TomTom

A strategic analysis

Table of Contents
List of Tables.........................................................................................................................................ii
List of Figures.......................................................................................................................................ii
Executive summary..............................................................................................................................iii
1. Introduction and company overview..................................................................................................1
1.1 Introduction.................................................................................................. 1
1.2 Company overview....................................................................................... 1
Table 1: Summary of TomTom's key financial data..............................................2
2. Mandate.............................................................................................................................................2
2.1 Mission/Purpose............................................................................................ 2
2.1 Vision/Goals.................................................................................................. 2
2.3 Values/Ethics................................................................................................ 3
2.4 Stakeholder analysis..................................................................................... 3
Figure 1: TomToms stakeholders........................................................................4
3. External analysis................................................................................................................................4
3.1 Porters Five Force analysis............................................................................4
Figure 2: Porter's Five Forces framework............................................................5
3.1.1 Threat of entry....................................................................................... 5
3.1.2 Threat of substitutes.............................................................................. 6
3.1.3 The power of buyers...............................................................................6
3.1.4 The power of suppliers...........................................................................6
3.1.5 Competitive rivalry.................................................................................7
3.2 PESTEL analysis............................................................................................ 7
Table 2: PESTEL Analysis.................................................................................... 8
4. Internal analysis.................................................................................................................................9
4.1 Strengths...................................................................................................... 9
4.2 Weaknesses................................................................................................ 10
4.3 Opportunities.............................................................................................. 10
4.4 Threats....................................................................................................... 10
5. Strategic options..............................................................................................................................11
5.1 Enhancement and Development of the non-PND category.........................12
Table 3: Marketing summary of TomTom's software applications......................13
5.2 Entering new markets.................................................................................13
5.2.1 Strategic direction of entering new markets........................................14
Figure 3: The Ansoff Matrix...............................................................................14
Figure 4: The expanding middle class of the BRICs..........................................16
5.2.2 Marketing and strategy development...................................................16
6.0 References.....................................................................................................................................18
7.0 Appendices....................................................................................................................................20
Appendix 1....................................................................................................... 20
Appendix 2....................................................................................................... 21
Appendix 3....................................................................................................... 21

List of Tables
Table 1: Summary of TomTom's key financial data...................................................................4
Table 2: PESTEL Analysis.......................................................................................................11
Table 3: Marketing summary of TomTom's software applications..........................................15
List of Figures
Figure 1: TomToms stakeholders..............................................................................................3
Figure 2: Porter's Five Forces framework..................................................................................4
Figure 3: The Ansoff Matrix......................................................................................................9
Figure 4: The expanding middle class of the BRICs...............................................................10

ii

Executive summary
TomTom is facing competition from everywhere. This report gives a strategic analysis of
TomTom and ultimately giving strategic options which the company can follow in order to
remain competitive and guarantee its survival in the market. In the Introduction and
Company background it emerges that TomTom, for a navigation technology company, has
good experience having been established in 1991. It has a diverse and global workforce
which is an asset. On its Mandate, TomToms mission touches on providing users with great
navigation experience. Its vales centre on leaving a positive impact on society. Further, the
company acknowledges the importance of all its stakeholders to its business. Regarding the
companys External analysis, two tools are employed: Porters Five Forces and PESTEL
analysis. In a nutshell, Porters five forces highlight that the industry is still attractive on
overall. However, there is the very serious is the threat it faces from new competition. From
PESTEL, the most serious issue is that of legislative measures considered by some countries
that might ban the sale of navigation hardware. Regarding the companys Internal analysis,
SWOT analysis is used. The highlight here is that the company has strength in the name of a
good brand image. However, it has the serious threats of a mature European and U.S market,
potentially adverse legislation in some countries, and serious competition from substitute
products such as standalone navigation software for Smartphones. Strategic options are
therefore offered in accordance with analysis made and especially to counter the identified
threats. The two strategic options suggested for TomTom to pursue are:

Product Development - Enhancement and Development of the non-PND category.

Entering new markets

iii

1. Introduction and company overview

1.1 Introduction
Advances in technology have opened up access to channels of travel. By air travel for
instance, it is possible for more people to move from one point to another for reasons ranging
from tourism to work engagements. However, travel comes with the increased problem of
navigating in foreign locations such that the danger of getting lost is always present. This is
compounded by proliferation of numerous roads, buildings, and other man-made structures
especially in cities and towns in many parts of the world. This has brought about the need for
reliable navigation devices to provide accurate and timely navigation aid for potential users.

1.2 Company overview

Headquartered in Amsterdam, Netherlands, TomTom is a company that manufactures
automotive navigation systems that includes stand-alone personal navigation devices (PNDs)
and also develops software for use in cell phones and for personal digital assistants (PDAs).
Founded in 1991 by three entrepreneurs, TomTom is currently one of the leading companies
in this sector. It currently employees 3,500 employees worldwide and sells its products to
more than 35 countries in the world. The company has four business units/segments:
consumer, automotive, licensing, and business solutions segments. The company has over the
years managed to build a strong brand through its high quality products but is facing several
challenges such as increasing competition and declining PNG sales (TomTom, 2013). Table 1
summarises TomToms key financial highlights.

Table 1: Summary of TomTom's key financial data

( in millions)
Total Revenue
Cost of sales
Gross profit
Total operating expenses
Profit before tax
Net profit after tax

2008
1,057
186
871
627
244
143

2009
1,480
749
731
510
112
86

2010
1,521
777
744
558
134
108

2011
1,273
634
640
1,064
-441
-439

2012
1,057
502
555
485
61
129

Source: Data extracted from TomTom 2010; TomTom 2012.

2. Mandate
2.1 Mission/Purpose
According to the company annual report, TomToms mission statement is to provide all
drivers with the worlds best navigation experience (TomTom, 2010).
The companys product strategy is to focus on investing in research and development.
Consequently, the company focuses on investing in developing its integrated common
platform to support its product strategy.
By owning the entire process that concerns software technology, content creation, to product
development and maintenance, TomTom has a good level of competitive advantage. This
framework also enables the company to provide good navigation experience to consumers
through its well developed mapping and traffic information guidance technology (TomTom,
2012).

2.1 Vision/Goals
TomToms vision is to improve peoples lives by transforming navigation from a dont-getlost solution into a true travel companion that gets people from one place to another safer,
faster, cheaper, and better informed (Hoffman, 2010).
2

TomToms strategy currently is to re-establish revenue growth by enhancing sales of nonPND product revenues whilst trying to contain declining revenues in PND unit sales.
Accordingly, part of TomToms strategy is to increasingly become a software, content, and
services organisation. The company realises that it cannot achieve this quest without
innovation (TomTom, 2012).
2.3 Values/Ethics
TomToms values are embodied in its corporate social responsibility (CSR) strategy whose
overall strategy is to ensure the impact of our business on society is a positive one
(TomTom, 2013).
Accordingly, TomTom focuses on three areas:
1) Environmental impact - TomTom aims at managing its environmental impact by
minimising the effects of its business activities on the planet (TomTom, 2013b).
2) Supply chain TomTom attaches importance to labour conditions through its labour
engagement program and promoting employee communication through social media.
Other relevant areas include health, human rights, safety and environment.
3) Community giving for instance, TomTom donates its PNDs (Personal Navigation
Device) to charitable organisations that operate in areas of disaster emergency and
disadvantaged youth (TomTom, 2012).
2.4 Stakeholder analysis
TomTom recognises the need of maintaining close relationships with all its stakeholders.
TomToms most important stakeholders include consumers, employees, shareholders,
suppliers and business partners (TomTom, 2012). However, it can be delineated from the
companys annual report and website that there are other stakeholders mentioned who are
also important. These include regulators, communities, media, and NGOs (TomTom, 2012;
TomTom, 2013). To facilitate communication with its important stakeholders, the company

holds one annual general meeting and about ten supervisory board meetings which handles
all press releases.
TomToms stakeholders can be portrayed in a stakeholder radar screen 1 (figure 1) which
shows the relative importance of TomToms stakeholders. In this format, importance of
stakeholders is shown by the distance from the centre the most important stakeholders are
located near the centre.

Figure 1: TomToms stakeholders

Regulators
Partners

Media

Customers

TomTom
Ltd

Suppliers

Employees

Community
NGOs

3. External analysis
3.1 Porters Five Force analysis
TomToms external analysis can be done using Porters five forces framework. Johnson et al.,
(2008) posit that the ve forces framework helps identify the attractiveness of an industry or
sector in terms of competitive forces (p.59). This is portrayed in figure 2.

This format is borrowed from Regester and Larkins (2008, p.46) stakeholder radar screen.

Figure 2: Porter's Five Forces framework

Source: Extracted from Johnson, Scholes & Whittington, (2008, p.258).

3.1.1 Threat of entry

TomTom is in the consumer electronics industry, specifically the navigation systems sector.
Here, there are high barriers to entry due to:
Scale and experience: According to the case study, there are three main large players TomTom, Garmin, and Magellan with 24, 45 and 15% market share respectively (Hoffman,
2010). These have acquired experience and economise of scale which new entrants might
find difficult to match.
Differentiation: by providing consumers with a differentiated product of higher value,
TomTom (and the other two large players) have good customer loyalty which new entrants
might find hard to beat.

3.1.2 Threat of substitutes

The greatest threat to TomTom lies in substitutes. From the case study, it is evident that there
are other platforms that can offer the navigation services that TomTom does albeit differently
through the use of cell phones and smartphones (Hoffman, 2010). The threat lies in the fact
that independent software developers can make applications which users can install in their
smartphones to enable their phones to act as navigation devices through the use GPS (global
positioning system). Essentially, there is no need for a navigation device as provided by
companies such as TomTom. The overall effect is the reduction of the industrys
attractiveness.
3.1.3 The power of buyers
TomToms immediate buyers have high buying power. The company mainly depends on
retailers and distributors to sell its products to the ultimate consumer (the end-user). Further,
the company directs its marketing expenditure towards business-to-business (B2B)
advertising (Hoffman, 2010). Selling to a few retailers or distributors implies that they
possess high buying power because they are fewer and more concentrated. Consequently,
they can and do put pressure (or aggressively negotiate) for lower prices which can
effectively reduce the companys profit margins. This therefore reduces the industrys
attractiveness.
3.1.4 The power of suppliers
Concentrated buyers: The case study notes that TomToms supply chain and distribution
model is mainly outsourced (Hoffman, 2010). However, the company still depends on a small
number of third parties and a few sole suppliers for supply of vital components and
manufacturing. This means that TomTom dependency on such suppliers is high.
High switching costs: In connection with the above point, it is therefore expensive for
TomTom to switch suppliers without incurring increased costs. For instance, should

suppliers increase their prices for instance would result in the erosion of TomToms
revenues.
3.1.5 Competitive rivalry
There is significant competitive rivalry in the industry. These are organisations with the same
product offerings aimed at the same consumer. Factors to consider here include:
Competitor balance: management thinking dictates that competition increases where
competitors are roughly the same size (Johnson et al., 2008, p.64). Although TomToms
competitors market share is not exactly equal (see section 3.1.1), there is still intense
competition as each company tries to increase its market share at the expense of the other.
This is best exemplified in the case study when Garmin, TomToms biggest competitor
engaged in a head-to-head battle for the acquisition of Tele Atlas with TomTom (Hoffman,
2010-5).
Industry growth rate: when an industry is growing strongly, an organisation can grow
correspondingly but during lean times, growth may be at the expense of a competing rival.
The case study notes that the U.S and European market in the personal navigation device
market is slow and starting to decline (Hoffman, 2010). This is a recipe for intense
competition characterised by price competition and decreased revenues.

3.2 PESTEL analysis

The PESTEL framework categorises environmental inuences into six main types: political,
economic, social, technological, environmental and legal (Johnson et al., 2008, p.64).

Table 2: PESTEL Analysis

4. Internal analysis
TomToms internal analysis can be done using a SWOT2 analysis which is a comparison of a
companys strengths, weaknesses, opportunities and threats (Hill & Jones, 2010, p. 19 + more
2

According to Hill & Jones (2010), internal analysis focuses on reviewing the resources, capabilities, and
competencies of a company. The goal is to identify the strengths and weaknesses of the company (p.19).

ref). With regard to SWOT, Hill & Jones (2010) posit that the general purpose is to identify
the strategies to exploit external opportunities, counter threats, build on and protect company
strengths, and eradicate weaknesses (p.20).

4.1 Strengths
Brand name TomTom has a good brand name. Alongside Tele Atlas, the company has a
combined experience of almost 30 years. Its routing algorithms and Tele Atlas digital
mapping technology are world-class.
Diverse workforce TomTom has a global workforce of 3, 500 in 40 countries. This
workforce is diverse in nature and therefore enables the company to compete in
international markets.
Good products the company has good products with wide variety. TomTom is known for
products with good maps, better routing capabilities, and better real-time traffic
information.
Mergers and acquisitions - TomTom has positioned itself well with strategic mergers. For
instance, its merger with Tele Atlas has improved its digital mapping capabilities and
merging with advanced integrated solutions has improved its route guidance systems.
Good technology TomTom is an innovation company with several patents to its name. It
has developed advanced technology in its three stronghold areas of digital mapping, routing
technology, and dynamic information.
4.2 Weaknesses
Financial performance - generally, total revenues and profits are declining. Among other
factors this is caused by decline in sales of PNDs (see table 1).
B2C marketing essentially operating on a B2B model, TomTom sells its products through
retailers and distributors. It has not developed ways of directly selling to consumers e.g.
through online shopping (Hoffman, 2010).

 Third parties, outsourcing although the companys supply chain is outsourced, it relies on
a limited number of third party providers and in some cases sole suppliers for instance
component suppliers. This increases risk due to increased dependency.
4.3 Opportunities
Changing trends for instance, many people including the youth like to use phones and
smartphones with multiple or integrated capabilities in one device for instance, social
networking and navigation capabilities.
Untapped markets - there is potential for growth in markets such as the United States. For
instance, only 35% of adults in the United States own a navigation device either of a phone,
a standalone device, or in a car.
4.4 Threats
Competition the company faces traditional competition from well established companies
such as Garmin and Magellan which compete directly with TomTom for the same
customers. Further, there is new competition in the form of substitutes offered by a)
smartphones pre-fixed with GPS receiver capabilities; b) subscription navigation services
by AT & T Navigator; c) online navigation services such as Google Maps and Yahoo Maps
which offered as free services; d) built-in car navigation devices in some vehicle brands
which are sold by strong brand names such as Kenwood and Pioneer.
Adverse legislation there are potentially crippling legislations concerning PNDs. For
example, Canada and Australia are considering banning all PND devices in vehicles due to
the distractions they cause while driving. Increasing lobbying by green activists can also
result in legislation which increases the cost of adapting to.
Mature markets - the U.S and European markets show signs of maturity especially in terms
of personal navigation devices. The case study highlights that sales to Europe have dropped
21% (Hoffman, 2010).

10

5. Strategic options
From the analyses conducted, it emerges that there are serious issues or threats that TomTom
faces:
1. From Porters five forces, it is clear that there is serious competition from substitute
products such as independent navigation software applications that can easily be installed
in Smartphones and cell phones. Therefore, one strategic option is to develop and enhance
new products or services especially software applications for Smartphones.
2. It is also evident from Porters five forces that there is a decline of European and U.S
markets since they have matured. It is unlikely that these markets shall improve at least
not with the same products. Accordingly one strategic option is to seek new markets.
There are other issues identified for instance, unfavourable legislation in PESTEL and Five
Forces but it can be argued that other companies face the same threats. From SWOT it is
evident that the company has a good brand image. This will help the company in pursuing the
two strategic options recommended.

5.1 Enhancement and Development of the non-PND category

The case study highlights the declining sales in Personal Navigation Devices (PNGs), which
essentially comprise the hardware section (Hoffman, 2010). For instance, sales comparisons
of the first quarters of 2008 and 2009 show that revenues from sales of PNDs fell from 234
million to 141 million, representing a 40% decline in revenue (see appendix 3). Although
this appears as a one-off drop, this trend is likely to continue because:

Changing consumer trends as the case study highlights, consumer trends are changing.
More people are preferring devices with multi-functional capabilities such as
Smartphones.

11

Increasing competition - As highlighted in the study, there is increasing competition from

other platforms using GPS technology especially from cell phones and smart phones for
instance Google and phone manufacturers such as Nokia.

Accordingly, TomTom needs to embark on a strategy to enhance the non-PND category

quickly to enable the company to produce reliable and affordable standalone navigation
software for use in smartphones and cell phones. In this regard, the company shall need to do
the following:
1) Specialised technicians - TomTom shall need to look for more highly skilled software
engineers for this purpose. There should be a small team that can develop relevant
software applications for use in smartphones globally.
2) Marketing the enhanced software applications need careful marketing plans. The table
below summarises the marketing of TomToms new software applications.

Table 3: Marketing summary of TomTom's software applications

Area of
marketing
Market
segmentation

Market
targeting

Specific
Remarks
marketing points
Geographic
Aim for European and North American markets
initially.
Demographic
Target middle to upper middle class people.
Psychographic
Identify market segment that comprises tech-savvy
people.
Evaluation
of Segment size and growth the identified market
market segments
segment above is large and growing
Segment structural attractiveness TomTom should
rely on its scale & experience and differentiation of
product by quality to create barriers to entry in
industry
Company objectives and resources TomTom has
stable finances and a good human resource base.
Target
market Differentiation - is the best strategy to follow since
12

strategies

Positioning for Possible

competitive
competitive
advantages
advantages
Differentiation of
offer

Selection of the
right competitive
advantages

the company has superior product quality and

experience, for instance, in digital mapping.
However, the company should charge a reasonable
price to avoid loosing out to Google whose
applications are free of charge. Ideally, this will be
for consumers who want advanced userexperiences but at an affordable price range.
TomTom can provide software that consumers will
value and shall be willing to pay a small price to
purchase.
Channel differentiation TomTom should take
advantage of its expertise and performance of its
product to position its services.
Number of differences to promote TomTom
should promote one major difference i.e.
Provision of superior navigation services.
Differences to promote the company should
position its product as superior but affordable.

5.2 Entering new markets

As indicated by case study, European and North American markets show signs of maturing
(Hoffman, 2010). Comparing 2008 and 2009, it is seen that revenues for Europe and North
America fell by 22 and 52% respectively (see appendix 2). It can be deduced from the case
study that the main reasons for this are a) economic uncertainty; and b) reduced consumer
purchasing power; c) changing preferences by the consumer. It is expected that the situation
will not improve. Therefore, TomTom needs to enter new markets.

5.2.1 Strategic direction of entering new markets

Here, the Ansoff matrix (see figure 3) can be used to assess the issues of products and
markets.

13

Figure 3: The Ansoff Matrix

Source: Extracted from Johnson et al. (2008, p.258).

Looking at the possibilities of the Ansoff matrix it is recommended that:

1) Market consolidation Since TomTom is selling existing products in existing markets
(Quadrant A of figure 3), the company should maintain its market share in these regions.
It should not spend excess funds for instance, in advertising, in an attempt to boost sales.
Such funds are best utilised elsewhere.
2) Market development - TomTom should try to venture into new markets by selling its
existing products into new markets (Quadrant C).
Under market development, emerging markets for instance, markets in the Far East
portend the greatest potential. However, countries with greatest potential include the
BRIC countries (Brazil, Russia, India, and China). Other countries of interest that can be
considered at a later stage are some newly industrialised and industrialising countries
such as Malaysia, Singapore, Taiwan, South Korea, Mexico, South Africa, and Indonesia.

14

The strategy to venture into the BRICs is vindicated by the statistics. For example, statistics
show that the BRIC countries total world economic output rose from 16 to 22% from the year
2000 to 2008. Notably China has witnessed the largest economic growth compared to the
other four BRIC countries, accounting for more than half of these countries share. Further
China realised more than 15% of growth globally in terms of economic output from 2000 to
2008 Global Sherpa (2013). It is also a fact that middle class of the BRICs shall grow rapidly
in terms of consumption. This will spur the economic development of the BRICs further and
contribute to the expansion of the global economy. China and India shall be leading in this
growth. It is forecasted that the middle class population of the BRICs shall more than double
that of developed G7 countries (see figure 4) Global Sherpa (2013).

Figure 4: The expanding middle class of the BRICs

Source: Extracted from Global Sherpa (2013)

5.2.2 Marketing and strategy development
After the preceding discussion, two points emerge:

15

1)

Marketing the non-PND category - It is expected that some segments which are currently
doing poorly in North America and Europe such as the PNG market may initially
perform well in new markets. With aggressive marketing, TomToms hardware products
(PNDs) shall be well received by enthusiastic consumers. However, this may not last
long. It is expected that consumers here shall quickly prefer to use Smartphones for
navigation. This therefore represents short-term gains. Long term gains shall be made by
marketing non-PND category aggressively, that is, the Automotive, Licensing, and
Business Solutions segments.

2)

Strategy development - there are two methods where TomTom can enter the markets.
The first is by mergers and acquisitions and the second by forming alliances. Mergers or
acquisitions are undesirable at this stage due to the financial implications involved at this
stage.
The best of option is the formation of alliances for which joint ventures are suitable. For
instance, the company can seek to work with companies such as Hyundai of Korea for
navigational devices, Tata trucks of India, and even Toyota of Japan for inbuilt
navigation devices. The same applies for other business segments.

16

6.0 References
Global Sherpa (2013). BRIC Countries Background, Latest News, Statistics and Original
Articles. Retrieved October, 30, from http://www.globalsherpa.org/bric-countries-brics
Hill, C.W. & Jones, G. R. (2010). Strategic Management: An Integrated Approach, (10th ed.).
Mason, OH: Cengage Learning.
Hillary, R (2004). Environmental Management Systems and the Smaller Enterprise. Journal
of Cleaner Production, 12, 561-569.
Hoffman, A.N. (2010). Case Study - TomTom: New Competition Everywhere. Amsterdam:
Rotterdam School of Management, Erasmus University.
http://files.shareholder.com/downloads/TOMTOM/0x0x545490/bca3480b-a97f-4a08-a708eadd800ec62e/Green_statement.pdf
Inoue, Y., & Lee. S. (2011). Effects of different dimensions of corporate social responsibility
on corporate financial performance in tourism-related industries. Tourism Management, vol.
32, no. 4, pp. 790-804.

17

Johnson, G., Scholes, K., & Whittington, R. (Eds.). (2008). Exploring Corporate Strategy:
Text and Cases. Sussex: Pearson Education.
Regester, M., & Larkin, J. (2008). Risk issues and crisis management in public relations: a
casebook of best practice (4th ed.). Philadelphia, PA: Kogan Page.
Streeter, S., & Hungerford, T. L. (2010). Cap and Trade: The Kyoto Protocol, Greenhouse
Gas (Ghg) Emissions, Carbon.... New York, NY: The capital net.
TomTom (2013b). TomToms Green Statement. Retrieved October, 30, from
TomTom.

(2010).Annual

Report.

Retrieved

October,

30,

from

http://ar2010.tomtom.com/mission_vision_and_strategy.html
TomTom. (2012).Annual Report. Retrieved October, 30, from www.tomtom.com.
TomTom.

(2013).Company

profile.

Retrieved

http://corporate.tomtom.com/overview.cfm

18

October,

30,

from

7.0 Appendices
Appendix 1

Source: Extracted from TomTom (2012)

Source: Extracted from TomTom (2010)

19

Appendix 2

Source: Extracted from Hoffman (2010)

Appendix 3

Source: Extracted from TomTom (2012)

20