Group Assignment

Strategy II
Class TD

Due date: 11th December 2014

Professor: Joo Silveira Lobo
Grader: Vanessa Marques Fialho

Sofia Matos
2068
Jacopo Basso
2011
Joo Cerqueira
2028
Niklas Westerbeck 2309
Yourkey Alber
1950
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A)"
Description of the company: Mercedes-Benz is a German automobile manufacturer that is a
multinational division of the German manufacturer Daimler AG. Even though Mercedes-Benz
Cars division includes not only Mercedes-Benz but also Smart car production, the main focus of
this analysis is going to be on the Mercedes-Benz brand. The brand is used for luxury
automobiles, buses and trucks. On a worldwide level Mercedes competes mostly against Audi
and BMW (German Big 3 luxury automakers). However, depending on the market, other car
manufacturers such as Porsche, Land Rover, Jaguar and Lexus also count into the premium
segment. The premium segment is defined along several features such as design, engine power
and high quality materials. In general, the car industry is continuously growing, despite being
negatively affected during the financial crisis of 2008. The premium segment, in turn, having
approximately 10% share of the total automotive industry, is much more stable as well as more
profitable, which results in high competition. In most of its markets and thus on a worldwide
level, recent strong underbidding by Mercedes caused its rise to the No 1, beating BMW.!
Industry Analysis: For the industry analysis, a Porters 6 Forces Model was conducted (see
Exhibit I). The model shows clearly that there is a high competition (rivalry: high) in the
industry, especially between the German manufactures that compete against each other in the
same markets with similar technologies and brand power. Furthermore the threat of substitutes
(medium/high) makes operations even tougher. On the other side the appearance of
complements (medium) give the manufacturers more possibilities as new technologies are
developed. The threat of new entrants in the luxury car industry is low as perception of the
brand as a status symbol is crucial and technological superiority due to intense R&D is
important. Thus entering the market is difficult and risky. The power of suppliers is assessed as
being low. This is especially the case due to the fact that many parts of automobiles are easy to
manufacture, there is a high competition in the suppliers market and the car producers are
buying at a very large that gives them a strong position. The buyers power is evaluated as
medium. Buyers have to be divided into business customers, whose power is relatively high due
to the high amount of purchases and private customers whose power is rather low due to small
and infrequent amount they buy. "
Positioning of the company: Not only the industry environment, but also the unique
characteristics of a firm have an important influence on the company's strategy. Especially as
the industry is affected by technological changes and new legislation regarding environmental
protection, the competitions gets more dynamic and thus a competitive strategy is even more
important. The Organizational Resource Platform (ORP) of Mercedes (Exhibit III) gives an
overview of the strength within the company that helps them to successfully compete against its
competitors identified in the 6 Forces model above. Mercedes competencies and specialized
assets are mainly focused on the strong brand name Mercedes, efforts to maintain and even
strengthen this name due to marketing and brand management especially in overseas markets.

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Furthermore their strong market position in safety features for cars is maintained by
sophisticated R&D and protected by patents. Furthermore their broad and renewed product
portfolio is important for Mercedes. They revealed new models in the segment for smaller cars. "
Another important component of Mercedes ORP is the strategic partnership with Tesla.
Although Mercedes just sold their stake in the electronic car pioneer, they still have a close
relation and share not only technology but Tesla is also a supplier of batteries for Mercedes
electric models. The identified strength supports the slogan of Mercedes the best or nothing.
The SWOT analysis (Exhibit II) is a possibility of linking the company analysis (strength and
weaknesses) and the industry analysis (threats and opportunities). It shows that Mercedes faces
threats especially from an economic downturn and tougher legislation but also faces
opportunities like a technological shift where they have a great standing.!
Competitive Advantage: Putting the implications of the industry and company analysis
together, Mercedes seems to have a strong standing in the specialized technology for security
linked to the premium brand of Mercedes. Specialized technology increases differentiation,
meaning that it adds value to Mercedes by enabling it to exploit opportunities, defending itself
against threats and helping to increase the perceived customer value. This means that
technology is valuable. Specialized technology is also rare, in the point of view that since it is
patented only Mercedes has access to it. One can say that specialized technology is costly to
imitate because, since there are patents, other organizations cannot imitate it. Specialized
technology is substitutable in the point of view that even if competitors cannot use the same
technology as Mercedes, they can always develop their own. This means that specialized
technology can be replaced by similar strategically and technically equivalent valuable
technology. Since cars have quite the same features and the differences in technology are pretty
small, customers may actually be indifferent between technologies. As it was already mentioned
patents make specialized technology impossible to find in the market, meaning that it is nontransactionable. The truth is that resources itself do not confer any advantage for a company if
its not organized to capture the value from them. A firm must organize its management
systems, processes, policies, organizational structure and culture to be able to fully realize the
potential of its valuable, rare and costly to imitate resources and capabilities, which is exactly
what happens in Mercedes case.!
It is now possible to conclude that Mercedes shaped the potential to create value and achieve a
temporary competitive advantage that is likely to persist at least over the next 10 years.

B) "
In order to be prepared for the future it is important to realize future trends early (through
environmental scanning) and leverage its implications better than your competitors. If the
company recognizes the changes faster than the competitors and act according to it, they are
prepared for strategizing. We base our four scenarios on a set of certainties and uncertainties.
This allows us to explore the way powerful trends may play out and interact to shape our future.

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Based on the S.T.E.E.P. analysis (Exhibit IV) we identify two main uncertainties that may affect
Mercedess business in the next ten years: the state of economy and the societys response to
resource scarcity and climate change (environmental impacts and actions). The focal question
we tried to answer is: Taking the two uncertainties into account, will the customers still buy
large engine cars or change to smaller cars?"
When looking to the state of the economy as an uncertainty, one is faced with some of the most
recent pressing matters in nowadays life: fuel price, metal alloys costs, increasingly fierce
competition and easier imitation by fringe companies. The state of the economy will for sure
have a tremendous impact on the automotive industry. Furthermore emerging countries gsin
more and more importance. But all these countries have political instability, currency
fluctuations and unstable legislation in common. This makes a long-term strategic approach
very difficult. Many car brands will have to rethink their strategy. Global warming is already
affecting lives. Government incentives could play a major role in accelerating the mass adoption
of green technologies, but the government response might be different across the world.
Responding to consumer activism, legislators could give real teeth to green regulation. Thus,
Mercedes will be constantly challenged in update its product portfolio by the numerous regional
regulatory requirements, the shifting lifestyles and the new set of consumer choices. The state of
economy and the societys response to resource scarcity and climate change, represent a mix of
high possible impact and high uncertainty, and therefore will play the strongest role in shaping
alternative scenarios for automotive market."

Growing/Stable"

Rapid economic development has led to

increased congestion and rising pollution in
major cities, with haphazard urban growth
proceeding unchecked. Green legislation has
found no popular support and remains
ineffective.
Technological advancement,
growth in emerging markets and a booming
economy, allow people to customize and
upgrade their cars.
"

"

Everything is awesome
Scenario

Consumer behavior is strongly influenced

by regulation, legislation and tax.
Sustainability is partially imposed by law,
partially the result of a changing attitude to
the environment on the part of consumers.
The bullish economy allows people to
personalize
cars
with
the
latest
technologies, focusing especially on those
that provide fuel efficiency.""

STATE+++OF++++++++++++ECONOMY"

Gordon Gecko Scenario

"

Rejection" ENVIRONMENTAL+IMPACTS+AND+ACTIONS" Adoption"

"
Economic downturn forces people to reduce
consumption. Cars are less affordable and
meet the demand for basic transportation.
There is little popular support for protection of
the environment, industrial lobbies have been
able to dilute legislative initiatives and push
back development of green technologies.

Day after Tomorrow Scenario

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The purchasing power of customers is
strongly reduced due to taxes and inflation
combined with low income growth.
Increasing concerns about air pollution, oil
prices, and other environmental impacts,
together with growing health concerns,
have prompted consumers to show a
marked preference for green products.
"
"

Declining/Unstable"

Hipster Scenario

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Strategic implications and Strategic options matrix

After analyzing the possible scenarios, the second step is to develop the strategic implications
(Exhibit VI) related to each scenario. Regardless the probability of occurrences of each
scenario, and the predicted global trends of some factors, Mercedes should keep analyzing the
market to notice any sudden changes and early warning signals (Exhibit V), to establish future
vision about the new solutions that aligned with each scenario. That will support the companys
position in the market generating a matrix of strategic options, enabling it to meet any future
threats and capture the opportunities faster than their competitors."
In other words, analyzing how the world and the automotive industry might adapt to each of
these situations and what are the different implications that suitable for each scenario thus what
is the strategic options Mercedes has.

Growing/Stable

"

8888888888888888Everything8is8Awesome8Scenario8
! Invest" in" R&D" processes" in" order" to"
improve" quick" innovation" and" easy"
collaboration" with" changing" partners"
from"the"automotive"and"nonHautomotive"
sectors"
! Closer" relations" with" international"
regulatory"entities"
! Establish"a"significant"presence"in"
one"or"more"emerging"markets"
! Catalyzing"demand"
for"green"cars"through"rapid"technological"
advances"
and"narrowing"price"differentials"
! Support" and" sponsoring" ecoHfriendly""
events"
" Adoption
888888888888 8
8888888888888888
8888888888888888Hipster8Scenario8
! Manufacturing"
efficiencies"
with"
alternative" powertrain" by" bringing" down"
the"cost"of"batteries"
! Invest"in"longHterm"skill"development"
! Develop"internally"new"talents"to"increase"
innovation""
! Patent" all" new" technologies" in" order" to"
decrease"competition"threats"
! Broadening" the" distribution" network" in"
emerging"markets"
! Personalizing" the" relationships" with"
customers""

STATE+++++++++++++OF+ECONOMY"

8888888888888888Gordon8Gecko8Scenario8
! Improve" customer" service/support" to"
follow"up"the"customer"needs"evolution"
! Invest" in" technologies" that" improve" the"
interactions" and" connections" between"
user"and"car"
! Invest"in"highly"flexible"plants"which"allow"
frequent" updates" and" personalization" of"
equipment/extras"
! Keeping" with" the" growing" desire" for"
privacy"and"individuality"in"a"crowded"and"
hectic"urban"environment"
! Shift" of" sales" &" production" capacity" to"
Asia"and"to"emerging"countries"
8
8
8
Rejection
8
88888888888888888
8888888888888888Day8After8Tomorrow8Scenario8
! Engineering"and"production"takes"place"in"
lowHcost"centers"with"a"high"level"of"local"
sourcing"
! Reducing" the" costs" of" development" and"
production"to"an"absolute"minimum"
! Target"Costing"
! Extend" the" Mercedes" brand" into" new"
markets,"like"public"transports""
"

ENVIRONMENTAL+++IMPACTS+AND+ACTIONS
8

"

Declining/Unstable

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We believe customers are becoming more and more demanding and they get easily disappointed
when a new product lacks great innovation or outstanding functionalities, so no matter which
scenario will arise, Mercedes should always invest in new technology and innovation, which are
really important key strengths that the company wants to preserve in the future. Only in this way
it will be able to keep their differentiation image no matter what the economic conditions are.
In our opinion, the most likely scenario Mercedes might face is the Hipster Scenario which
means that the economy is bearish and the customers are really sensitive to environmental
impacts of their actions. As it can be seen from the table, increasing concerns about air
pollution, oil prices, and other environmental impacts, together with growing health concerns,
have prompted consumers to show a marked preference for environmental friendly products.
Furthermore, governments policies also push Mercedes to pay special attention to this issue
(e.g. the fleet average to be achieved by all new cars is 110 grams of CO2 per kilometer (g/km)
by 2020). The economic downturn, due to political conflicts and difficulties in a stable supply of
raw materials like oil will result in a decrease in income level. What Mercedes should take into
consideration is that values are changing; purchasing behavior is shifting from conspicuous
consumption toward conscious consumption. This, for the automotive industry and especially
for Mercedes, means that many people are choosing small cars rather than big ones. For these
reasons Mercedes should prepare its strategic position.
As clearly mentioned before, the company should strongly invest in R&D in order to develop
new technologies and features capable of exceeding consumers expectations. This could help
Mercedes in transferring the product features seen in larger models, such as safety levels,
efficiency technology and driving experience to their smaller vehicles, which would in turn
enable the company to set price premiums even in small cars (A/B segment).
Another strategic option Mercedes might take is to develop a significant presence in one or
more emerging markets like it did in China. This might lead to a decrease in total cost of
production and might help to broad the distribution network in emerging markets. Finally,
customer relationship management will form an integral part of the product or service offering.
What Mercedes could do here, is to strengthen even more the relationships with customers in
order to increase brand loyalty (second-hand car market). This is crucial because will ensure
clear brand positioning in every scenario.

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Appendix
Exhibit I - Porters 6 Forces

Appendix II - SWOT analysis

"
STRENGTH

High quality
Leaders in innovation
Superior technology
Brand reputation
Access to global distribution
Strong presence in motor sports
Manufactured and assembled in over
20 countries across the worl

WEAKNESSES

OPPORTUNITIES

"

Developing hybrid cars and fuel

efficient engines for the future
Tapping emerging markets across the
world and build a global brand
Fast growing luxury automobile
market & increased income
International expansion

High maintenance costs of cars

Low profitability per car compared to
competitors

THREATS

Increasing competition as new Asian

car markets and thus manufacturers
move towards global stage
Increasing tax for luxury cars,
especially in emerging countries
Increasing fuel prices

7"

Appendix III Organizational Resources Platform

ORGANIZATIONAL$RESOURCE$PLATFORM$8$NOVA$SCHOOL$OF$BUSINESS$AND$ECONOMICS
R.ST$=$Relative$Strength
Scale:$1$8$Lowest$$$10$8$Highest
ASSESS
ASSESS
SPECIALIZED$ASSETS
ARCHITECTURE$OF$RELATIONSHIPS
S.I. R.ST
S.I. R.ST
SA1:$Model$Platform
AR1:$Strategic$Partnerships

S.I.$=$Strategic$Importance
COMPETENCES
C1:$Research$and$Development
R&D'is'critical'by'having'an'edge'in'terms'of'
innovation'and'efficiency'of'engines
C2:$Marketing$Management
Marketing'of'luxury'goods'is'especially'
important'as'it'influences'how'(potential)'
customers'receive'the'company'and'ist'
products
C3:$Brand$Management

The'variety'of'different'models'increases'the'
probability'of'attract'additional'customers

10

Especially'for'R&D'processes'strategic'
partnerships'with'other'manufacturers'can'
save'costs'and'drive'innovation

Racing'teams'increase'brand'recognition'and'
can'positively'impact'the'core'business

C4:$Design$Management
A'more'sporty'or'elegant'design'influences'
the'target'cutomer'group'and'thus'the'sales'
volume

Based'on'superior'R&D,'patents'can'help'to'
earn'high'revenues'and'keep'competitors'
from'important'technologies

AR2:$Research$Institutions

SA3:$Brand
A'strong'brand'that'is'associated'with'
innovation,'security'and'luxus'is'a'strong'
argument'for'customers'to'purchase'in'this'
industry
SA4:$Patents

10

S
T
R
E
N
G
T
H

SA2:$Race$Sport$Teams

Especially'for'luxury'cars,'brand'
management'is'important'as'it'represents'a'
status'symbol

R
E
L
A
T
I
V
E

10

ASSESS
S.I. R.ST

The'link'to'research'and'test'institutions'can'
provide'important'input'for'innovation'and'
can'save'costs'as'well

AR3:$Distribution$Channels
8

Either'companies'own'the'distribution'
centres'on'their'own'or'have'independent'
distributors.

AR4:$Car$Sharing$platforms
6

Car'sharing'can'help'car'manufacturers'to'
attract'new'customers'and'get'young'people'
using'their'cars

SUPERFLUOUS$STRENGTHS

KEY$STRENGTHS

SA2

AR1

SA3
C3

SA1

AR4

C4

AR3

C2
ZONE$OF$IRRELEVANCE

C1
KEY$WEAKNESSES

AR2

SA4

3
2
1
1

5
6
STRATEGIC$IMPORTANCE

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Appendix IV!-!STEEP Analysis

Social

Technology

Economic

Environment

Political

- Increasing
environmental
consciousness
of consumers
- Cars image as
status symbol
declines
especially in
younger
generation
- Aging of
population
- Raising
middle class
- Social role of
cars

- Development of
new powertrains
- Improvement of
traditional
powertrains
- Smart Cities
- Use of Big Data
in the car
assistance systems
- Impact of
emerging
technologies

- Economic
uncertainty
- Growing
competition from
new carmakers
- Rising oil prices
- Growth in
emerging
markets
- Evolving
market
characteristics

- Carbon footprint
concerns
- Urbanization
- Climate change
- Increasing
pollution in cities
- Environmental
impacts and
actions

- Geopolitical
change
- Regulation
in the
markets
- Geopolitical axis
- Privacy
concerns

Appendix V Early Warning Signals

Gordon Gecko Scenario

GDP grows by 15%

Environmental legislation does
not take place
Globalization increases
Traffic congestions increase
Average energy consumption per
capita increases by 20%

Day After Tomorrow Scenario

GDP declines by 15%

Traffic congestions increase
Political instability
Environmental extreme scenarios
(storms) appear more often
Average temperature is
increasing by more than 4
degrees

Everything is Awesome Scenario

GDP grows by 15%

Positive Attitude towards
environment increases
Sustainability concerns increase
Technological improvements in terms
for pollution control

Hipster Scenario

GDP declines by 15%

Positive Attitude towards
environment increases
Sustainability concerns increase
Stop of polar cap melting

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Appendix VI8- Strategic Implications

8
Gordon Gecko
Scenario
World

!
!

Middle Class
established in
growing
countries
High levels of
pollution,
especially
in
big cities
Stressful and
extremely fast
style of life
Increasingly
dense
urban
traffic

Everything is
Awesome
Scenario
!

!
!
!
!

Automotive
Industry

!
!
!
!
!

Treat
of
Substitution
Innovation
High demand
Consumer
Driven
Importance of
suppliers

!
!
!
!

Booming
Economy
especially
in
growing
countries
Increasing
concern about
carbon
footprints
Strict
Environmental
Legislation
Growing health
concerns
Sophisticated
consumers
price, reliability
and
brand
have much less
impact
Treat
of
Substitution
Consumer
Driven
Governments,
Regulations,
legislations
High demand

Day After
Tomorrow
Scenario
!
!
!

!
!
!
!

!
!
!
!
!
!

Cars

!
!

Highly
Customized
Information,
interaction and
communication
between man
and vehicle
Intelligent
Drive Systems

!
!
!

!
!

Upgrades
toward
fuel
efficiency
Green Cars
Low
consumption
technologies
Remotely
Assisted
Active Safety

!
!
!
!
!
!

Hipster
Scenario

Bearish economy
(Increase in raw
material costs)
Growth in
public
and
alternative
transportation
options
the market place
for second-hand
products grows
Environmental
friendly customers
New
Consumer
Mobility
Conscious
consumption

Treat
of
Substitution
Low
Demand
(World)
Fierce
Competition
New low costs
brand
Cost Driven
Regional Demand

Small,
efficient
vehicles for daily
commuting needs
Fuel Efficiency
Smaller Cars A/B
Segment
New
powertrain
technologies
Low-tech mobility
Value-oriented
models (need to
technology) offer
safety and

!
!

!
!
!

!
!
!
!

Declining
Economy
Basic
Transportation
Little support
for protection
of
the
environment
Car ownership
is
becoming
less
widespread
Urbanization
Cost-focused
consumers
No
discrepancy in
the perception
of the value of
green cars.
Fierce
Competition
Cost Driven
Regional
Demand
Low Demand
(World)
Innovation of
green
technologies is
not consistent
with demand
Small and very
basic cars
High degree of
simple,
nofrills
technology
and
limited
standard
equipment
levels
Cars
perceived as
homogeneous

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Reference List
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- http://www.economist.com/blogs/schumpeter/2013/10/global-car-industry
- https://forumblog.org/2014/01/economic-forces-cause-next-auto-industry-gear-change/
- The road to 2020 and beyond: Whats driving the global automotive industry? Mckinsey
& Company, on the theme Advanced industries
- Annual Financial Statement Mercedes 2013
- How to build scenarios Planning for Long Fuse, Big Bang in an era of uncertainty by
Lawrence Wilkinson
- Consumer Futures 2020: Scenarios for tomorrows consumers in Forum for the Future
- The Resource-based theory of Competitive Advantage: implications for strategy formulation
by Robert M. Grant, California Management Review, Vol.33, Ner 3, Spring 1991
- Creating Competitive Advantage by Pankaj Ghemawat and Jan Rivkin, HBS 9-798-062
- Towards a Strategic Theory of the Firm by Richard Rumelt in Resources, Firms and
Strategies, ed. Nicolai J. Foss, Oxford 1997

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