once again, Tesla’s customers help market Tesla’s products.

Several reviews of Model S test drives were also quite positive, such as this one from the webcomic The Oatmeal (a unique person to invite, as a webcomic is not a traditional press junket, but a smart one, as The Oatmeal has a wide and relatively young audience that Tesla appeals to). The review in the New York Times, however, showcased the downside to this marketing strategy—negative press can spread as much as good press. Case in point, the photo of a stalled Tesla on a flatbed truck right at the top of the article.

Elon Musk, Tesla’s CEO, stepped right in though and challenged the New York Times review in a blog post, claiming the reviewer did not “factually represent” the Model S, citing data obtained from the test drive vehicle, and further claiming the reviewer as anti-electric vehicle zealot. The New York Times reviewer then refuted Musk’s refute, and lots of media attention was suddenly all over this feud.

The result? Tesla was getting massive press coverage, and people got more curious about which side of the argument was right. Naturally, they turned to Tesla owners to weigh in on the debate, who defended the brand at all costs. In the end, it proved the old adage that all press is good press—Tesla Model S cars continue to sell, even at their $100,000 price point, and Tesla can boast about its performance to this day. Controversy, when played right, can be the cheapest press a brand can get.

SpaceX, and cross-promotion

 A factor that makes Tesla, Inc. unique in the automotive industry is its CEO owns and runs businesses in other fields, such as SpaceX and Solar City. Through Musk, these companies get some unique cross-promotional opportunities with each other, increasing the visibility of both companies.

The most notable cross-promotion to date was the launching of the Tesla Roadster into space.

 

SpaceX had already showcased its reusable rockets, and industry first, in which the boosters return to earth allowing for significantly cheaper launch capabilities.

 

Launching the Roadster into space with the sounds waves from Bowie’s “Space Odyssey” pulsating outward into the endless void with images of the roadster, Starman, and earth in the background might just be the greatest publicity stunt of all time. This little stunt captivated the globe and dominated news cycles for days, again, Musk ever a master at manipulating press to his advantage, seemed to have done it once again.

Stunts have been used before as a marketing strategy by others like Sir Richard Branson for a brief uptick in media and consumer attention (in which even criticism of the event furthers the conversation). Tesla, however, has the unique ability to make space travel part of those stunts. Cross-promotion between Tesla and SpaceX may not reach these heights (pun intended) again in the near future, but we can certainly keep expecting them, as they are mutually beneficial and raise the profiles of both brands considerably.

CEO on Twitter

Elon Musks’s activity on Twitter is somewhat unique for a CEO, in that he’s the one actively using his account, and engaging with his audience. He live-tweets important events like the SpaceX rocket launches, he shares business and technology ideas, and he responds to customer suggestions, directly right on the site and often instantly rolls out a fix— many companies of Tesla’s size would struggle to match this service level.

As an example, a Tesla customer tweeted at Elon Musk asking that the car automatically move back and raise the steering wheel once in park in order to keep from hitting the steering wheel repeatedly while getting out of and into the car, and wearing it down. Musk responded to the tweet within 30 minutes, and that feature was added to Tesla vehicles via a software release.

Recently, musician Sheryl Crow had some issues with her Tesla vehicle (which she was quick to say was a rare occurrence—Sheryl is a great Tesla customer and promoter, it would seem), and Elon Musk responded to her personally, stating her feedback helped improve the car going forward.

That’s a common take on social media for Musk. He’s grateful to hear complaints, and quick to respond, so customers feel heard, and also, Tesla gets feedback to go off of for any improvements or changes. Since all of this interaction takes place publically, Musk gets to market while also legitimately helping customers, giving him a powerful tool for marketing and managing his business.

Not too long ago, a customer tweeted to Musk suggesting the Tesla app let interested buyers connect with Tesla owners for vehicle test rides, and Musk tweeted back “Something like this could work.” Though Tesla hasn’t yet implemented that idea into its app (this exchange took place only a little over a month ago), based on Musk and Tesla’s usual response to feedback, we can expect to see this update in the app soon.

With public responses, consumers can see Musk is a CEO that wants to hear from them, which reiterates Tesla’s reputation of customer-centric production and design. This is just another example that inspires loyalty from Tesla owners, and more potential sales from would-be customers following the business icon.

Exclusivity and Scarcity of the vehicles

 With Tesla cars being made to order across the board and the price point, we can consider the cars fairly exclusive vehicles to purchase. Add to the mix limited production, and you have a recipe for a supply and demand problem, which drives the ‘un-obtainium’ factor up, and the demand with it.

We discussed above that to even test drive a Tesla, you have to put down a $5,000 deposit. Add to that an inability to see the car you want because they’re not in stock even when you put down a deposit (thanks to the vehicles being made to order), plus a wait time of several months or even years to finally get the vehicle you put down a deposit for, and there’s a lot of anticipation built up around getting a Tesla. All of these factors make new releases and announcements highly anticipated by customers and media outlets alike. Musk is a master at harnessing this influence and pent up demand to launch new products, take the  500,000 preorders for the Model 3 as an example.

Marketing through a Mission: Marketing sustainability

 As Tesla puts it on their website, its mission as a company “is to accelerate the world’s transition to sustainable energy.” In addition to being the basis for their technology development, this lofty mission aligns extremely well with their target market. Tesla is looking to sell to consumers that care about the environment, and environmental issues. But as with its other marketing strategies, the company makes this appeal to them mostly indirectly.

Tesla’s website is full of content about sustainable energy, and recently it put out its first sustainability report, documenting the company’s carbon emissions, water usage, and energy expenditure in terms of its production and sales, as well as its general operations.

Tesla also, since its inception, has focused on not just meeting government standards of sustainability, which currently force all car manufacturers to make their vehicles at least somewhat fuel-efficient, and only producing a certain, maximum level of pollution. Tesla has aimed to instead exceed these standards, in order to force their competition to catch up, and create more sustainable vehicles elsewhere.

Tesla has furthered that goal by releasing its electric car patents to the public. By focusing on getting more electric cars on the market, and inspiring competition, rather than suppressing it, Tesla continued its focus on its mission, and helped market the idea of sustainable vehicles to the public. This move made it clear these cars can exist now, and if Tesla is any indication, they can also be really cool.

These are a few examples of addressing sustainability head-on, reminding the public of the company’s commitment to environmental issues. 

Metrics: Sales

Tesla, in general, has had a solid sales record, but in the early part of 2019, sales slumped 31% for Tesla vehicles. Sales for solar panels were also down, by 35%, and overall the company suffered a $702 million loss. Stock prices also went down, showing a continuing decline since its last peak in September 2017.

Tesla is currently claiming some of this loss is a result of production delays requiring a number of sales of the Model 3 made in the first quarter to be counted as part of the second quarter, because deliveries (and therefore final payments) happened so late. Though some analysts wonder if this amount of loss could really come from international order issues exclusively, production delays have plagued Tesla forever. With its cars all made to order, Tesla doesn’t usually have an inventory to sell from, and so delays on car releases, and order in general, as we said above, are quite common.

Tesla is looking at raising capital to survive this slump, and continue the Model 3 release in Europe. This might just pull Tesla through, as the Tesla Model 3 continues to be the most popular electric vehicle in the US, 10,050 of them selling in April, which compared to the next most popular Toyota Prius Prime’s 1,399 sales, reflects its domination in the market. Already, the Model 3 is outselling every other car in Switzerland, and in Norway the Model 3 made electric vehicles take 60% of the overall market in March.

Tesla, Inc.’s business model and production issues make its sales a bit unreliable at times, but the company is still very popular thanks to its many marketing strategies. Even with the Model 3 offering a more affordable price point, they’re still proving to be slow to produce, so we’ll see if these metrics fluctuate further, or stabilize in the future. But Tesla has a decent shot of getting back on track, thanks to the customer and brand loyalty it’s cultivated over the years.

 Net Promoter Score

 One of the best places we can see this customer loyalty in clear numbers is in Tesla’s Net Promoter Score, or NPS. NPS measures customer satisfaction by asking customers one question: “On a scale of 0 to 10, how likely are you to recommend this company/product/service to a friend?” Based on the scores given, a company’s NPS could land anywhere between -100 to 100, where anything over 0 reflects more customers being satisfied than not. A score under 0 reflects the opposite.

Tesla boasts one of the highest Net Promoter Scores in the world with a 97, an almost perfect score in customer satisfaction. Tesla’s focus on customer experience has paid off in a big way which is evident by this metric, and it’s a metric that influences profit trends, as well as customer retention and customer churn. Tesla isn’t likely to lose customers, even with some of its current financial troubles, and that should help it weather this storm, when every penny counts for them.

The Big Picture

Tesla, Inc. is a company that doesn’t market in a traditional way. It’s demonstrated it doesn’t have to—by focusing on customer experience, media attention, and sustainability, Tesla has generated interest while delivering on a great product, which are all the pieces it’s needed to dominate the electric car market.

In focusing on customer experience, Tesla has come to understand its average customer implicitly and has turned its customers into marketers by appealing to them in significant ways. With media attention and good use of social media, Tesla hasn’t needed commercials, which saves a significant amount of money on marketing while still being one of the most buzzed-about car manufacturers in the world. By leading the sustainability revolution for car manufacturers, Tesla has appealed to a particular an environmentally conscious base, while also making sustainability appealing to customers that like Tesla for their sleek designs and functionality. This has helped expand faster than most other upstart car brands.

Because of how its business model must work to produce its vehicles, Tesla may always have some production and sales issues in the future. But it has certainly mastered its “$0” marketing strategy, and will likely stay in the public consciousness so long as Tesla exists as a company. Tesla demonstrates you can strip back marketing to its bare essentials, and become a multi-billion dollar company in the process. All you need is the right product, the right targeting of your market, and a killer company mission customers can get behind and you’ll thrive. Ok, maybe a publicity stunt or two helps…