Developing a market entry strategy for a VTOL aircraft

Lilium is a German company founded in 2015 which develops a VTOL (vertical takeoff and landing) aircraft. The company aims to create “the world’s first five-seater vertical takeoff and landing electric jet” to provide on-demand air transportation services such as “air taxis” by 2025 for intercity and interregional travel.

I was able to get to know the company during a presentation at my home university last year, which led to my interest in the whole – very competitive – industry. Global urbanization during the past decades resulted in companies and governments trying to find creative ways to improve city mobility using globalization. Air taxis are just one example that gained a lot of hype in the past years. I wondered what drove this hype and what market challenges those companies have to consider when thinking about where and how to enter a market. These are the points I want to cover in this blog post. 

Multiple factors drive the hype for VTOL aircraft. Firstly, as already mentioned, innovative city initiatives and mobility solutions are in demand like never before. Various governments fund numerous smart city projects. Secondly, there is (still) an increasing road traffic congestion in urban areas due to a continuously growing population, causing inhabitants of megacities to lose 180 hours per year. Thirdly, faster and more efficient transportation is needed. Public transport technology in most cities is outdated, resulting in significant inefficiencies. Additionally, there is a lack of scalable and realistic alternatives to current transportation systems. Fourthly, environmental concerns are as prominent as they have ever been. Citizens are aware that a sustainable life cycle is needed and demand transportation with less polluting emissions. Lastly, land infrastructure in most megacities is limited and expensive, which requires runway-less platforms to allow space and money savings.

Although there are plenty of reasons and justifications for the hype in VTOL aircrafts, companies such as Lilium have to overcome significant challenges. Firstly, most governmental regulatory frameworks and certifications are not fully developed as there are special conditions for small VTOL aircrafts. Additionally, the market is highly competitive, especially from a business perspective. There are plenty of M&As and Joint Ventures with bigger aircraft or mobility companies, as well as significant investments by other technology firms. Furthermore, the technology behind VTOL aircrafts still provides many constraints related to hardware and software, which can postpone the actual launch of an entire functioning vehicle tremendously. Moreover, the general social acceptance of those transportation solutions is still quite limited, mainly because of safety concerns related to the technological challenges mentioned above. Lastly, although VTOL aircrafts will need less infrastructural space and resources, there is nevertheless the need for takeoff and landing areas as well as hubs that serve as maintenance platforms. 

In my opinion, when thinking about market entry, Lilium should consider the customers they want to serve when entering the market. Air taxis are supposed to be available to everyone who wants to use them in the future, but I think having a clear understanding of early adopters is crucial for the company’s success. To me, there are three main customer segments that Lilium should focus on at the beginning: young, dynamic executives so they can live just outside the main cities to have better living conditions, employees that save time and money on their business trips, and tourists who can spend more time at their desired destinations. 

Next to the customers, the company wants to serve, Lilium should clearly understand where to enter or introduce their new mobility concept. I came up with a few criteria to identify potential areas:

  1. Social acceptance
  2. Brand awareness 
  3. Number of cities in the area
  4. Population
  5. Number of tourists
  6. Traffic congestion severeness 
  7. Need for transportation alternatives

Lilium could use those criteria to rank various cities or urban areas to achieve the best possible market introduction of its mobility solution. This could help provide an affordable and the fastest alternative to all existing transportation methods in the chosen city. 

However, the best answer to “where to enter” is very uncertain. The industry has to adapt to significant complexities regarding regulations and technology. Additionally, brand awareness, social acceptance, or the emergence of other transportation alternatives are very volatile. Finally, as important growth dynamics, the population and tourist development have to be considered.

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