Question 1: Using Porter’s ‘five forces’ framework, discuss the competitiveness of the global automobile market.
Porter’s five forces framework is a model of competitive industry structure. These are the threat of entry of new competitors, the threat of substitutes, the bargaining power of buyers and of suppliers and the rivalry between the existing competitors. Where these forces are intense, below-average industry performance can be expected; where these forces are mild, superior performance is common. (Jobber, 2007).
Before we discuss about the barriers of entry to the global automobile market, we have to understand what barriers to entry is. In a market, when all the firms are making profit, there are new comers to the market in order to gain profits as well. Therefore, the industries possess characteristics that protect high profit level of the firms and inhibit additional rivals from entering the market. These are barriers of entry.
They characteristics may be economies of scale, capital requirement, switching costs, access to distribution, government policy and brand identity. In global automobile market, the barrier to entry to the market is low. The low cost competition causing many new comers enter to the market and eroding its market share. Besides, the common technology has lowered the barriers to enter the market as well.
In Porter’s model, substitute products refer to products in other industries. While the treat of substitutes typically impacts an industry through price competition, there can be other concerns in assessing the threat of substitutes. In the automobile industry, the threat of substitutes can be considered as high because there are many choices to the customers. It is due to the similarities of the vehicles with no big different on the price.
A producing industry requires raw materials which are labour, components and other supplies. The industry need to buy the raw material from other firms to create the products. So, it generates buyer and supplier relationships between them. The power of suppliers in the automobile market is low because there are many competitive suppliers. They are producing similar vehicles, although the brand is different but the consumers see it as no different. Moreover, the credible is backward integrated by the purchases and the consumers are weak in the market.
The bargaining power of the buyer shows the impact that customers have on a producing industry. If the power of buyers is strong, they are able to set the price for the product. When there are few buyers but many sellers in the market, the power of the buyer is strong; it is the case in the automobile market. Buyers are threatening to integrate backwards which make threats to buy producing firm or rival. So, the suppliers cannot integrate forward.
Lastly, come to the rivalry between the existing competitors. In order to measure the degree of rivalry in the automobile market, we have to see from the product differences, brand identity, and switching costs. In this market, there are many brands and companies producing similar vehicles with similar price. It causes the level of production differentiation is low associated with higher levels of rivalry.
Furthermore, the low brand identity and switching cost, tends to higher the rivalry as well. When a customer can freely switch from one product to another there is a greater struggle to capture customers. Therefore, the degree of competitive rivalry in the automobile market is high.
As a conclusion, in the automobile industry, the barriers of entry is low and the power of the supplier is low but the power of buyer, threat of substitutes and the rivalry of competition are strong. Using Porter Five forces help the firm understand more on the market and develop marketing strategy. However, it has drawback on this theory. The reason is this theory assumes own interest first and assumes all the buyers have no greater importance.
Question 2: Identify and discuss the weaknesses associated with General Motors’ marketing strategy.
General Motor (GM) is facing decline fortunes. General Motor owned more dealership and brands than its competitor but their vehicles only have a little difference features. It causes the consumers refuse to buy those cars because they can get the similar car from others with lower price. Therefore, they are planning to increase its manufacture capacity and stimulating a weak product offering through better R&D. Furthermore, GM hopes to enhance design, decrease costs, get out of the fruitless duplication of activities and merge several brands into one sale channel as well.
Due to the low level of differentiation product of General Motor, they have come out its marketing strategy which is differentiation. This strategy objective is to create a unique feature or benefits should provide superior value for the customer. It helps General Motor to build its brand identity and loyalty. However, this strategy requires additional costs and premium pricing strategy. General Motor may not success in this strategy because their production line is very slow. They produce a vehicle in 34 hours but Toyota can do it in 28 hours. Although General Motor is the largest car manufacturer in the market but it is not really concentrate on the consumer’s need.
Furthermore, General Motor is trying to reduce its production cost which comes to cost leadership strategy. This strategy requires high volume of standardised products, so that the firm can take advantage of economies of scale and experiences curve effects. If General Motor adopts this marketing strategy, they may still face problem because they are unable to build customers loyalty. Toyota and other competitors are promoting friendly environment car which help them to gain higher sales. Therefore, General Motor is facing difficulty to boost their sales.
As conclusion, General Motor’s strategy is not a good solution. In order to success in a industry, the firm have to own sustainable competitive advantage and value added derive from an analysis of the industry which are market structure, conduct and performance. Market structure help the firm understand more about the industry such as the number of firms, the degree of concentration, and the degree of rivalry.
It is useful for the firm to develop a basis competitive form. For the market conduct, it shows how the firms behave towards each other, it will affect the strategy utilised. Lastly, the market performance provides the power, profibility and share in the market. The firm able to know which company is careful and takes advantage.
So, General Motor should keep abreast of the factors that determine success and excellence. Besides, they need to able to deal with questions of efficiency and effectiveness by means of an internal appraisal of strengths and weaknesses.
In addition, General Motor can develop an effective marketing mix which can help the firm to create a competitive advantage, able to match customer needs, match corporate resources and well balanced. The marketing mix is defined as 4 P’s which are product, price, promotion and place.
Firstly, for the product, it must be variety. General Motor has to product more high quality car which features design. They also have to provide good service before and after the purchase and warranties of the vehicles.
Secondly, the price is very important. If the price is too low, the customers may think it is a low quality car, whereas if it is too high, no customer is willing to buy it. So, General Motor has to do more research in this area. Whether there is discount available also an important issue.
Thirdly, General Motor can provide sale promotion to the customers. For example, first 1000 customer who buy the car may get 10% discount. Besides, an efficient advertisement may create the public awareness and able to boost the sale.
Lastly, the product must sell in many locations so that the customers may be easy to get it. The location and channel must be reliable and somewhere with high recognise by the customers. It can store the brand confidence.
As a conclusion, an effective marketing strategy is very important to a company because it can assist the company in the industry and receive highermarket shares.
Reference: Principles and practice of Marketing, 3rd Edition, David Jobber, Mc Graw Hill