Automobile Industry Is A Highly Diversifies Marketing Essay

Industry background

Automobile industry is a highly diversifies sector which represent industries linked with the production, retailing, wholesaling and maintenance of automobile vehicles (Anavrekov, 2004). The first automobile was introduced in 1885 by Karl Benz. Since that time automotive industry has came through a lot of changes and developments. Figure1 shows brief history of automotive industry. The industry main focus for many years was concentrated on baby boomers generation. Currently industry switched to generation X, which is baby boomers children and to the generation Y, age which allows buying cars ((Dicken, 2007).

Source: A Brief History of the First 100 Years of the Automobile Industry http://www.theautochannel.com/mania/industry.orig/history/chap16.html

Strategic Posture of Key players

According to Black (2009) every country’s automobile industry is dominated by four leading corporations namely General Motors (GM), Toyota, Ford Motor Company (Ford), Volkswagen, and Daimler Chrysler (Figure2).

Source: Toyota Motor Corporation Company profile http://www.toyota-industries.com/corporateinfo/corpdata/ ; Daimler corporate web site http://media.daimler.com/dcmedia/0-921-614814-1-871937-1-0-0-0-0-0-11701-614318-0-1-0-0-0-0-0.html; Ford Motor Company http://www.ford.com/about-ford/company-information; General Motors http://www.gm.com/corporate/about/

Size of the Industry and Segmentation

The automotive industry takes around 9.5% of world merchandise trade and 12.5% of world export of manufacturers (Hatani, 2009). However, the world production of vehicles was influenced by economic downturn in 2009 (Figure3)

The leading countries that conduct foreign trade are (data from Business Monitor International Statistics, 2010):

United States (37.2% of Market Share)

Canada (28.67%)

Japan (26.4%)

Germany (14.81%)

Mexico (10.21%)

Korea (5.48%)

Figure 3 Automotive Production 2007- 2009

Source: The global automotive market in 2009 http://www.platinum.matthey.com/uploaded_files/Int_2009/the_global_automotive_market_in_2009.pdf

Figure4 shows segmentation of the industry.

Source: Automotive components and parts http://www.automotive-online.com/auto-industry.html

Figure5 illustrates current trends of the industry.

Source: Greenber, Karl. (2009) Automakers steering drivers into evolution. The New York Times. Catalan, J. (2010). Strategic policy revisited. Business history.

Porter’s Five Forces

Figure 6 illustrates the framework of Porter’s forces. The potential profit of the industry will be influenced by the strength of all five forces together with required investments, prices and costs.

Figure 6 Framework of Porter’s Five Forces

Source: Industry Handbook: Porter’s 5 Forces Analysis http://4.bp.blogspot.com/_Q18oxqzY5Pg/SdUDhL34lwI/AAAAAAAAAFo/c4Iu_D6L_9M/s400/IndustryHandbook1x.gif

Threats of new Entrants

The automotive industry is very mature; in order for new entrant to compete they should achieve economies of scale and invest in technology and brand name in order to reach the same level (Paterson, 2007). Also threat comes from mergers and acquisitions, for example the merger of Daimler and Chrysler or Daimler and Mitsubishi. Further barriers explained in Figure7.

Source: Porter, M.E. (2008) ‘The Five Competitive Forces That Shape Strategy’, Harvard business Review, January 2008.

Bargaining Power of Suppliers

There is huge number of suppliers in the industry; therefore the power of suppliers is very low. Manufacturers can switch easily from one supplier to another (Special Report, 2005). However, big corporations like Mercedes prefer not to switch, but to keep good relations with their suppliers in order to keep scale of operations and the total expenses on suppliers (Taylor, 2003). Currently, a lot of manufacturers use just-in-time inventory system and this pushes suppliers create their factories near automobile producers, which prove the low power of suppliers (Pavlinek & Janak, 2007).

Threat of Substitute

The substitute for automobile can be train, bike, walking depending on geographic location of the consumer (Boschma & Wenting, 2007). However, if company operates with cargo or when retailing shop need to transport goods, than there is no real substitution for the trucks, as well as there is no real substitution for excavator during roadwork. At the same time car can be substitute by bus, subway or walking depending on the size of the location. For instance, in cities like Singapore or Moscow, the subway is more convenient way to move, while in villages people can simply walk. However, in majority of places people should have an access to an automobile in order to move around.

Bargaining Power of Buyers

There are a lot of manufactures in the industry, so buyers have variety of choices and the switching cost is very low (Belis-Bergouignan et. al., 2000); therefore the power of buyer is moderately high and buyers are price sensitive. The large number of manufactures results in aggressive pricing strategies and in very strong competition (Taylor, 2003).

Competitive Rivalry

The competition is very strong due to lack of differentiation opportunities provided by the major competitors (Paterson, 2007). The main differences mainly will be quality, reliability or after sales services. The degree of rivalry if also linked with low costs of switching for buyers and fixed costs of manufacturing automobiles (Edmondson, 2003).

PESTEL

In order to analyze the macro environment of the industry, the external factors that can effect organization’ supply and demand should be identified (Kotler & Keller, 2007). A PESTEL analysis allows understanding industry situation as a whole.

Political

Since 1960’s the government regulations and laws affecting automotive industry (Anavrekov, 2004). The majority of regulations arising from customers concerns about safety and environment. Also government decision to attract people to use public transport and to increase taxes for using cars can lead to problems for the car manufactures (Ahman, 2006). However, government also can support, the good example is Toyota, who has good support from Japan government in terms of tax break (Paterson, 2007).

Economic

Automobile industry is affected by the moves in the economy. Manufacturers should conceder:

Level of inflation in country they operate

Fuel prices fluctuations Employment level per capita in the country they operate

Economic growth in the country they operate

Taxation in domestic country as well as in the country they want to enter or entered

At the same time automotive industry has an enormous force on global economy as well (Paterson, 2007) , because automobile manufacturers are major users of textile, computer chips, aluminum, steel, rubber, etc. also, for every autoworker creates seven jobs in other industries.

Social-cultural

One of the major influences of the trend in automotive industry is life style and demographic profile of the consumers. Society opinion and prestige makes people to buy cars like Porsche, Mercedes or BMW. Customers’ negative perception about brand can also influence the sales, example bad image of Skoda in Europe influence sales in Asia (Pavlinek & Janak, 2007). The concerns for the environment also influence trends in automobile industry; example is the new eco friendly cars, use of electric cars. Additionally, an increase in income level allows more people to have a car.

Technology

Automobile industry is affected by technology in all ways. The Internet allows customers to search information before purchase, additionally increased opportunities for the business to business marketplace, which reduced costs for the companies (Edmondson, 2003). Also technology helps manufacturers to improve safety system of automobile. Currently, every new car has navigation system, DVD onboard, WI-FI hook-ups (Domanski & Gwosdz, 2009). For example, in Mercedes and BMW new cars voice prompts allows to ‘talking’ with the car and give commands.

Environmental

Environment situation in operating country affect the use of automobile, such as:

Physical infrastructure, such as roads and bridges

Countries with better physical conditions lead to more use of automobiles

Development and evolution of alternative fuels, hybrid cars provide entries to a new markets

Also pollution problem and Ozone’ effect reflect changes in new automobiles trends

Legal

Company should consider:

Rules and regulations of the country it want to operate

Legal registration

Currency exchange

Green marketing laws

Laws on environmental issues (industrial pollution)

Legal provision related to environmental population by automobiles

Legal provision related to safety measures

Structural drivers of change within automotive industry

Figure8 illustrates that automotive industry face more changes than other industries, the drivers for changes are illustrated bellow.

Figure 8 Changes in Automotive industry

Source: Automobile Industry Edition ftp://public.dhe.ibm.com/common/ssi/ecm/en/gbe03122usen/GBE03122USEN.PDF

The drivers that shape the structure of automotive industry:

Global economic and technological growth

Political environment

Increase in fuel prices

Environmental changes

Changes in supply chain

Changes in demographics

Inflation rates

Emissions and recycling legislation

Growing demand for more choice

Trend towards mergers, acquisitions and ventures

Green Trends and environmentally friendly policies

Automotive industry Life Cycle

According to Levitt (1965) the industry goes through life-cycle stages and the typical characteristics of the stages are investment and restricting activities. Figure9 illustrates Life cycle of automotive industry.

Figure 9 Automotive Industry Life Cycle

Source: Automotive Industry Life Cycle http://www.carfreaks.info/automotive_industry_life_cycle

Introduction stage

The introduction stage of the industry can be characterized as following:

New , unique products

Company can be alone in the industry

The automotive industry went through its introduction stage from 1672, when first steam-powered vehicle was invented till the end of the Second World War (BERA, 2008).

Growth stage

The growth stage can be identified as following:

Significant investments

Differentiation from competitors

More product standardization

Life cycle curve is very steep

Fast growth

Geographic spread

Initially automobile industry was concentrated in specific cities in each country, for example in Russia initial concentration was in Saint Petersburg, and in US automotive industry was concentrated in Detroit area (Roberts, 2006) During growth stage an automotive industry spread to surrounding cities. During this period fully-closed bodies began to dominate sales, further front-wheel drive was introduced (Greenber, 2009).

Maturity stage

Maturity stage can be recognized as following:

Growth is slow

Strong marketing effort

Differentiation

Continuous innovations not as radical

Currently automobile industry is in maturity stage (Dicken, 2007). In 1960 Detroit started to worry about overseas competition, which changed the trends (Roberts, 2006). The every higher technology was adopted by car producers. Manufacturers started focus on marketing and customers. Currently, industry is spread internationally. According to Transportation Statistics (2009) there were 290,587,983 vehicles in the US in 2009 and 236 million drivers, which represent 1.23 vehicles pr licensed driver. The current maturity level and the degree to which the major key player like Mercedes or Toyota are developed live little scope for new companies to enter the industry, which provide existing giants a comparative advantage (Catalan, 2010).

Decline stage

Decline stage can be recognized as following:

Industry becomes absolute

Radical decrease in sales

Prolonging the Life cycle

Managers can increase maturity stage by:

Production improvements (just-in-time or lean manufacturing)

Technology adaptation

Innovations

Improve efficiency

Three scenarios for long term future of the automotive industry

Technology

Automotive manufacturers can differentiate them self using latest technology and improving design of their cars. Therefore, automotive manufacturers can adopt:

Cars which can work on Bio or hydrogen fuels

Driving mode can easily switch between driving and relaxation in order to save patrol

Accent on passenger entertainment and information system onboard

Automation of stop-and-go traffic situations

Concealment of passengers from outside viewers

Effective smog protection and air conditioning

Almost zero emissions

Increase Customer understanding

Figure10 shows that only 17% of introduced innovations by automotive manufacturers are bough by customers, therefore manufactures should pay attention on increasing customer understanding. In order to launch new innovation customer research on current innovation can be done in order to see the demand, customer understanding of current innovation, how this innovation will strengthen the brand image and differentiate from competitors.

Figure 10 Sales successes of automotive innovations

Source: A comprehensive study on innovation in the automotive industry http://www.oliverwyman.com/ow/pdf_files/CarInnovation2015_engl.pdf

Improve Supply Chain

Supply chain is one of the critical issues in automotive industry, it influence cost containment, risk, customer and globalization concerns (Evren, 2002). To improve visibility of supply chain automotive manufactures should adopt latest technologies for communication and real-time information exchange in order to monitor costs. Companies can use smart tags to locate specific automobiles across expansive lots, reduce and control operating costs, gain access to world class capabilities. Also manufacturers should continue to build their factories in low cost counties.

Likely future scenario

Due to the increase in ‘green’ trends the supply chain scenario can be reshaped radically through the increase of energy costs and regulations concerns. Additionally customers demand for carbon footprint may totally decline and change for the hybrid or Bio fuel.