Mercedes-Benz is a global manufacturer of luxury vehicles, buses, trucks, and coaches. It is a subdivision of the German company Daimler AG. It has its headquarters in Stuttgart, Germany. The company started off in 1926 with the name Daimler-Benz and was founded by Karl Benz and Gottlieb Daimler. Mercedes-Benz serves the entire globe and has outlets in almost every country. Globally it is ranked the 12th best brand with a value of more than $28 billion. The company is not a mass production industry but is a premium brand with a slogan ‘Best or Nothing’. The vehicles are characterized by excellence, safety, luxury, comfort, performance, and style. It is a leading brand in the automotive industry with regard to customer satisfaction and loyalty. It is continuously working on making its vehicle more environment-friendly through the use of renewable resources such as lithium-ion batteries. It has earned a place in the luxury vehicles market and is going no-where.
Following is a detailed Porter Five Forces Model Analysis of Mercedes-Benz:
Competitive Rivalry – High
The luxury and premium automotive industry is very competitive. The competitors of Mercedes-Benz include BMW, Audi, Lexus, Volvo, Jaguar, and Porsche. The vehicles made by these brands all differ significantly in design, functions, luxuries, and other technical aspects. Since these vehicles cost a premium, therefore, marketing and communication with the potential customers is an important part of this industry in order to generate a perception of status, recognition, ambition, achievement, and success associated with owning a luxury premium vehicle. In 2015, Mercedes-Benz was the second highest seller units wise with more than 1.8 million units sold. The exit barriers are very high due to huge investments put in (Do, 2014). Thus, the competitive rivalry is high for Mercedes-Benz.
Threat of New Entrants – Low
The entry barriers of this industry are very high. The first is the brand equity that the existing brands have developed over time and enjoy. There are many new Asian firms that have tried to compete with the existing players but failed to grab a significant market share. Since these brands have developed and become a symbol of prestige and repute, customers are not willing to try out new brands. The other entry barriers include huge initial investments, extensive marketing and advertisement costs, strict government regulations, and economies of scale. All of these aspects make the threat of new entrants low for Mercedes-Benz.
Bargaining Power of Suppliers – Low
There are numerous suppliers to the automotive industry and most of them of small size, and the manufacturers are of a very large size, the suppliers are in no position to bargain or attempt to influence prices. These manufacturers have set very high quality and specification standards for the raw materials and only select those suppliers who are willing to comply with these requirements. The suppliers of Mercedes-Bens include the makers of leather products, wood designers, and car interior electronics devices providers. The switching cost for these manufacturers is not low. The suppliers of Mercedes-Benz are in hundreds and being a supplier of this brand is an honor for them (Paolo, 2013). Thus, the bargaining power of the suppliers is low.
Bargaining Power of Buyers – High
There are a large number of manufacturers of luxury vehicles and each offer a different product, the customers have a variety of brands to choose from. The vehicles made by different brands differ in quality, performance, appearance, and price. The buyers also have easy access to information and can compare the various features of different brands before making a purchase. Some brands such as Roll Royce also offer customers the choice of customizing their vehicle for them allowing them to select dashboard color, seat leather color, and other features. However, in luxury vehicles, brand loyalty is much higher. Customers are willing to pay extra for a particular brand. Thus, bargaining power of buyers is high against Mercedes-Benz.
Threat of Substitutes – Medium
Luxury and premium vehicles do not serve merely the purpose of transportation. They are also a symbol of status and self-perception of success and achievement. The substitutes for it are low budget cars and other means of transport such as a bus or train. However, if we just focus Mercedes-Benz vehicles as premium automobiles, their threat of substitution is insignificant. They are a must for the wealthy as it becomes more of a symbol of status, thus the threat of substitute for Mercedes-Benz is of a moderate level.
References
Do, T., 2014. Porter’s 5 forces: Competitive analysis of the luxury car industry. [Online] Available at: https://bmvsmb.wordpress.com/2014/10/22/porters-5-forces-competitive-analysis-of-the-luxury-car-industry/ [Accessed 14 July 2017].
Paolo, G., 2013. A Porter’s Five Forces Analysis of the Luxury Cars Industry. [Online] Available at: http://dasauto-skema.blogspot.com/2013/11/a-porters-five-forces-analysis-of.html [Accessed 14 July 2017].