Mercedes-Benz five forces analysis

Mercedes-Benz is one of the most well known and popular brands of premium and luxury vehicles. The popular luxury vehicle brand enjoys a very high level of brand awareness in most corners of the world. The brand is owned by Daimler AG. Apart from its stylish vehicle models, the company is also known for its innovative technology and high-performance cars. Mercedes has continued to innovate its models in order to cater to the changing market dynamics and consumer preferences. It has brought a nice range of SUVs and sports cars to the market. The automobile industry has experienced a major shift in recent years and is undergoing a phase of transition right now where the future of mobility is being reshaped by several factors including regulations, legal factors, growing demand for SUVs and increased demand for electric mobility.

 Mercedes-Benz has also not remained behind in the race and introduced a nice range of vehicles in the electric category. The company is geared for faster growth but due to Coronavirus, growth across the entire industry may be halted. In such a situation, when the pandemic has altered the industry dynamics to a great extent, the competitive position of Mercedes-Benz is also affected. However, Mercedes-Benz is an innovative brand and has maintained a leading position in the industry. Porter’s five forces analysis will help you understand how the business is positioned relative to its competitors and other major stakeholders like suppliers and customers. These five forces are a part of every industry and impact the competitive position and profitability of businesses as well as the industry.

Bargaining power of suppliers:

The bargaining power of Mercedes suppliers is low which is due to several factors including the smaller size of supplier businesses, fragmentation and a lack of forward integration. Companies like Daimler AG source from suppliers located in various corners of the world from China to Brazil. Apart from very few suppliers which are large businesses and hold some bargaining power, most suppliers of Mercedes-Benz do not hold any significant bargaining power. Its suppliers are fragmented and do not have the capability for forward integration either which also limits their bargaining power. None of them would want to lose its business from Mercedes-Benz since most suppliers depend upon large businesses like Mercedes-Benz for a large part of their revenue and without these large businesses purchasing raw materials from them regularly, their revenues would fall significantly. So, Mercedes- Benz holds significant bargaining power over its suppliers and also frames the rules for them to follow. Apart from following the code of supplier conduct, suppliers are required to remain compliant with local laws by Daimler AG.

Bargaining power of buyers:

The bargaining power of buyers is moderately high. Over the previous decade, the bargaining power of buyers in the automobile industry has continued to strengthen because of several important changes in the market. Apart from changing market dynamics, growing focus on customer experience as well as higher competition in the market have also led to an increase in the bargaining power of buyers. Individual buyers may hold somewhat lesser bargaining power but still since Mercedes-Benz makes premium and luxury vehicles, the size of individual purchases is large. Moreover, fleet customers hold higher bargaining power. Overall, as a group, the bargaining power of customers as a group is sufficiently high and brands like Mercedes-Benz focus upon maintaining a strong brand image in order to retain their popularity among the customers and the overall level of demand. Increased competition has also led to companies focusing more on customer retention and engagement. Some of the factors that limit the bargaining power of buyers include the brand image, product quality, customer experience as well as innovation.

Threat of substitutes:

The threat of substitutes for Mercedes mainly comes from rival brands. There are a large number of premium and luxury brands of automobiles in the market that cater to the higher end of the market. Apart from Audi, BMW, and Porsche, there are many more luxury car brands in the market including Tesla and Lamborghini. Some of the cars made by Ford and Toyota as well as General Motors also compete with Mercedes-Benz. Apart from it, there are several other substitutes too like public transportation and ride-sharing services that compete with vehicle makers like Mercedes Benz. The threat from substitutes is medium for Mercedes-Benz. There are several factors that limit the threat from substitutes including brand image, customer experience, as well as marketing and the quality of products. Mercedes-Benz cars and vans belong to a very distinct category of premium mobility. Mercedes-Benz has built a distinct and prestigious identity for itself in the industry. Higher popularity and superior driving experience have also helped it maintain its demand and minimize the threat from substitute products.  Higher switching costs also limit the threat from substitutes.

Threat of new entrants:

The threat of new entrants in the automobile industry is very low and most of the existing premium and luxury car brands are well established and old brands. There are large barriers to entry in the automobile industry and any new company trying to enter the industry would have to invest a large capital and overcome regulatory and operational barriers before becoming a well recognized and popular business. Moreover, the level of competition in the industry is already high and incumbent players invest aggressively in marketing as well as research and development. Playing against such aggressive competitors would be next to impossible for a new entrant that lacks a global presence and other same advantages as existing players. There are several factors that minimize the threat from new entrants in the automobile industry including brand image, global presence, established distribution network, level of popularity as well as other sources of competitive advantage like customer loyalty. The overall threat from new entrants for Mercedes-Benz is absolutely minimum.

Intensity of competitive rivalry:

The intensity of competitive rivalry is very high in the automobile industry. It is one of the industries that sees a very high level of investment in research and development as well as marketing. Why companies invest as much into product innovation and promotions is because of the highly competitive nature of the industry as well as growing customer expectations from automobile brands. There are several automobile brands that make premium and luxury vehicles including General Motors, Volkswagen, BMW, Tesla, and several others. While there are a large number of players operating in the global automobile industry, most of them use aggressive marketing and business expansion techniques. However, there are some factors that limit the impact of competition on the business of Mercedes-Benz like brand image, research and innovation, marketing, customer loyalty and focus on customer experience. Image and reputation are very important factors in the automobile industry that help brands manage their competitive position. Otherwise, the overall level of competitive rivalry in the industry is highly intense.

Abhijeet Pratap

Abhijeet has been blogging on educational topics and business research since 2016. He graduated with a Hons. in English literature from BRABU and an MBA from the Asia-Pacific Institute of Management, New Delhi. He likes to blog and share his knowledge and research in business management, marketing, literature and other areas with his readers.