Policy Extension
General Context
The company was established in 1886 and since its inception the technology developed by Daimler has revolutionized the automotive industry (Daimler AG, 2014). Daimler’s initial product line started with a motor carriage and a three wheeled vehicle. The quality, safety and comfort of Daimler’s vehicles have impressed their customers, establishing the standards of the industry.
With automotives being a physical product, it is very easy to measure them. Standards of the industry are established and brought to public notice, allowing all customers to understand them and rapport to them. In this industry products are physical received by customers and they enter customers’ possession once all contractual and financial aspects have been attained. Product reception takes place under the terms established by the seller and agreed by the buyer.
There are several ways customers can address in order to find out information about the price and characteristics of Daimler’s auto vehicles. The most important channel customers can benefit from such information is represented by the company’s representatives. They can offer customers through information that they cannot find elsewhere, like different promotions, bonuses and campaigns. In addition to this, customers can take the vehicles they are interested in for test drives so that they properly evaluate products’ characteristics. Another channel that can offer information is the company’s website. In addition to this, specialized forums provide customer reviews that can help potential customers make their purchasing decision based on other people’s experience with Daimler’s vehicles.
In this case, the level of uncertainty associated with the price and quality of Daimler’s vehicles is low. This is because the company’s tradition on the market has been established on the quality of its products (Daimler, 2014). Information on products’ price is transparent, so that customers or other interested parties have no reason to doubt it.
This low level of uncertainty is maintained by the company’s strong brand. In addition to this, the government has established safety standards that automotive producers must follow. This ensures that the level of uncertainty regarding Daimler’s products remains low.
Demand
The demand for automotive products on national and international level is rather constant (Foy et al., 2013). Daimler has its established customers that periodically renew their auto vehicles with newer versions, and also attracts new customers. There are several customer segments the company addresses. One of these segments is represented by individuals aged 35 — 55, with high incomes that are interested in Mercedes Benz sedans. These are usually executives, businessmen, or politicians. The younger segment aged between 25 — 34 with medium to high incomes is served by the Smart brand that offers sporty vehicles to active people. There is also the business to business segment that is interested in trucks, buses, vans mostly, but also sedans.
There are several qualities these customers value about Daimler’s products. The segment represented by individuals with higher incomes is interested in the quality of products, but mostly on the prestige they provide. Mercedes Benz vehicles are a symbol of luxury, elegance and high class. Customers purchase and use them in order to reveal their social status. Customers in the business to business segment mostly value the quality and reliability of these products. Customer service is another important issue that customers value Daimler for.
Regarding income elasticity, Daimler products are undoubtedly luxury products. These premium prices usually have expensive prices that customers are willing to pay because of all the prestige they are associated with. If these products would not be as expensive, it is likely that they would not be that attractive for this customer segment.
However, this does not mean that economic conditions cannot affect demand for such products. During the recession that followed the economic crisis in certain regions of the world, the company has reported reduced sales. It was only naturally that the demand for luxury vehicles would be reduced. There were several reasons that determined this demand reduction. Some of the customers that periodically renewed their Daimler automotives did not sport this behavior during the crisis as a message to market. They could have afforded to purchase new vehicles, but other values prevented them from doing so. Other customers simply lost their ability to financially support such a purchase.
Regarding the elasticity of luxury vehicles such as those provided by Daimler, the fact that they are not a necessity in the real sense of the word, and the fact that a price reduction for such products would be reflected in increased demand leads to the assumption that such products are elastic. The elasticity is not high because price reductions in this product segment are rarely significant which means they cannot attract a high demand increase.
Other products that are likely to influence the prices on this market are represented by oil, spare parts and raw materials (Lis et al., 2012). If oil prices increase on a significant basis, it is likely that certain customers will want to select vehicles that consume less gas or to switch to electric cars. The prices of spare parts and raw materials directly influence auto vehicles’ prices. This is a normal situation in any type of market.
Supply
There are several types of suppliers in this industry: raw materials, transportation, and human resources suppliers. The most important suppliers that Daimler works with are represented by raw material suppliers. Raw materials serve for constructing all composing parts of the company’s vehicles. The quality of the products relies on the raw materials they are made. This means Daimler must rely on suppliers that provide high quality raw materials on time.
Daimler usually uses large suppliers because such companies have the required expertise in providing what the company needs. In addition to this, large suppliers are able to make investments in the quality of the raw materials which influences the quality of Daimler’s products. Although large suppliers costs more in comparison with their smaller competitors Daimler is guaranteed the quality it requires.
If raw materials would not be delivered on time or if they do not meet required quality standards Daimler’s production process would be significantly affected. Production is planned so that orders are served on established conditions. In addition to this, the company cannot assume using lesser quality raw materials because it would affect the quality of its own products and would affect customers’ satisfaction.
The automotive industry is a very competitive market. There are numerous automotive producers that address different customer segments (BERA, 2014). The most important players in this market come from U.S., Germany and Japan. German producers mostly address the luxury segment, U.S. producers tend to focus more on the middle segment, while Japanese producers address middle and lower segments with their lower price and high addressability.
Regarding Daimler’s auto vehicles’ prices, it is important to analyze them based on each category of product in the product line. This is because there are differences between the pricing approach of these product segments. Mercedes Benz products’ prices are highly above marginal cost. This means the company obtains profits easier by selling this type of products in comparison with other product segments. The Smart line’s products have been designed in order to provide competitive prices, although above market average. The trucks, buses and vans lines are in the same situation.
Government’s Role
The regulation in the automotive industry is strictly influenced by the government. This is required by the safety measures that must be taken in order to ensure passengers are secure and that the likelihood of accidents occurring because of defective production. Fees of not respecting these regulations are quite significant.
The taxation in this industry is established by the government. It does not follow different regulations in comparison with other businesses. The situation is similar in the case of public programs and purchasing and information provision. The government’s activity does not seem to affect automotive companies’ efficiency.
Future
Demographic changes are likely to significantly influence the demand on the automotive industry. Much of Daimler’s success can be attributed to the baby boomer generation, as a large segment of this generation has reached the income level that the company’s products address. However, generations X and Y will most likely display different purchasing behaviors that can affect demand on this market.
The most important impact that technology might have on this industry refers to developments in the electrical cars field (Winter, 2014). The segment of customers that prefer hybrid or electrical cars is increasing. More and more people address more economic cars that pollute less and consume less.
It is not likely that the political environment can pose problems or impediments for the automotive industry unless its implication on laws sustaining environmental protection that could increase electrical cars purchase. The economic environment will play a more important role because of the economic measures taken for recovering from the economic crisis.
These changes are likely to determine a reduction in the demand for luxury cars, but an increase in the demand for the buses, vans and trucks segments. Demand will influence the price: if demand for certain products is reduced, Daimler cannot increase their prices. This will produce effects on the supply that will have to adapt to such changes. This means supply for less demanded products will also be reduced and the same situation is likely to apply to production.
Reference list:
1. Tradition (2014). Daimler AG. Retrieved November 20, 2014 from http://www.daimler.com/company/tradition.
2. Product Responsibility (2014). Daimler AG. Retrieved November 20, 2014 from http://www.daimler.com/sustainability/product-responsibility.
3. Lis, B. et al. (2012). Oil and Cars: The Impact of Crude Oil Prices on the Stock Returns of Automotive Companies. International Journal of Economic and Financial Issues. Retrieved November 20, 2014.
4. The Automotive Industry (2014). Business and Economics Research Advisor. Retrieved November 20, 2014 from http://www.loc.gov/rr/business/BERA/issue2/industry.html.
5. Foy, H. et al. (2013). U.S. Car Sales Motor Again as Demand Rescues World’s Auto Industry. The Financial Times. Retrieved November 20, 2014 from http://www.ft.com/cms/s/0/f32757e2-4170-11e3-9073-00144feabdc0.html#axzz3JePZdDWc.
6. Winter, L. (2014). Upcoming Battery Will Charge Phones and Electric Cars in Minutes. IFL Science. Retrieved November 20, 2014 from http://www.iflscience.com/technology/upcoming-battery-will-charge-phones-and-electric-cars-minutes.
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