Business Policy and Strategies

Name: Simran Jesrani

Roll no: 20BBA005
Assignment submitted to: Dr. Muhammad Moinuddin Qazi Abro

The Strategic Focus profiles the strategic group consisting of Audi, BMW, and Mercedes-
Benz. There are many similarities among these competitors, including markets served
(target customers and geographic emphasis) and the many dimensions of performance/
luxury of the products themselves. Rivalry is intense among this group and, as is often the
case with strategic groups, has remained stable over a long period of time. Please compare
the Audi, BMW, and Mercedes-Benz brands and the customers that each is vying for. How
do these firms try to position themselves to appeal to buyers by delivering value to a very
demanding segment of the market?
Comparing the German Luxury Car Trio: Audi, BMW, and Mercedes-Benz
Despite their similarities in the luxury car market, Audi, BMW, and Mercedes-Benz cultivate
distinct brand identities to attract different customer segments. Here’s a breakdown:
Target Customers:

 Audi: Targets a younger, tech-savvy audience who appreciates progressiveness and

innovation. They might be drawn to features like advanced driver assistance systems and
a sleek, modern design.
 BMW: Focuses on the driving enthusiast. Their customers value performance, handling,
and a sporty feel. The “Ultimate Driving Machine” tagline reflects this focus.
 Mercedes-Benz: Leans towards established, status-conscious buyers. Their brand image
emphasizes heritage, luxury, comfort, and cutting-edge technology.
Delivering Value:
To cater to these demanding customers, each brand delivers value in unique ways:

 Audi: - Progressive Design: Offers a sporty yet sophisticated aesthetic that feels fresh
and cutting-edge. – Technological Innovation: Highlights advanced driver assistance
systems, connectivity features, and a focus on future-oriented technology.
 BMW: - Performance Engineering: Emphasizes superior handling, powerful engines,
and a driver-centric experience. – Sporty Character: Cultivates a dynamic and exciting
brand image that appeals to driving enthusiasts.
 Mercedes-Benz: - Unmatched Luxury: Provides opulent interiors, top-of-the-line
materials, and a focus on comfort and refinement.
 - Technological Prowess: Offers advanced safety features, innovative driver assistance
systems, and a focus on cutting-edge technology. – Brand Legacy: Leverages its long
history and heritage to convey prestige and status.
Maintaining Competitive Advantage:
While core brand identities are relatively stable, these companies constantly innovate to stay
ahead:

 All Three: Invest heavily in research and development to push the boundaries of
performance, technology, and luxury.
 Evolving Market: All are adapting to the growing electric vehicle segment, each with
their own approach.
By understanding their target customers’ desires and consistently delivering value through
branding, design, technology, and performance, Audi, BMW, and Mercedes-Benz maintain their
positions as leaders in the luxury car market.
The five forces model is designed to better understand the competitive forces in an industry
in which a firm competes. This exercise is designed to utilize your analytical skills in
regards to competitive forces within an industry, in this case the automotive industry.
The Five Forces Model Applied to the Automotive Industry with Tesla as an Example
Let’s analyze the competitive landscape of the automotive industry using Porter’s Five Forces
Model, focusing on Tesla as a new entrant:
1. Threat of New Entrants (Moderate-High):
High Capital Requirements: Setting up manufacturing facilities, R&D, and a dealership
network requires massive investments, hindering new entrants.
Brand Equity: Established brands like Toyota or Ford have strong brand recognition and
customer loyalty, making it difficult for newcomers to gain a foothold.
Government Policy: Safety, emission, and fuel efficiency regulations create hurdles for new
entrants who need to comply with these standards.
Distribution Channels: Securing dealership space and building a robust distribution network
can be challenging for new companies.
However, factors mitigate this threat:
Technology Advancements: Technological innovations in electric vehicles (EVs) offer an
opportunity for new entrants like Tesla.
Shifting Consumer Preferences: Growing demand for EVs creates a niche market for new
players to specialize in.
Government Support: Government incentives for EVs can ease entry barriers for new
companies.
2. Threat of Substitutes (Moderate):
Depreciation: Rapid depreciation of new cars makes used cars a cheaper alternative, influencing
buyer decisions.
Used Car Market: A strong used car market creates competition for new car sales.
Mass Transportation: Well-developed public transportation systems in urban areas can be
substitutes for car ownership.
Ride-Sharing Services: Services like Uber and Lyft offer an alternative to car ownership for
short trips.
However, the convenience and freedom offered by car ownership still hold significant value for
many consumers.
3. Bargaining Power of Suppliers (Moderate):
Supplier Power Varies: The industry has both large, powerful suppliers (e.g., steel mills) and
smaller, more manageable ones (e.g., tire manufacturers).
Consolidation: Supplier consolidation can give them more bargaining power over automakers.
Raw Material Fluctuations: Fluctuations in the prices of steel, aluminum, and other raw
materials can impact automakers’ profit margins.
Automakers can mitigate supplier power by:
Diversifying Suppliers: Sourcing components from multiple vendors reduces dependence on
any single supplier.
Developing Long-Term Contracts: Securing fixed prices and supply commitments helps
manage cost fluctuations.
Vertical Integration: Some automakers like Tesla invest in producing their own batteries or
other key components, reducing reliance on external suppliers.
4. Bargaining Power of Buyers (Moderate-High):
High Price Sensitivity: Cars are significant purchases, making buyers price-sensitive.
Dealer Discounts: The prevalence of dealer markdowns and incentives indicates strong buyer
power.
Multiple Brands: The abundance of car brands gives buyers ample options to choose from and
negotiate prices.
However, automakers can manage buyer power by:
Product Differentiation: Offering unique features, technology, or brand experiences can make
buyers less price-sensitive.
Direct-to-Consumer Sales: Tesla’s model of selling directly to consumers reduces dealer
markups and potentially strengthens brand control.
Focus on Customer Service: Providing excellent customer service can build brand loyalty and
reduce buyer price sensitivity.
5. Intensity of Rivalry (High):
Many Competitors: The automotive industry is crowded with established players like Toyota,
General Motors, and Volkswagen, creating intense competition.
Fierce Competition: Automakers engage in aggressive marketing campaigns, product
development, and technological advancements to gain market share.
Innovation: The need for constant innovation in fuel efficiency, safety features, and design
keeps competition fierce.
Tesla, as a new entrant, can navigate this competitive landscape by:
Focusing on Niche Markets: Capitalizing on the growing EV market and carving out a strong
position within it.
Building Brand Image: Cultivating a strong brand identity associated with innovation,
sustainability, and technology.
Continuous Innovation: Staying ahead of the curve by constantly developing new technologies
and features.
By understanding these five forces, Tesla can develop strategies to compete effectively in the
dynamic automotive industry.