How Volvo Evolve in the Changing Market

BK 3037 strategical trade Question 1 PESTEL Answer Political One of the macro-environment factors which influencing Volvos scheme is the extensive taxation toward simple machinemotive trade by the government. Government is putt in place taxation structures that penalize large simple machines, with large carbon dioxide emission. According to the case, Volvos biggest seller was its XC range, now being in particular successful in America, where big cars typic solelyy equated to big success.This government acts is promote consumers to move to intercrossed or send away efficient cars from big cars because the merchandising imp nonement of big cars would be to a greater extent expensive when governments impose larger taxation on large vehicles. Consequently, the select for big cars would drop of importly as consumers would prefer littler cars due to spicy harm sensitivity aim and benefits gained from the government on sm every(prenominal)er cars (Yoon and Tran, 2011). on that pointfore, large taxation on large cars result make a motion the gross gross sales and r steadyues of Volvo who somely sells big cars. pictureual The enforcement of US government toward the in effect(p)r initiatives for railroad car manufacture has challenged most of the simple machinemobile take inr which intromitd Volvo. Therefore recently, Volvo garbed heavily in resort research and ontogeny its Goteberg Safety centre is land-renowned. Hence, Rudall (2011) emphasizes that the woo per unit of car has maturationd as research and development require a lot of experiments and tests to assure the performance. anyways that, research and development in new ingatherings involves a risk of whether the consumers go out like the new features that learn been added to the new or alert product.The much Volvo invests in research and development, the little cash flow they have in hand, on that pointby affecting the smooth running of daily operations. Economic i nunct is the major ingredient in the production of palls. According to Li and Zhao (2011), step-up in oil prices means that the cost to make the wearys also increases. These tire production affects the Volvo as the increase in the price in tire production affects their profit margin. Additionally, rising commodity prices also affects Volvos dodging as 1 BK 3037 Strategic merchandising he peeled materials for automotive industry argon basically rubber and steel. Since, the prices of these commodities have deceased up Volvo would have to spend to a greater extent cash to purchase the auto character to make the entire cars. The high ge arr the price Volvo purchases these commodities, the higher the merchandising price that Volvo would have to charge their guests. If they were to transfer the cost to their customers, thither is a possibility that customers would shift to Volvos adversarys as customers argon very price sensitive (Lee and Cheong, 2011).Hence, the sales and pro fits of Volvo will declivity and they might turn a loss market place circumstances. Moreover, with the rising price of oil in the American market, sales and r purgeues of Volvo has dropped dramatically because their main care comes from burn level grueling SUVs. With the increasing fuel prices, the trend has shifted from bulky cars to smaller and fuel efficient cars, thus, Volvo will be faced with many competitors much(prenominal) as Toyota while dealing with substantive their customer demand (Hilmola, 2011), and and then, it affects the profit margins of Volvo.Moreover, increased oil prices is affecting the flake of vehicles demanded by the customer and the way those vehicles are designed. According to Xia and Tang (2011), since there is a big shift from SUVs to fuel efficient or hybrid cars due to the rise of fuel prices, the problem of manufacturing overcapacity has ascertainred, where supply is more than than(prenominal) than demand, thereby, aggressively droppi ng the SUV price. Additionally, when Volvo freeze offs down the selling price of SUVs, the profit margins of each car will become smaller, as their selling price might full be sufficient to cover the total cost of the production.Besides, when supply is more than demand, they would need more space or bigger warehouse to investment firm the cars, and hence, higher cost of storage would incurred. Consequently, it forces Volvo to change their schema to produce fuel efficient cars quite of SUVs. Environmental Furthermore, the community realizes that the charmation sector is decorous increasingly linked to environmental problems. With a engineering relying heavily on the combustion of hydrocarbons, notably with the internal combustion engine, the oppositions of transportation over environmental systems has increased with motorization (Bernon, et al. 2011). According to case study, Volvos main scheme is to produce SUVs just now the consumers are engaging with environmental concer ns where they are 2 BK 3037 Strategic marketing demanding from fuel-efficient cars that release less pollution and lease lesser fuel. Hence, this forces Volvo to offer Flexi-Fuel (combination of Petrol and Ethanol) in certain geographic markets in order to catch up the latest trend. Due to this reason, Volvo has to spend commodious amount of money to purchase new raw materials and develop the technology to produce fuel-efficient cars to meet the current demand.Under such conditions maintaining market share and customers is difficult as the selling price ask to be lower to beat the competition, thereby, forcing Volvo to absorb the production costs (Needles, et al. , 2010). Social On the some some other hand, the changing social culture is affecting Volvos strategy as rise up. There are declining birth rates in Europe, smaller families and more couples choosing to remain childless. This demographic change has influenced Volvo significantly as their main product, SUVs, as it is suited well for big-size families.However, due to the increase of nuclear families consumers are free to purchase smaller cars because of their small family size and smaller cars consume less petrol, thus it barelys cost (Gwartney, et al. , 2008). In addition, many cars on the road at present are used by just single occupants, commuting to work. Hence, the socio-cultural changes affect Volvo caper strategy as the demand for SUVs is declining but demand for smaller and fuel-efficient cars is increasing. Besides that, they have to invest a big amount of money to do research and development for fuel-efficient cars in order to debate with Toyota for market share.Baumol and Blinder (2011) emphasizes that heavy R&D will lead Volvo to incur higher cost of production and profit margin will decline as they cannot sell the cars at a high price since to their competitor (Toyota) is offering reasonable price for fuel-efficient cars. Technological Technological factor plays an of import ro le in automotive industry because consumers always demand for correct(p) and higher quality technologies in their cars so that the technologies can help consumers to save petrol, bring greater convenience to them, and ensure their safety (Hage, 2011).Based on the case study, Volvo took the first step as the pioneers of the safety cage, crumble zones, side-impact protection, antilock brakes, thong protection, and airbags. As the first mover, Volvo is able to 3 BK 3037 Strategic merchandise enjoy great profits sooner their competitors come out with the corresponding technologies but with lower prices or better quality (Aswathappa, 2005). Hence, Volvo would have to invest heavier in R&D to develop innovative technologies that create the safest most enkindle car experience to customers. Additionally, Volvo also needs to invest in R&D for fuel-efficient cars as it is the current of the market.If Volvo fails to produce hybrid or fuel-efficient cars with a reasonable price, they wil l lose market share due to competitors are offering customers with the demanded products (fuel-efficient cars) (Schwartz, et al. , 2010). Heavy R&D is required from Volvo and at the same time they cannot charge higher prices, and hence, the profit margin of Volvo will be smaller. 4 BK 3037 Strategic Marketing Question 2 Five Forces framework Answer Five Forces framework included the dicker tycoon of supplier and buyer, holy terror of substitute, threat of new starters and mogul of rivalry. any changes from any of the forces will bring huge impact to an industry. As the world is going to global, competition arise and it make the five forces framework even more competitive and it affect the global go market directly. dicker power of buyer Bargaining power of buyer are referring to the talks power or influencing power of the buyers toward the prices charge by a companionship (Jones and Hill, 2010), the buyer of the gondola company may refer to the end exploiter of the polit ical machine. As year by year, there are more and more new players joining the market of car.One of the reason contributes to high talk terms power of buyer is low exchange (Jones and Hill, 2010). As times past, there are more and more players join to the automobile industry. For example, U. Ss automobile market shares which used to dominate by the Big triplet (Ford Motor Company (Ford), General Motors Corporation (GM) and DaimlerChrysler (DC)) had been taken over by foreign brands such as Honda, Toyota and Mitsubishi in 2005 (Gopal, n. d. ). Hence, this provides larger range of choices for the consumers and this makes the buyers have high negociate power toward the industry.Since there are more choices in the market, consumers dependance toward the particular brands will decrease, as the product does not get together the customers expectation, they might switch to another brand with low or even non switching cost. For example, as according to research, the sale of new car in U. S market has increase, as people are willing to liquidate for better quality cars (Gopal, n. d. ). The world now is moving to the environmental chummy site, thus, most of the automobile firms are facing challenge by switching their focus from big car, large engine to fuel-efficient engine.Beside, due to the availability of information, buyers straightaway are more educated and they are very concerning about the effect of the automobile to the environment and this has comparatively increase their bargaining power as buyer. For example, there are more than 100 type of motor magazine in the market 5 BK 3037 Strategic Marketing which provides authorized and sufficient information for consumers (Gopal, n. d). Since the switching cost of the buyers is low due to the angered competition, buyers brand loyalties have decrease.Bargaining power of supplier Bargaining power of supplier is referring to the negotiation power of the supplier for the business which may include supplier of human resource, supplier of raw material, and other outsourcing partners (Jones and Hill, 2010). For the auto component supply industry, the bargaining powers of suppliers are relatively low, as there are many for sale suppliers of raw materials in the market, the switching cost of the cars maker to other suppliers are low or even none.For example, large automobile makers such as GM, Ford and Toyota have backbreaking bargaining power as they always purchase the raw material in large quantities (Jones and Hill, 2010). The sizes of auto components are typically small (Ahmadjian and Lincoln, 1997), meanwhile the big players are able to use the threat of manufacturing a component themselves rather than buy it from auto component suppliers to played off suppliers against each other, forcing them to lower down the price and increase the quality (Ahmadjian and Lincoln, 1997).Hence, we can say that the bargaining powers of auto component suppliers are relatively low. Unlike air line in dustry, which the air line are super depend toward the suppliers, automobile manufacturers such as Toyota, Honda or Volvo, it has own research and development department (R&D) which helps in exploring all the latest technology. It contributes in lowering down the dependency toward the suppliers as suppliers unless involve in supplying raw material instead of important technologies as like Boeing (air plane manufacturer) and other air line.Hence, in short, the bargaining powers of suppliers are relative low as the low dependency toward the suppliers and the threat of switching to other suppliers always work as a strong bargaining tool for the automobile manufacturers. Threat of Substitution This refers to the product of contrary businesses or industry that can satisfy similar customer needs (Jones and Hill, 2010). For automobile industry, due to the increasing 6 BK 3037 Strategic Marketing number of customary transport and other way of transportation, the demand toward automobile has gone down.For example, as according to research, at present people might exact to take public transport as their daily transport instead of own private car due to cost and environmental fill outs (Eboli and Mazzulla, 2008). Beside as government is placing pressure toward the environmental issue, public transports are being well develop day by day (Eboli and Mazzulla, 2008), and it actually decrease the dependency of owing a private car. In addition, as the social-culture has changed, people nowadays are unwilling to give birth and hence it decreases the willingness of consumer to own a car.As according to research, the birth rate of developed countries such as Japan, Korea and State are relatively low and it actually affected the some(prenominal) industries and this included automobile industry (Powell and Hendricks, 2009). In this case we can rid that only small part of the automobile industry are highly affected by the substitution, however, for those high life brands such as Volvo, BMW or Audi, their bum markets are hardly affect by the improvement toward the public transport (Svensson and Wagner, 2011).In short, the threat of substitution toward the automobile industry is not high as it merely affected those below middle-income. Threat of New entrant New entrant may refer to capability competitors that are not currently competing in an industry but have the capability to do so if they choose so (Jones and Hill, 2010). As refer back to the case, the automobile industry has facing increasing deregulation this had furrowed down the submission barrier for new entrance.For example, Volvo needs to compete with not only the local anaesthetic market players but also the Asia market player such as Toyota since there entry barrier of foreign brands to the local market had been broken down. As more new entrance coming into the market, the switching cost of the consumer from one brand to another brand is even lower than before (Che and Seethu, 2008). Hence, there deregulation may affect partly of the industry but not whole. Firstly, setting up a new automobile manufacturing company requires huge capital injection which decreases the willingness of new player to enter the industry.This may due to the high risk of huge capital injection and hence potential companies dare not to grab the opportunity. Beside there are already few strong players in the automobile manufacturer industry such as GM, Ford, Toyota and Honda, which have 7 BK 3037 Strategic Marketing already gain certain economic of scale in term of buying large quantity of auto components (Xia and Tang, 2011), and this had build barrier of entry for potential players. In short, the threat of new entrant is low as it is high risk business.Rivalry among established companies It refers to the current struggle between companies in an industry to gain market share from each other (Jones and Hill, 2010). For automobile industry, the rivalry is intensified due to the high exit co st and the industry demand. As mentioned earlier, the set up cost of an automobile manufacturer is relatively high and hence this has created exit barrier. Hence, even the business of an automobile manufacturer is bad it will still lock into the industry where overall demand is static or declining (Jones and Hill, 2010).For example, GM, had struggled in the industry for more than 8 days due to declined sale, because of the high exit cost, it had been locked within the industry (Terlep, 2011). Besides, the declining demand from customers as mentioned earlier had contributed to intensify the rivalry as well. As consumers are reluctant to buy a new car due to environmental issue or declining birthrate, it actually forcing the automobile manufacturers to play off against each other for larger market shares (Eboli and Mazzulla, 2008).Hence, we can conclude that the rivalry among the established companies of automobile industry is intensified due to the declining demand and high exit cos t. 8 BK 3037 Strategic Marketing Question 3 Answer There are many different brands of vehicles. As to stand with one nucleotide crossed in front of the other competitors, Volvo has adopted the focused specialisation strategy (Dinitzen, 2010). A focused differentiation strategy is aimed at a niche group of customers with unique tastes (Schermerhorn, 2010). The cars produced by Volvo are targeted at a niche market of safety conscious upscale families.These upscale buyers of Volvo are those who value Volvos reputation for durability, and are willing to pay high dollars for this Swedish brand of luxury. Volvo has differentiated their cars by adding additional features that are not available on other cars. Their cars are known as extremely safe cars for families due to the design, which its innovation in car safety enhancements, being pioneers of the safety cage, crumble zones, side-impact protection, antilock brakes, whiplash protection, and airbags, as stated in the case.One primiti ve means of differentiating Volvos cars is through its research and development department to produce cars model that exude quality, performance and safety which emphasize on creating luxury automotive brand for family sector. This can be seen from the case that the model of XC90 is well-designed with a large SUV and the price range from ? 33,000 to ? 54,000. However, Volvo continually develops and adds new features that increase value to customers.Some recent innovation of Volvos that differentiates their products is Volvos sporty hatchback S30 which the engine and brake system of the S30 is designed differently from any thick-skulled executive hatch class cars in existence and is destined to compete against high-end versions of VWs Golf. This shows Volvo attempted to broaden their target market by attracting junior drivers to their car marque (The Sydney Morning Herald, 2007) and Volvo sees their future as delivering safe, subsidy and exciting driving suitable for families.At the same time, Volvo has reached a level of maturity, by providing a better balance between sportiness and comfort, and also achieved high level of safety. Besides victimisation focus differentiation strategy, Volvo should use differentiation strategy with a little of expansion strategy. A differentiation strategy depends on developing resources that set the companys offer apart in a way that is meaningful and difficult 9 BK 3037 Strategic Marketing to duplicate (Lowy and Hood, 2004).This can be achieved through keeping ahead(predicate) of competition, satisfying customers wants and also expectations better than business rivals (Moynihan and Titley, 2001). Volvos cars consist of those attractive features which meet customers exact demands in terms of rider comfort, driving safety and total economy. This enables Volvo to sell their cars at a premium price and satisfy the unique needs or preferences of customers (Hills and Jones, 2007). Furthermore, people are becoming more consciou s about what they are buying, and are more environmentally and safety conscious too in todays trends (Aarts, 2010).This means that quality work is a crucial part of all areas in their global organisation from product development and design to purchasing, manufacturing, sales and service. Therefore, Volvo should expand their products and focus on product innovation that developing product features that customer value to prevent eroding the current market and increase overall sales and profits (Hunt, 2003). This is to ensure that in case the existing market for the type of product that Volvo offers is already saturated and there are convenient ties to other product types.This strategy helps reduce overall business risk by offering products in a variety of customer categories. With this, Volvo may build up a brand name that evokes the cutaneous senses of safety and luxury in an expanding market base. The uniqueness of Volvo may change the company from competitive rivalry and reduce c ustomer sensitivity toward price increases. Consequently, these will increasingly affluent public and they will become more famous and trusting of automotive industry. 10 BK 3037 Strategic Marketing Reference List Aarts, L. (2010) Feeding People. United Kingdom Academy Press. Aswathappa, A. 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