Mercedes Benz Porter Five Forces Analysis

Published by MBA Skool Team, Last Updated: February 16, 2022

Porter’s Five Forces Analysis of Mercedes Benz covers the company’s competitive landscape as well as the factors affecting its sector. The analysis focuses on measuring the company’s position based on forces like threat of new entrants, threat of substitutes, bargaining power of buyers, bargaining power of suppliers and competitive rivalry.

Mercedes Benz Five Forces analysis helps to analyze its current position in the market based on multiple internal and external factors like competitors, customers, suppliers (vendors and partners), financial strength, future scope & alternate solutions.

Let us start the Mercedes Benz Porter Five Forces Analysis:

Threat of New Entrants:

The threat of new entrants in the Mercedes Benz Porter Five Forces Analysis can be explained as follows:

The bulk of existing premium and luxury automobile firms are well-established and old, the danger of new entrants into the industry is low. The automobile business has high entry barriers, and any new company intending to join the market would have to invest a large amount of money and overcome legal and operational challenges before becoming a well-known and popular company. Furthermore, the industry's level of competitiveness is already high, and incumbent companies invest much in marketing and R&D. Competing against such formidable opponents would be practically difficult for a newcomer lacking a global footprint and other advantages enjoyed by present companies. Raising similar initial capital requirements and gaining such economies of scale is very difficult. The existing brands have created a brand image and are a symbol of prestige and repute, so customers might not be willing to switch to new brands. So, the overall threat of new entrants into the industry is low.

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Threat of Substitutes:

Below are the threats of substitute products of Porter’s Five Forces analysis of Mercedes Benz:

Replacements for Mercedes Benz are more likely to come from rival brands as well as other travel options available for people.

There are a variety of other options that compete with automobile manufacturers like Mercedes Benz, such as public transportation and ride-sharing services. Replacements pose a moderate threat to Mercedes Benz. There is also an increase in environment conscious people who would use other more environmentally friendly options. Alternatives are mitigated by a number of factors, including brand image, customer experience, and marketing. Hence, we can conclude that the threat of substitutes is medium.

Bargaining Power of Customers:

In the Mercedes Benz Porter Five Forces Analysis the bargaining power of the customers can be explained as:

The bargaining power of buyers is moderate. The negotiation power of vehicle buyers has continued to strengthen as a result of many fundamental market movements during the previous decade. Changing market dynamics, a growing focus on customer experience and more market competitiveness have all been linked to a growth in buyer negotiating power. Individual buyers may have less bargaining power, but Mercedes Benz produces premium and luxury vehicles, so personal purchases are significant. Furthermore, fleet customers have more bargaining power. Overall, clients have adequate bargaining power, and corporations like Mercedes Benz place a priority on maintaining a positive brand image. Customers have a lot of information about the product available in the market and compare a lot of cars before purchasing. As the competition in the premium segment is increasing drastically over the years, the brands are focusing more on customer retention and engagement.

Hence, we can conclude that the bargaining power of customers is moderate.

Bargaining Power of Suppliers:

Following is the bargaining power of suppliers in the Porter’s Five Forces analysis of Mercedes Benz:

Due to a variety of factors, including supplier scale, fragmentation, and a lack of forward integration, Mercedes suppliers have minimal negotiation leverage. Apart from a few large suppliers with significant negotiating strength, Mercedes Benz suppliers have minimal bargaining power. Its suppliers are spread out and lack forward integration skills as the suppliers don't have the expertise and capital to establish such large firms, which limits their bargaining power. Most suppliers rely on giant firms like Mercedes Benz for a significant percentage of their revenue, and if these massive organizations stopped buying raw materials from them on a regular basis, their revenues would fall. The supplier's industry is not dominated by a few companies and is not concentrated in the automobile industry. The suppliers' products are not that differentiated, so the switching cost is not that high for buyers. Hence, we can say that the bargaining power of suppliers is low.

Competitive Rivalry:

The impact of key competitors in the Mercedes Benz Porter Five Forces Analysis is as follows:

The luxury and premium automobile industry is very competitive. The major competitors of Mercedes Benz include BMW, Audi, Volvo, Jaguar etc. The level of competitive competitiveness in the automobile industry is reasonably high. It is one of the sectors that extensively invest in research and development as well as marketing. The highly competitive nature of the industry, as well as growing customer expectations from car brands, are the reasons why companies invest so heavily in product development and marketing. Premium and luxury vehicles are produced by Mercedes Benz, BMW, Audi, Volvo, Jaguar, GM, Volkswagen, Tesla, and a number of other automakers. While there are many firms in the worldwide automotive industry, the bulk of them use aggressive marketing and business development techniques. The initial cost of investment in the automobile industry is relatively high. The exit barriers is also increased due to high fixed cost and initial investments.

Hence, we can conclude that the competitive rivalry in the industry is high.

To conclude, the above Mercedes Benz Porter Five Forces Analysis highlights the various elements which impact its competitive environment. This understanding helps to evaluate the various external business factors for any company.

This article has been researched & authored by the Content & Research Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.

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