- Type of Market in Which Company Operates
- Price Elasticity of Demand of Mercedes-Benz
- Buy "Mercedes-Benz Research" essay paper online
- Income Elasticity of Demand of Mercedes-Benz
- Closest Competitors to Mercedes-Benz
- Profitability of the Business
- Possible Ways to Increase Profitability
- Related Business essays
If a person thinks about excellence, long-life traditions and quality in the automotive industry, the name “Mercedes-Benz” can be taken as an example. Mercedes-Benz is one of the top producers in the world, and its sales stay consistently high. Mercedes-Benz is a part of Daimler AG and specializes mostly in luxury cars, albeit producing vans, buses, SUVs. Mercedes-Benz S-class is a classic luxury car, which is tested with time and experience. Mercedes-Benz is an interesting company to research and its results can be considered significant.
Type of Market in Which Company Operates
Mercedes-Benz operates in the monopolistic competition type of market. Monopolistic competition is a kind of competition, where that numerous makers offer items that are separated from each other by brand or quality; therefore, there are no perfect substitutes. In monopolistic competition, a firm takes the costs charged by its adversaries and disregards the effect of its own costs on the costs of other firms. If government intrudes, monopolistic competition will turn into government-conceded monopoly. In contrast to perfect competition, the firm receives an extra limit. Models of monopolistic competition are regularly used to form commercial ventures. Markets with monopolistic competition include restaurant business, cereal market, apparel market, shoes market and automotive industry.
The main characteristics of monopolistic competition are:
- There are numerous makers and numerous buyers in the business sector, and no business has aggregate control over the business sector cost.
- Purchasers see that there are non-value contrasts among the contenders' items.
- There are few obstructions to section and exit.
- Makers have control over cost.
The long-run attributes of a monopolistically aggressive business sector are compared to a superbly focused business sector. Two contrasts between them are that monopolistic rivalry produces heterogeneous items and that monopolistic rivalry includes non-value rivalry, which is considered as an unobtrusive item separation. A firm making benefits in the short run will in any case earn back the original investment because request will decline and normal aggregate expense will increase. As a result, a monopolistically aggressive firm will make zero financial benefit. It delineates the measure of impact the firm has over the business sector; in view of brand steadfastness, it can raise its costs without losing clients. Such process implies that an individual company's interest will incline. On the other hand, the flawless rivalry has a splendidly flexible interest timetable.
Price Elasticity of Demand of Mercedes-Benz
Determination of the price elasticity of demand depends on the number of factors:
- Accessibility of substitute products
The more and closer the substitutes are accessible, the higher the demand is, as individuals can make changes starting with one good, and then switching to the next one if the minor value change is made. If no substitutes are accessible, the substitution impact will be little and the demand will be inelastic.
- Broadness of the good’s meaning
The more extensive the meaning of a good (or service) is, the lower the price elasticity of demand. For instance, if a company penetrates the market with a new brand of clear water, their price elasticity of demand would be high, because the clear water market is huge. Moreover, in such case many close substitutes are available. However, the water itself (no specific brand) has no substitutes; therefore, the demand for water is inelastic.
- Salary rate
The higher the rate of the buyer's salary is that the item's cost correlates with, the higher the rate of elasticity is. In such case, the individuals will give careful consideration when buying the good due to their cost. The wage impact is substantial. When the merchandise correlates with an unimportant segment of the salary effect will be inconsequential and the price elasticity of demand will be inelastic.
The more important a good is, the lower the elasticity of such good, as individuals will endeavor to purchase it regardless of the cost. The contradictory term to a necessity good is luxury good. Demand for luxury goods increases at a greater rate than the income. The examples of luxury goods are Rolex watches, Louis Vuitton bags and Mercedes-Benz S-class.
For most products, if a price for a good was fixed for a long time, it would result in higher price, because customers would start seeking for substitutes. For example, if the costs for fuel increase unexpectedly, a consumer may still buy high-priced fuel in the short term. However, a consumer would decrease his car utilization and opt for substitutes (public transport, walking) in the long term. Such rule does not hold for durable goods, such as cars.
- Loyalty to a specific brand
A connection to a certain brand, either out of habit or in view of exclusive obstructions, can override affectability to value changes, bringing demand that is more inelastic.
- The type of consumer
When the buyer does not specifically pay for the product they put their money into, for example, corporate costs, price elasticity of demand will be inelastic.
Therefore, considering all the factors that affect the price elasticity of demand, it is possible to conclude that demand for Mercedes-Benz’s goods is elastic, because it is a luxury good and automotive market has many substitutes.
Income Elasticity of Demand of Mercedes-Benz
Income elasticity of demand is a measure of the relationship between a change in the amount requested for a specific good and a change in genuine pay. Salary flexibility of interest is a financial term that alludes to the affectability of the amount requested for a certain item regarding the change in shopper earnings.
Typical merchandise has a positive wage flexibility of interest. As salaries increase, more merchandise is requested at every value level. The amount requested for typical necessities will increae with payments, yet at a slower rate than extravagance products. It is caused by the fact that customers, instead of purchasing a greater amount of the necessities, will probably utilize their expanded wage to buy more luxury goods. Amid a time of expanding wages, the amount requested for luxury goods has a tendency to increse at a higher rate than the amount requested for necessities. The amount requested for luxury goods is exceptionally delicate to changes in wage.
Mediocre merchandise has an inelastic income elasticity of demand - the amount requested for sub-par products decreases as the wages increase. For instance, the amount requested for some foods has a tendency to diminish during times of expanded salaries.
Organizations assess income elasticity of demand for different items to help foresee the effect of a business cycle of deals.
Being a luxury good, Mercedes-Benz cars have the income elasticity of demand greater than 1, which means that increase in pay is followed by generally bigger amount requested. Luxury goods may turn into normal or even inferior products at diverse wage levels. For example, a millionaire may stop buying luxury cars if he changes his focus to yachts. At the given circumstances, luxury goods become inferior goods.
Closest Competitors to Mercedes-Benz
Mercedes-Benz has many close competitors in the luxury cars industry. BMW, Rolls-Royce, Bentley, Maybach, Porsche, Lincoln, Ferrari, Audi among others. Luxury cars market is a developing market; however, it has fierce competition.
Tom Libby, an auto expert at IHS Automotive, said that the luxury cars offer in 2015 for U.S. vehicles would increase by approximately 12 percent (Shepardson, 2015). It can be reached particularly due to the inundation of new extravagance models, including numerous beginning around $40,000. Purchasers can now select to buy a section level Mercedes-Benz for significantly less than $40,000 or more that is much more expensive than Toyota Avalon or Ford Taurus.
Luxury cars deals increased by 4.5 percent in 2014 (Shepardson, 2015), while non-luxury cars deals were essentially leveled. Auto deals showed the most reduced rate of aggregate deals subsequent to 2005. The greatest development fragment for extravagance vehicles was connected with the little extravagance hybrid/SUV deals, which were at the level of 19 percent.
Over the business, extravagance brands reported solid deals in 2014. Four German extravagance brands reported unsurpassed record deals in 2014. They were driven by BMW, which sold 2.1 million vehicles —7.9 percent higher compared to the former year. BMW held the title of worldwide luxury auto deals pioneer in 2014. (Williams, 2014)
Audi AG, a unit of Volkswagen AG, saw its business increase by 10.5 percent to 1.74 million vehicles and again made Mercedes-Benz the world best brand in 2014. The three brands — including VW and Porsche — all reported solid deals. BMW topped Daimler's Mercedes-Benz unit in the United States by around 10,000 vehicles to 339,000 vehicles a year ago. (Williams, 2014)
According to Shepardson (2015), Toyota Motor Corp's extravagance unit Lexus was by 14 percent to more than 311,000. Lexus selected not to offer a passage level vehicle beginning at beneath $30,000 in the United States as some of its German adversaries have done lately. Lexus held the title of the best U.S. extravagance brand for a long time until 2011 after supply interruptions caused by Asian regular debacles. Yet two U.S. extravagance brands still face challenges. Cadillac was the most exceedingly performing of GM's four brands in the United States in 2014, falling 6.5 percent, while retail deals were at the level of 6.1 percent. The majority of GM's different brands had strong deals increase in 2014. Passage Motor Co's. Lincoln unit, which reported its best deals year since 2008, increased its sales by 15.6 percent to 94,474.
Extravagance deals have been energized by low investment rates and liberal renting terms. Renting in the extravagance part is about twice what it is in the automaker overall.
Presently, automakers are trying to meet the requests of more youthful purchasers, including extravagance purchasers who need premium vehicles extending from compacts to SUVs.
90% of real riches among children of post-war America became a direct result of diligent work and business, not legacy or big name. Large portions of them are excessively centered on vocation, making it impossible to consider extravagance things, like extravagance autos.
The objective of extravagance automakers ought to be to teach clients that extraordinary things are justified regardless of their value and that cars owners should, first of all, think not about utilization, but about quality.
Luxury cars producers can gain knowledge from Tiffany & Co., which has the capacity to offer adornments at $150, $15,000 and $150,000 value because they focus on the experience the clients receive. Youthful purchasers have the conviction that regardless of the amount they spend, they anticipate that everyone would treat them as before.
61% of purchasers with family budget amounting of $250,000 do not possess luxury automobiles.
To sum up, competitors of Mercedes-Benz provide a wide range of substitute for the buyer. Moreover, the buyer can opt for a normal car, not a luxury one, so the range of substitutes and their availability is truly magnificent. Complement goods for Mercedes-Benz cars are any automobile parts, car radios and players, GPS systems, wheel-blocking systems, etc.
Profitability of the Business
The best way to assess the profitability of the business is to compare it to the profitability of its closest competitors, which are Audi and BMW. According to Daimler AG 2014 Annual Report (2015), annual revenue was €73,584 million, which is 20% higher than a year before. Return in sales increased by 0.6% to a point of 5.8%. Offers of Mercedes increased to 495, 668 units, with European and U.S. markets performing especially well. Boston (2015) states that in 2014 BMW deals were 9.5%, while Mercedes-Benz deals increased to 13% and Audi posted a 10% increase.
The auto risk-taking is beginning to hit benefits. The profits of leading car manufacturers in 2014 showed solid volumes, however, overall revenues with the exception of Daimler are low. Normally, Mercedes-Benz spent high amounts of money on developingg new models, receiving its profit for auto deals in 2014 to 8%, from 6.2% in 2013.
The debilitating of euro ought to give German automobile creators more influence in the U.S. However, the organizations' generation in North America and different parts of the world means that the slide of euro against the dollar will not allow high returns. Audi claimed that higher spending would keep on dissolving edges in 2015. Expand of Audi meant that higher spending would keep on dissolving edges in 2015. Financial specialists sold BMW stock after it reported preparatory 2014 outcomes demonstrating its auto division's edge decreased to 8.2% of offers in the final quarter from 9.4% in the second from last quarter. The revenues of BMW increased by 9.2% to €5.8 billion ($6.15 billion) and income increased by 5.7% to €80.4 billion. (Boston, 2015)
The blended income report at BMW, after cautioning by Audi, showed that its high rate of spending would keep on dissolving benefits in 2015. Its net revenues declined to 9.6% of offers a year ago, compared to 10.1% in the previous year. (Boston, 2015)
Audi has reserved €26 billion for new speculation through the following five years. The organization is assembling new industrial facilities in Mexico and Brazil and is planning to grow its line of extravagance autos and game utility vehicles to 60 models by 2020 from 52 models.
Notwithstanding putting resources into new models, production lines and dealerships to support deals, the extravagance auto producers have been occupied with extreme value rivalry, offering purchasers great discounts.
Audi, which was only 70,000 autos behind BMW a year ago, is trying hard to exceed its opponents in the modern market environment.
The extravagance auto creators are seeking for bigger deals volumes by producing more moderate vehicles, for example, littler smaller autos.
Audi's benefit every auto has fallen more remote than Mercedes-Benz in light of the fact that Audi's business development is more reliant on littler autos, for example, its A3, one of its top of the line models.
Audi officials state in order to receive a possibility for another undertaking is to indicate the opposition. For example, for German cars manufacturers brand plays extremely important role. Max Warburton, car investigator at Bernstein Research, said in a late report that European auto producers are spending more cash on promotions to offer their autos than on the steel to construct them.
Daimler is spending about €6,000 an auto on publicizing and showcasing contrasted with €1,500 at Ford Motor Co. and General Motors Co.
VW has the most elevated auto spending on promoting and publicizing approximately 14% of aggregate spending, or double the sum that Ford spends.
The holes could represent the diverse nature of producers and their brands. BMW has long ago delighted in a superior notoriety than Mercedes. Nevertheless, Mercedes-Benz's endeavors to upgrade its image and overhaul its autos, issuing them as a chance to spend less offering its autos.
Possible Ways to Increase Profitability
There are two key approaches to increase the profit: decrease expenses or make new deals. For most little organizations, the simplest approach to increase productivity is to diminish costs. Diminishing expenses can positively influence the benefit the company makes on every deal. Moreover, the ideal approach to enhance profits is to expand the turnover – there is a limited breaking point on decreasing the expenses and more space for deals development. Few possible ways to increase profits would be:
- Mercedes-Benz should distinguish the steps it can take to minimize direct expenses. For example, it can be reached by arranging lower costs with suppliers, evaluating techniques and frameworks to minimize wastage and executing extra security to diminish the possibility of burglary.
- Most organizations have a tendency to stick to the same supplier after a long cooperation. Yet Mercedes-Benz could spare many cash by renegotiating such arrangements all the time. Costs that could be routinely inspected in the business incorporate protection, utilities, phone and Internet.
- The ideal approach to lessen backhanded expenses and overheads is to enhance the frameworks. For instance, introducing better bookkeeping programming could give better, more customary reports that contrast genuine expenses and plan figures. It will help empower Mercedes-Benz to spot overhead expenses that they can occur.
- Good frameworks and methodologies will help minimize risks and make it a strategy to gain from missteps and enhance the frameworks. Good way to enhance frameworks is to audit them at any rate once a year to see where enhancements can be made.
- Centering administration mindfulness on productivity can have a sensational effect. The most ordinarily utilized key execution markers are real deals against gauges, costs against plans and staff costs. Mercedes-Benz should hire a bookkeeper to guarantee the observing of the right markers for the business due to the fact that staff has a tendency to work towards them whether they are basic for the business or not.
- Urge senior staff to delegate straightforward undertakings to decrease the number of staff members who perform the same tasks. It will make senior staff concentrate on coordinating the business.
- Precision training helps predict issues and adjust as circumstances change, and permits to set objectives and measure execution.
- Set measurable, time-constrained focuses to screen how viably the arrangements are actualized. Surveying of accomplishments to gain from experience and make ceaseless enhancements.
- Set up frameworks that empower the correspondence of best practice in the business. For instance, benchmarking distinctive parts of the business against one another can be a valuable method for distinguishing and offering best practice.
- Additional enhancement can help increase interaction with the clients and suppliers – they can offer helpful tips and counsel. The clients will be aware of any issues and can deliver knowledge about necessary steps to move forward. On the other hand, ignoring clients that have complaints might aggravate matters and diminish chances to make positive enhancements.