The Global Automobile industry reviews the state of play in the global automobil

Question

The Global Automobile industry reviews the state of play in the global automobile industry in 2009, which can easily be expanded through online resources to the current time. The case describes the economics of the industry. The US market, which is the world's largest, is reviewed is depth. The case also looks at how competition is evolving in the industry, and what the automobile companies are doing to try and cope with the challenges raised in competing in the current state of the economy with substantial global competition.

Chapter 5 notes three main Business-level strategies- Cost leadership, Differentiation, and a Focus strategy. The Focus strategy is typically based on either cost- or differentiation- with the difference being the choice of a market segment for focus strategies rather than the entire market.

Requirements: The chairperson of Michelin Tire has hired you to prepare an executive summary that illustrates each of the three main types of Business Level strategies.

1.For each of the three types, select an automaker that you believe follows that particular strategy. For example- select Lexus as an example of Cost leadership, Fiat as an example of differentiation, etc.

2. For each of the three strategies- note 1) the company name, 2) a detailed explanation why you believe that Business-level strategy fits that automaker, taking care to identify the reasons that support your answers.

Given that for the most part the auto industry would be considered a mature industry, select one of the companies from #2 above: Note examples from practice of how companies follow the competitive tactics of price signaling, price leadership, non-price competition, and capacity control.

Explanation / Answer

These days organization’s marketing departments use different but feasible strategies to increase revenue and profit. Business Level Strategies are intended to create difference between the positions of firms, to their competitors. Organizations generally use business-level strategies to provide guidelines for their owners, high level managers and all the employees to follow them in their daily routine of working in the business.

Every organization should be focused on satisfying customer needs or preferences in order to reach above average returns. Relative to a firm’s competitors and to the five forces of competition, business-level strategies are concerned with a firm's position in the industry. This paper focuses on the business level strategies that are used by various automakers.

The Main Business Level Strategies

There are 3 main strategies that are used by many organizations to establish an advantage over their competitors.

Cost Leadership

Constant efforts to lower costs compared to competitors are necessary in order to be a successful cost leader. Firms must offer relatively standardized products with features or characteristics that are acceptable to customers at the lowest competitive price.

Automaker, Example - General Motors being one of the leading automakers, follow Cost Leadership Strategy.

Explanation of the business strategy used by General Motors - General Motors is one of the firms that implements JIT manufacturing and purchasing, i.e. pursuing cost Leadership strategy by redefining the structural and procedural activities performed. JIT has proven to add value by reducing waste. Successful implementation of JIT has brought significant improvements like increased productivity and better quality, reduced lead times & setup times, lowering manufacturing costs.

Differentiation

Aim is to provide value to customers through unique features and characteristics of a firm’s products rather than that by lowest price, i.e. Differentiators focus on product innovation, advanced technology features, image management etc.

Automaker, Example - Fiat is the best suited example for automaker that adopted various strategies and became the protagonist of a high-impact turnaround.

Explanation - The identification and implementation of various strategic options made the re-launch of Fiat possible, each option with current and future risks and return profiles, which in an innovative way had a significant impact on the Group’s business model.

Focus Strategy

Focus strategies can be based either on differentiation strategy or cost leadership strategy. The organizations that use focused strategies serve smaller segments much better than their competitors who have wider customer base.

Automaker, Example - Manufacturers like Ferrari.

Explanation - Ferrari follows focused strategy to produce customized products for various types of markets segments. Ferrari competes in the tiny super car category with prices starting at $150,000 and running as high as $600,000.

Competitive Tactics Followed by Companies

Price Signaling- It is one of the most competitive pricing strategies these days. Its basic aim is to sell low quality goods at the price of a product with high quality. Fooling customers by playing with the fact is core of this strategy.

Price Leadership- It is the practice in which a leading company in a specific industry sets the price for goods and services, the other firms in the industry then match the price set by this leader.
Example- Wal-Mart, the business model of the brand thrives on its ‘Every Day Low Prices’ strategy. The strategy lures customers to become more focused on product pricing in order to save money. Thus, Wal-Mart is influencing various companies to reduce costs by implementing redesigns of their products and packaging.

Capacity control- is the modification of risk factors by using a revenue management system.
Example- Nestle also faces the seasonal demand fluctuation. The demand for chocolates increase in winters and decrease in summers and it results in the waste of products seasonally. To overcome the crisis of seasonality, Nestle uses a combination of capacity plans according to the demands hence fighting seasonality without affecting the revenues.

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