Daimler-Benz is a large scale operation that holds close ties with all of its suppliers. Most of which are closely located and who have done business with Daimler-Benz for many years. An example of how respected Daimler-Benz is in the eyes of its suppliers, can be seen during the economic downturn of the late nineties when Daimler-Benz hit trouble and was forced to negotiate prices down. This was achieved, and displays how suppliers are equally dependent on Daimler-Benz as Daimler-Benz is on its suppliers. So the bargaining power of suppliers can be said to be elastic.
The bargaining power of buyers:
There are a very large number of buyers for Daimler-Benz and their power is relatively small. In order to purchase a Mercedes-Benz one must have assets (as mentioned in the market segmentation) of reasonable wealth. A business executive for example is the one who has the assets to buy a Mercedes-Benz not a part-time employee in a McDonalds.
With around 25-30 dealerships in each country or state Daimler-Benz reaches all its customers, through an excellent network that ensures their satisfaction therefore reducing their bargaining power. The buyers are not buying in bulk like in the retail industry where bargaining power is high, they simply can afford one or not.
The threat of potential new entrants:
The markets that Mercedes-Benz operates in are characterized by economies of scale, where as the level of sales increase unit cost decreases. This poses a major barrier to new entrants. Also Mercedes-Benz has a wide range of cars to jeeps and each of them are different as they know their customers and also offer special levels of after sales service which also create barriers to new entrants.
Capital requirements are high in the car manufacturing industry, for a new entrant it would require huge amounts of investment in technology, plant, distribution and service outlets. Over the long established existence of Mercedes-Benz, customers have become loyal, in general, a customer who previously bought a Mercedes, will buy another and the same applies to a BMW customer.
As mentioned above Mercedes-Benz has distribution channels globally, so that customers are able to view new models, and make purchases of Mercedes-Benz products. Daimler-Benz knows the car market extensively well and has confidence in its operation due to its expertise. In Mercedes-Benz case it holds good relationships with the government due to their economic contribution and their military aerospace ventures.
In the luxury segment there is a counted number of competitors, and although the threat of substitutes is low the future growth of that segment might attract new entrants. The Example of Toyota is given below.
The threat of substitutes:
Over the last few years Toyota has managed to introduce its way into the luxury car segment. What Toyota did with success, is it introduced Lexus, high-end luxury sedans and coupes. This did pose some threat to all the luxury car producers because Lexus offers everything that a Mercedes-Benz, a Jaguar, a BMW etc… offers at a lower price.
This was the only way it could steal a small portion of the market through price competition. This has also offered buyers a substitute to Mercedes-Benz and its competitors. Buyers who could not afford a Mercedes-Benz now had the choice to save some money on the purchase of a Lexus.
The market is growing particularly in Mercedes-Benz case, and external competitors who do not hold a share in the luxury segment can attempt to offer substitutes in the goal of stealing away some customers. It would be wise for Daimler-Benz to scan companies such as Honda, who seem to be making a move in that direction that could pose a future threat.
The extent of competitive rivalry:
The luxury car segment is a competitive industry where each rival has to constantly scan its competitors for any changes whether they’re in price or in the product itself. This in turn leads to the introduction of new features on current models or new models. Mercedes-Benz Main competitor is BMW, firstly because they compete directly in the luxury segment with their 5 series and 7 series models and secondly because they are of roughly the same size. Rivalry between them is high, but Mercedes-Benz has managed to keep them at bay through a strong sales policy that has lead to record sales particularly over the last two years.
The rivalry is what keeps Mercedes-Benz on the run, as such that it can keep ahead of BMW and others, who are always there and always threatening their market share.