New Beetle

Case9 : New Beetle

EXTERNAL ANALYSIS

1. Market definition

New beetle is competing in the small size car industry in the US market.

2. Market size

In US market, the total of small car sales in 2,217,813 units, which is equivalent to 32 million dollar.

Market size in dollar term = 2,217,813 * ($11,035 to $18,000) = $ 32 million

In 1998, New beetle sales is 137,885 units, which is 6 percent of the market.

Market share in 1998 = 137,885 = 6 percent.

2,217,813

3. Market growth

The industry is considered to be in the position between the growth and maturity stage. Considering the innovation and continuous car developments are still taking place, there are still good signs for the growing factors. Moreover, the industry is less attractive to enter at the moment because of the already established industry. The car manufacturer is approaching the maturity stage of the industrial life cycle. However, based on the small car sales in 1996 (2,322,021 units) and 1997 (2,217,812 units), the market is declining by 4 percent.

Market growth = 2,217,812 - 2,322,021 = - 4 percent

2,322,021

4. Key Trends

* Socio-cultural: American consumers have ever-changing demands attitude and there is a trend of aging population. The baby boomers customer has a change preferences as they are changing preferences to larger cars-sedans, SUVs and pick-ups.

* Economic: During the 1970s, the appreciation of the Deutsche Mark against the dollar threatened to price VW's cars - most of which were low or mid range models - out of the market. The 1982 recession, drop in oil prices, and the declining popularity of hatchbacks contributed to the declining sales.

* Technology: In this industry, it is important to always keep up with technology in order to satisfy customer's demands. Volkswagen offered the benefits of German engineered cars, which are perceived as high quality cars. For instance, with the New Beetle, VW is keeping themselves up to date with today's car industry standards.

* Political/legal: As VW is an international car manufacturer; US government plays large intervention in importing the vehicles and parts from overseas. Thus, the US government can intervene the final price of the vehicles.

5. Industry Analysis (Porter's 5 Forces)

5 Forces Degree Rationale

Threat of Potential Entrants Low

 The barriers to entry and exit this industry are high due to high costs of research & development, experiences in the components of cars, technology innovation, customer loyalty as well as the capital investment. Hence, it is unlikely that any newcomer is able to achieve economies of scale in production and distribution. The existing intensity of rivalry between competitors builds up a high barrier to new entrants.

Bargaining Power of Buyers High

 Switching costs for alternative substitutes are moderate (there is considerably high involvement for buyers to choose between alternatives), there are many varieties in this industry for customers to choose from. Moreover, there are many products (including substitutes) that could provide the same benefits (usage) the buyers are looking for and cars are long lasting products.

Bargaining Power of Suppliers Low

 The raw materials used to manufacture cars are readily available from many suppliers such as shock absorber, sunroofs, spoilers, alloyed wheels, etc. Considering the large number of suppliers, as well as the ease for the competitors in the industry to switch suppliers, thus, the power of suppliers is low.

Threat of Substitutes High

 Different models and car brands are provided to suit the different needs and demand. The threats of substitutes of cars are any other form of transportation.

Intensity of Rivalry High

 There are a large number of potential competitors in the industry. Due to costly research and development and downward pressure on prices, the competitors are competing aggressively for market share to maintain their presence in the industry and avoid high barriers to exit. The market is in the Mature stage in ILC, and the prices between cars are extremely competitive.

In summary, from the analysis conducted above, it can be concluded that the industry is rather unattractive. Thus, it is vitally important for the car industry to pursue unique and sustainable competitive strategies that can monitor these five forces into their own favour.

6. Competitors

Direct Competitors:

* Domestic brands: Ford Escort, Chevrolet's Cavalier and Saturn, cumulatively sold over one third of the segment's cars, would be the New Beetle's immediate competitive set.

* Japanese car manufacturers: Toyota Corolla and Nissan Sentra, which held a 15.4% market share.

Indirect Competitors: Other car brands in US market, which are classified under the middle car, large car and luxury car.

7. Customer buying pattern

Who

Currently, Volkswagen supplies their cars to the dealers who later sell the products to end consumers. Therefore, their customers are dealers and end users.

What

Most of customers seek safety, models, speed, and performance in purchasing cars. Other factors that influence demand are the car quality, price, durability and personal taste and preference. Cars can take people from one point to another in a relatively convenient way and reasonably fast. Important buying criteria are the reliability of the brand, familiarity with the cars, customer's own perceived quality of the car, sensible pricing (special deals), good dealers networking and informative sales reps. Cars are generally compared on the bases of machine, the special features, distinct ability, level of innovation,