Question 1 (7 marks)
With reference to the case below, you are required to apply the relevant External Analysis model that best fits regarding the rivalry that is rife between the brands. Apply the model and discuss at least two of the relevant constructs. You might include in your answer how a new entrant might disrupt the industry.
Mercedes Benz, BMW, and Audi have long been direct competitors in the German luxury performance car market. They are renowned for their ‘German engineering’, which is well-known for its quality and reliability throughout the world. Whilst all three sell their products world-wide, thus compete with all other car brands on the global market, their similarity and home base make them fierce competitors against each other whilst simultaneously appearing to the rest as a powerful collective block.
Each of them offers products in all three market segments, namely large, medium, and small luxury performance cars. All three are benefitting from fast economic growth in non-traditional markets, such as China, Singapore, Malaysia, etc. In response to the growth in demand, all three are investing in China to expand production and sales.
To continue to service their more traditional Western markets, each brand is introducing new models so as to continue to grow sales closer to home. Their strategies include lower-priced models that appeal to younger and/or less-affluent buyers, in an effort to capture some of Ford and GM’s market share, particularly in the USA. Honda and Toyota are also being targeted by the likes of Audi’s A3 Sedan. BMW developed a lower-priced version of its 320 series, and Mercedes offered the CLA four cylinder, competitively-priced smaller car.
It could be argued that BMW was first to see the potential for smaller German luxury cars that did not have price as a barrier to entry when they took over Mini and branded it as a mini-BMW.
Diesel engines appear to be more popular in China as well as the USA. It is interesting to note that Mercedes, Audi, and BMW joined forces in the creation of a website, called clearlybetterdiesel that promotes diesel’s fuel economy and reduced environmental impact.
To better serve the needs of younger customers, all three companies are rethinking their designs, everything from in-dashboard entertainment and smartphone-driven multimedia systems, to a renewed emphasis on fuel efficiency, as opposed to horsepower.
As is often the case with strategic groups, the rivalry between these three German luxury performance car brands has continued over many decades and we can anticipate that it may remain as intense into the future. It has been speculated that the one thing that could impact them all significantly would be the emergence of another global luxury brand that employs a disruptive technology.