Mercedes Pestel, Five Forces, Value Chain, Swot

Introduction

This assessment aims to look at Mercedes Benz Luxury car division and to perform a detailed analysis of the organisation and its operating environment. Using frameworks outlined in our coursework and some further study, define whether Mercedes Benz possesses a competitive advantage over rivals within the market.

Using Porters Value chain to analyse parts of the organisation to gain an understanding where added value is possible to parts of Mercedes' organisation to gain a more competitive edge.

Critically analysing the company's performance to construct a SWOT analysis giving my opinion of possible areas for development and areas of opportunities for Mercedes to explore.

Summary of Assessment 1

After completing assessment 1 it was fair to deem that the strength of the forces in the immediate environment put considerable stress on the profitability of the market. The threat of new entrants would not be seen as a considerable threat due to the difficulty to establish brand distinction which is needed in the luxury segment. The bargaining power of buyers would equate to a low to moderate threat. As it is a highly competitive industry it would be natural to assume the buyer has a high bargaining power however it is a premium product and is designed to denote status and wealth therefore will reduce possibilities of discounts. I believe for this reason buyers bargaining power is reduced to low to moderate. The suppliers bargaining power I believe could be called elastic as both parties are reliant in each other and depending on the economic situation there are possibilities for fluctuation either way. Substitutes in the market could pose the most significant threat in my opinion. Alternative modes of transport could influence the market but would be unlikely to cause significant damage without Mercedes responding in some manner, however substitutes for luxury goods could pose a very real threat which would be difficult to counteract. Due to Mercedes dependency on the luxury car segment restructure of the company would be significantly more difficult than competitors like (Toyota) Lexus or (Volkswagen) Audi. If cars status as a luxury product weakened Mercedes would be in considerable trouble in an already competitive market. This also highlights that the competition between the existing rivals is very high. (see Appendix 1)

The PEST analysis reveals links between political and technological factors which are the most significant elements of the external environment. Growing concerns of global warming is a key issue among most states. CO2 emissions are destructive to the environment and most governing bodies have introduced legislation to reduce their carbon footprint. Taxation is also directly linked to the CO2 emissions of the vehicle which has a direct impact on the consumer's choice. The purchase of eco-friendly vehicles are incentivised in some states also their purchases are encouraged by appealing to peoples ethical obligations towards protecting the environment. This is portrayed through media and advertising.

The link to technological factors is the race to lead the market in green technology. The development of Electric vehicles is to the fore with more fuel efficient and environmentally friendly combustion engines also an area for research and development. R & D spending looks like solid investment for future expansion. (see Appendix 2)

Porters Value Chain Analysis

Using Porters value chain to connect earlier research to competitive advantage we assess the value added by each part of the organisation and its contribution towards the whole organisation and its aid towards competitive advantage of the organisation. With a Margin of 7.4% (Daimler Annual report 2010) in 2010 a healthy margin in the automotive industry with some manufacturers only having a 2-3%margin it is clear Mercedes aim is towards a niche market and not cost leadership.

Costs of inbound logistics could be slightly reduced through looking at sourcing materials and components closer to production plants. The risk of severing ties with established loyal suppliers in my opinion is too great because of dependency on quality.

Design is an area of significant added value. The design of the vehicle is key to the success of the vehicle. Possible investment or merger with sports car manufacturer in the design could add considerable value to the margin by broadening the target market and increased sales volumes. The production process could also be identified as an area of added value. Assessing Lexus' production model could help understand how they can produce similar vehicles at much lower costs.

Outbound logistics could be addressed by looking at production of popular vehicles close to popular markets. This could possibly reduce costs in outbound logistics.

Expenditure on marketing and sales wasn't defined in the annual report however marketing techniques could be refined to include a slightly younger target market with aim of increasing volume.

After sales service is an area Mercedes are renowned for in the past. 'My Service' the new programme which has just been put in place by Mercedes has not been in place long enough to receive feedback. It is essential that customers feel completely satisfied with it and are willing to return to purchase Mercedes again on this strength.

After studying Daimlers annual report it is my opinion that Daimler have realised there failings in the past in the area of innovation. Complacency as number one luxury manufacturer allowed them to become stale in innovation with BMW, Lexus and Audi all operating at full scale in a bid to lead in new technologies. Mercedes now are investing in all ages, Aiming to inspire children and teenagers towards progressive technologies and also working up the scale to re-educating current staff to bring their qualifications up to date with today's technology.

Technological development has close association to Mercedes' Human resource management. Again losing their competitive advantage has aspired them in a drive to lead the sector in innovation. They have invested heavily in R&D and aim to become leader in lithium ion batteries and fuel cell drives. (see Appendix 3)

SWOT Analysis

Strengths

Mercedes are an instantly