Audi is one of the most popular vehicle brands in the world with a global market presence and outstanding advantage in the automobile industry. The competitive advantage of Audi emanates from several sources including excellent product quality, marketing, and customer experience. It is also one of the leading premium brands in the portfolio of Volkswagen. Despite the heavy competition in the automobile industry, Audi has maintained its powerful presence globally through a large sales and distribution network that spans all the major markets including China and the United States. In the Chinese market, Audi is among the best selling premium car brands.
In fiscal 2018, Audi sold around 1.8 million vehicles globally and its revenue was around €59 billion. Apart from customer experience, Audi also focuses on research and innovation to maintain its competitive position in the market. Due to growing competition in the auto industry, product quality and innovation have become more important than ever. Audi has brought a nice range of cars and SUVs and keeps investing in improving its product portfolio so as to provide its customers with outstanding riding experience. However, the competitive position of Audi and its profitability depends on several factors. Porter’s five forces analysis will help us determine how the company is positioned against these forces and the strength of its competitive position in the automobile industry.
Bargaining power of suppliers:
The overall bargaining power of Audi suppliers is low due to several reasons. Apart from the large size of Audi’s business which is a part of Volkswagen AG, the smaller size of supplier businesses and their lack of capability for forward integration also limits their bargaining power. There are very few large suppliers that hold some bargaining power and brands like Audi do not depend on a single supplier for a particular raw material. These suppliers are fragmented and located in various corners of the world. Most of them are smaller businesses that depend on larger brands like Audi for their revenue. These factors limit the bargaining power of suppliers. Volkswagen and Audi are also particularly cautious about their supply chain practices and how their suppliers are performing in terms of quality, human resources, and business ethics. Their suppliers have to follow the code of conduct specified by the company. Overall, compared to Audi the bargaining power of its suppliers is very low.
Bargaining power of customers:
The bargaining power of the customers of Audi has continued to grow driven by several factors including higher competition, growing focus on customer experience as well as higher rules and regulations favoring customers and their safety. All these factors have made brands like Audi grow their focus on customer experience and passenger safety. Increased competition in the automobile industry has also worked to grow the bargaining power the customers held. A large number of brands are competing for market share and to win customer loyalty. The bargaining power of individual customers may be limited but as a group, they are the core focus of any automobile business. Some of the factors that limit the bargaining power of customers include the brand image, high switching costs, research and innovation as well as marketing. The overall bargaining power of Audi customers is moderate.
Threat of substitute products:
The threat of substitute products for Audi mainly comes from the products made by rival brands. There are a large number of premium and luxury car brands in the automobile industry that sell their products globally. Apart from that the means of public transportation including taxi and ride-sharing services also act as substitutes and pose a threat to Audi’s business. Some of the leading rivals of Audi include BMW, Mercedes-Benz, and Ford.
However, there are several factors that limit the threat from substitute products for Audi including brand image, product innovation as well as popularity. Audi is a premium car brand that enjoys high popularity in almost all leading vehicle markets including China and the United States. The overall threat to Audi from the substitute products is moderate.
Threat of new entrants:
The threat of new entrants in the automobile industry and for Audi is absolutely low. It is because both the entry and exit barriers are too high. Another important factor is the high level of competition which also limits the threat from new players. Any new brand trying to enter the automobile industry will need a large capital investment as well as knowhow and skilled human resources. Apart from that, it will need to establish a global manufacturing, distribution and sales network or have to remain limited to its local markets. So, the large capital investment required to start an automobile business and other factors like the investment in marketing and human resources also prevent new players from entering. No new entrant will be able to make its presence felt in a short time because incumbent players aggressively protect their market shares through innovation, marketing, and customer service. Winning customer loyalty in such an intensely competitive industry environment is difficult and based upon all these factors new players would not like to take any risks. Regulatory factors also act as barriers to entry in the automobile industry.
Intensity of rivalry among existing players:
The intensity of competitive rivalry in the automobile industry is very high. There are several global brands in the automobile industry including the premium and luxury car brands. Some of the leading competitors of Audi include Porsche, Mercedes-Benz, Tesla, Aston Martin, and BMW. All these brands invest aggressively in research and development as well as marketing to grow their market share and customer base. With passing time, the intensity of competitive rivalry among the players has kept growing. The intense rivalry for market share has resulted in a higher focus on customer experience and passenger safety.