Daimler is a German based automobile manufacturer, which specializes in producing luxury cars and vehicles for commercial use. Porter’s five forces model has been used to understand the industry dynamics of Daimler.
Threat of New Entrants
Daimler is facing low threat of new entrants in the automobile industry. Manufacturing vehicles and automobiles, and supplying them in the international market is a capital intensive business. One of the main hurdles that new entrants are likely to face in the context of automobile industry is setting up manufacturing units, managing the cost of purchasing raw material and the production operations. Moreover, R&D processes hold a significant position in this industry. Daimler as a strong brand in the automobile segment has been able to invest in the business, becoming a renowned brand through Mercedes-Benz Cars, Daimler Trucks and Buses (Daimler, 2017). Large manufacturers such as Daimler have been able to achieve economies of scale through the focus on mass manufacturing operations. In addition, to establish a profitable position in the market in the presence of the leading automobile manufacturers is a barrier to entry. Mass production also requires financial, technical and human capital, which can become a barrier to entry for new companies.
Bargaining Power of Buyers
The bargaining power of buyers of Daimler is moderate. The buyers in automobile industry consider factors such as comfort, luxury and integration of technology in the cars. Since there are other car manufacturers besides Daimler, it adds on to the pressure of quoting a price that is deemed as affordable by the customers, while gives sufficient profitability to the company. The customer base of Daimler consists of people who purchase their automobiles due to the brand image and the ability of the brand to represent the high status of the buyer (Kimmel, 2010). Therefore the company can charge a premium price for its products, thus leaving moderate bargaining power to the customers.
Bargaining Power of Suppliers
The suppliers of Daimler have moderate bargaining power. Similar to other large scale vehicle manufacturers, Daimler has a considerable amount of negotiating power in supplier contracts. Acquiring a long term contract with leading automobile manufacturer such as Daimler is regarded as a strategic advantage by the suppliers of raw materials and parts. These vendors can’t risk losing the contract to another firm. However the ability to meet company demands, quality standards and price structure of the material requires Daimler to select the suppliers who can understand company’s vision and strategy. For instance, Bosch as a supplier deals with the electronic and engineering needs of Daimler. Since innovation is at the core of the vehicle’s designs and company operations, the suppliers are also expected to play an integral role in meeting the R&D demands of the company (Daimler, 2017).
Threat of Substitute Products
The substitute product for Daimler automobiles includes other means of transportation such as public transport or using the option of traveling through bicycle. However, the substitute products do not offer the same level of luxury and convenience as owning a personal vehicle. Switching to a different mode of transportation can lower the cost, but the issue of comfort can become a problem. The substitute products also includes other companies that are manufacturing vehicles and automobiles. Daimler has some edge over its competitors because it manufactures luxury vehicles such as Mercedes-Benz. However people looking to buy an automobile with less luxury can consider alternate options. So it can be stated that there is moderate threat of substitute products.
Competitive Rivalry:
The degree of competitive rivalry in automobile industry is significantly high. Daimler faces intense competition from the other automobile and vehicle manufacturers. The development of new designs and modifications in vehicle models requires the companies to keep up to date with the latest technological trends. Daimler is also keeping pace with competitors through integrating latest technology into its vehicles. According to Trop (2018) the company has launched electric vehicles in an effort to compete with the rival firms manufacturing hybrid and electric cars. This strategic move shows that Daimler is making efforts to maintain an edge over its rivals including Volkswagen and Volvo as main competitors. Apart from automobiles, Daimler also invests in R&D and optimization of its trucks.
References
Daimler. (2017). Annual Report. Retrieved from https://www.daimler.com/documents/investors/reports/annual-report/daimler/daimler-ir-annual-report-2017.pdf
Kimmel, A. J. (2010). Connecting with consumers: Marketing for new marketplace realities. UK: Oxford University Press.
Trop, J. (March 20, 2018). Daimler Is Counting On Its Smart Brand To Lead Mercedes-Benz into The Future. Forbes. Retrieved from https://www.forbes.com/sites/jaclyntrop/2018/03/20/daimler-is-counting-on-its-smart-brand-to-lead-mercedes-benz-into-the-future/#7cbb6b863cd5