Audi Case Study

[pic] EVALUATE A COMPANY’S COMPETITIVE POSITION AND MARKET POTENTIAL IN THE GLOBAL ECONOMY CASE STUDY: AUDI [pic] Team members: 1. NGUYEN Ngoc Khanh Chi 2. NGO Thi Nam Phuong 3. HUYNH Thi Bich Son 4. NGUYEN Truong Thinh 5. CHAU Ngoc Son Vu 6. DOGIELSKI David 7. NGUYEN Quoc Tuan TABLE OF CONTENT I/ FRAME WORK (Thinh)4 A. IDENTIFY THE STRATEGIC BUSINESS UNIT WITHIN AUDI AG4 B. SELECT SBU AND MARKET FOR THIS SBU4 C. SELECT PERIOD OF TIME FOR THIS SBU’S MARKET4 II/ ANALYSE COMPETITIVE POSITION AND MARKET POTENTIAL5 A. DEFINE THE COMPETITIVE SCOPE (Thinh)5 B. EVALUATE THE INTENSITY OF THE COMPETITION (VU)7 1.Determine the phase of the life cycle of the auto industry. 7 2. Competitive topology8 3. Entry barrier9 4. Evaluate competitive intensive10 C. EVALUATE THE COMPANY’S COMPETITIVE POSITION AND ITS MARKET POTENTIAL (PHUONG)10 1. Diagnose the company’s strengths and weaknesses using the value chain10 2. Benchmark the company performance by comparison with the industry leaders13 III/ MAKE RECOMMENDATION FOR COMPANY DEVELOPMENT14 A. PROPOSE A GENERIC STRATEGY (PORTER 1980) (DAVID)14 1. Diffentiation or Cost Leadership? 14 2. Industry wide or Particular Segment? 15 B. SELECT AN INTERNATIONALIZATION STRATEGY (SON)15 . Select an internationalization strategy15 2. Audi 2010:16 3. Audi 2015: keeping and improving the same strategy16 C. STUDY THE RELEVANCE OF A COOPERATION STRATEGY (CHI)17 1. The current situation of Audi AG’s symbiotic marketing strategy:17 2. Recommendation for Audi AG’s symbiotic marketing development:17 D. PRESENT A MARKETING PROCESS (TUAN)20 1. Market segmentation:20 2. Target marketing strategy20 3. Position the company and/or product21 E. GIVEN MAIN ORIENTATION FOR THE MARKETING MIX (TUAN)21 I/ FRAME WORK (Thinh) A. IDENTIFY THE STRATEGIC BUSINESS UNIT WITHIN AUDI AG Potential SBU |Organization profile |Industry mode |Demand dimension |Supply dimension | |Compact car |special skill |Most of the parts bought through |city-dwellers |Specialized | |(A1, A2, A3) |decentralize |VW’s central purchasing unit |entry level |Direct competitor (Mini, DS3)| | | |(benefit from economy of scale) |single | | |Medium car |special skill |high quality part only |luxury consumer |Specialized | | |decentralize | |Direct competitor (BMW, | | | | | |Mercedes) | |Big car |special skill |high quality part only |luxury consumer |Specialized | | |decentralize | | |Direct competitor (BMW, | | | | | |Mercedes) | |Sport car |Special skill |High quality part only |Young, excited, sportive hobby|Differentiation focus | | |Centralize | |Very niche market |Direct competitor (BMW, | | | | | |Mercedes) | There is no different for medium-sized car and big-sized car SBU so Audi is segmented into three SBUs: i) SBU 1: premium compact car ii) SBU 2: premium car (medium- and big-sized cars) iii) SBU 3: Sport car B. SELECT SBU AND MARKET FOR THIS SBU ? SUB: SBU-2 premium car ? Market: China market C. SELECT PERIOD OF T IME FOR THIS SBU’S MARKET Product life cycle of a premium car is about 4 year and today is 2010 so we will study in the period of time: 2010 – 2015 II/ ANALYSE COMPETITIVE POSITION AND MARKET POTENTIAL ? The Macro Environment of Chinese automobile industry analysis: PESTEL framework |Opportunities |Threats | |Political |Political stability |Entry mode regulation: joint-venture with < 50% | | |WTO |shareholding for foreign partner | | |Policy to encourage the automobile industry |High import tariff to protect domestic industry | | |development | | |Economic |Economic booming, high GDP growth, rising disposable |Rising oil price | | |income ( car purchasing power increase |Economic downturn | |Social |Large population |Culture difference between Western and China | | |Chinese like to buy luxury product to show their | | | |success | | |Technological |Chinese puts high effort on research and development |   | |Environmental |Green car |   | | |Low fuel consumptio n | | |Legal |   |Law is not very clear | | | |Lack of transparency | | | |Intellect right is not respected highly in China | A. DEFINE THE COMPETITIVE SCOPE (Thinh) Way of gaining C. A |Many |Fragmented Industry |Specialized industry | | |Few |Dilemma industry |Volume industry | |   | |Small |Big | |   | |The size of C. A | The number of way for Audi to gain the competitive advantage is many through the complexity of the product. It also has great advantage in technology, innovation, high quality of service. So Audi selects the specialized industry. Key Success Factor | |2010 |2015 | |High technology & innovation |Stronger | |Top service |Stronger | |Adaptation |Stronger to meet local customer expected | |Brand equity |Stronger, do not enter price war | ? Industry analysis Poster’s Five Forces – China Market P5F |2010 |2015 | |Threat of Entry |High threats: |Weak threats: the same | | |High profit market attracts new firms |High threats: same 2010 plus: | | |China is in its developing phase of automobile |- Hyundai, Tata (acquired the Jaguar and Land | | |life-cycle |Rover brands), Geely (Chinese firm) (acquired | | |Attracting policy for FDI |Volvo) will move to this segment. | |Weak intellectual property laws |Sump up: high threat for new entrance | | |Weak threats: | | | |High investment for set up mass production | | | |facility | | | |Germany firm and Audi itself is very strong and | | | |reputation | | | |Regulation ambiguous | | | |Regulation about environment ==> increase R&D cost| | | |Sump up: moderate threat for new entrance | | |Threat of Substitutes |Used car: weak |Weak | | |Public transportation: weak | | | |Switching cost: high | | | |Sump up: Weak | | |Bargaining power of buyer |Backward integration: low |Bargaining power of buyer is moderate | | |Switching cost: low | | | |Buyer independence: moderate | | | |Buyer size: moderate | | | |Sump up: bargaining power of buyer is weak | |Bargaining power of supplier |Utili zing VW network (economy of scale): |Weak | | |bargaining power of supplier is weak | | |Market competitor |  Moderate |High | [pic] B. EVALUATE THE INTENSITY OF THE COMPETITION (VU) 1. Determine the phase of the life cycle of the auto industry. Most of the Western car market enters into saturation stage. In Europe and USA, specifically there is a high â€Å"motorization rate† (car per family and car per persons) and the demand is almost entirely constituted by replacement purchase. In reverse, China market just come to development stages with blooming in sale. In the year 2010, at the first time, China market reaches nearly the same ratio with Germany. [pic] Source: Audi (2010) Annual Report, p. 132 2. Competitive topologyIn order to build competitive topology, we choose 2 most KSF of Audi in Chinese market: Market penetrative level and Brand Equity. [pic] Volkswagen Group, the owner of Audi, is one of the earliest automobile manufacturers has production in China. In 1991 , FAW and the Volkswagen Group decided to set up a joint venture under the name ‘FAW-Volkswagen Automotive Company† to manufacture of the Audi 100 model. This early penetration in Chinese market help Audi get a big advantage of knowing exactly Chinese consumer, customize its designs to cater to Chinese tastes. The two main other competitors, BMW and Mercedes manufactured in China quite late (2004 and 2006) when Audi already had a strong position in China local market.According to researcher IHS Automotive, the market share of Audi by 2010 is 31% while Mercedes and BMW is only 21% and 21. 6%. [pic] Source: IHS Automotive China already generates the fattest profit margins for German luxury carmakers because customers in China typically purchase higher-end models than buyers in the U. S. or Europe do. Slowing economy and rising fuel prices have led to a glut of cars in Chinese showrooms this year, forcing dealers to cut prices. Among luxury brands, Audi still keep the high price and prevent to joint into price war while other especially, Mercedes has been offering the steepest discounts, according to car pricing website cheshi. com.With the high price level, Audi prove their strong position in China market which focuses on the level of product to show up their social position. 3. Entry barrier a. High technology, costly to R. While German automotive industry already built up a high standard quality, high technology feature, it take a lot of effort for rising up competitors from Korea as Hyundai to catch up the high-tech race and R need to be invested a huge money b. Strong brand recognition of German car â€Å"With anything in China, the first mover gets more,† Thomas Callarman, director of the Center for Automotive Research at the China Europe International Business School in Shanghai said that.This is true to automotive industry; people are just more familiar with Audi. It will take a lot of time for another competitors to build up the brand recognition to China market especially the one not come from Germany. That make Audi have a unique advantage that make any other competitors very difficult to follow, that is the time. It has a strong position brand name in China market in a very long time for premium car. c. Bottleneck in the production and distribution. By 2015, Mercedes plans to double its annual production capacity in the world’s biggest automobile market to 200,000 vehicles annually, though that won’t be enough to keep up with its rivals.BMW plans to quadruple potential output to 400,000 and Audi is seeking to more than triple capacity to 700,000 by the middle of the decade. This will make Audi keep the advantage in distribution car to customer in the shortest time if compare with other. 4. Evaluate competitive intensive As China market is booming, the distance between each strategy group is not so closed. The strategic freedom is medium; there is always chance for other to join into higher group. However, the entry barrier at this period 2010-2015 seem difficult for other groups to move to higher, we can conclude that the Competitive Intensive is medium mean each strategy group is chasing each other aggressively but the chance for all to get market share is the same in this blooming market. C.EVALUATE THE COMPANY’S COMPETITIVE POSITION AND ITS MARKET POTENTIAL (PHUONG) 1. Diagnose the company’s strengths and weaknesses using the value chain |VALUE CHAIN |STRENGTH |WEAKNESS | |Research and Development |No information | | |Design of Products, Services,|(++++) | | |or Processes |Audi has always introduced the newest technology to China with worldwide standard | | | |apply for Audi. | |Production |(+++) |(-) | | |Manufacturing of Audi in worldwide | | | |[pic] | | | |New assembly hall in China | | | |Together with the Chinese joint venture partner China FAW group corporation | | | |(Changchun, China), Audi AG opened a new assembly hall at the Chinese production | | | |plant in Changchun in fall 2009. The long-wheelbase version of Audi A4 & The Audi A5 | | | |are now built there to the same high standards that apply throughout the Audi | | | |production system worldwide.The addition of a new hall has boosted the location’s | | | |manufacturing output to 200,000 cars annually | | |Marketing & Sales |(+++) |(-) | | |In fiscal year 2009, the Audi brand delivered 950 thousand vehicles to customers | | | |worldwide, down 5. 4% on the previous year. In Western Europe, sales figures fell by | | | |11. 8%. The downturn on the US market was 5. 7%, which was less than the figure for the| | | |market as a whole. By contrast, the brand recorded a significant growth rate of 32. 9%| | | |on the Chinese passenger car market. | | |AUDI BRAND | | | |   | | | |   | | | |   | | | |   | | | |   | | | |   | | | | | | | |   | | | |   | | | |2009 | | | |   | | | |2008 | | | |   | | | |% | | | | | | | |Deliveries (thousand units) | | | |   | | | |950 | | | |   | | | |1,003 | | | |   | | | |–5. | | | | | | | |Vehicle sales | | | |   | | | |1,183 | | | |   | | | |1,275 | | | |   | | | |–7. | | | | | | | |Production | | | |   | | | |924 | | | |   | | | |1,022 | | | | | | | |–9. | | | | | | | |Sales revenue (â‚ ¬Ã‚  million) | | | |   | | | |29,840 | | | |   | | | |34,196 | | | |   | | | |–12. | | | | | | | |Operating profit | | | |   | | | |1,604 | | | |   | | | |2,772 | | | |   | | | |–42. | | | | | | | |as % of sales revenue | | | |   | | | |5. 4 | | | |   | | | |8. | | | |   | | | |   | | | | | | | |China is the largest foreign market of the company, there was an appreciable rise in | | | |the volume of deliveries of 32. 9% to 158,941 Audi vehicle demand for the long | | | |wheelbase models developed specially for the Chinese market, the Audi A4 L, & A6 L, | | | |was particularly high in the year under review.The Audi bra nd consequently cemented | | | |its leading position in the Chinese premium segment last year | | |Distribution |(+++) |(-) | | |146 local franchisees by the end of August 2009 | | |Customer Service |(+++) |(-) | | |Audi CSI Ranking is 836 in comparison with middle point is 817 | | | |[pic] | | | |Source : J. D. Power Asia Pacific Reports 2009 | | 2. Benchmark the company performance by comparison with the industry leaders Thanks to its generic strategy, Audi is now the leader in delivering premium ars to customers in China market (source: â€Å"Audi in China† – Audi China President report, 2012) Audi image in China market [pic] III/ MAKE RECOMMENDATION FOR COMPANY DEVELOPMENT A. PROPOSE A GENERIC STRATEGY (PORTER 1980) (DAVID) 1. Diffentiation or Cost Leadership? As Audi has chosen â€Å"to target a clientele which can be characterized by its high incomeLevel†, the best strategy to adapt in the generic strategy is Differentiation Strategy: – â€Å"Aud i seeks to differentiate itself from its competitors through the technological superiority of the models it sells and by the quality of the service offered, which applies to all dealerships, everywhere in the world†. |Advantages |Disadvantages | |Cost Leadership |Mass production |Brand seen as cheap and low cost | | |Customer less requiring about quality | | |Differentiation |Good Image of the Brand |Expensive to produce | | |Customer less sensitive to price |Need to have always a good quality production| PRODUCT QUALITY : Audi wants to apply the same standards at the international level in order to build a uniform brand image and respond to the demand of a mobile clientele. 2. Industry wide or Particular Segment? The target customer segment is not really price-sensitive. In China, the purchasing power is low but a fragment of the population is able to buy an Audi Car. However, it is not a particular segment like Rolls Royce or Ferrari. Audi’s target is the rich Chines e class, and so we chose Industry wide. |Advantages |Disadvantages | |Industry wide |More potential customers |Brand not seen as the best existing | | |A large quantity produced, economy of scale | | |Particular Segment |Brand seen as very special |Not possible to make scale economy | | |Customer not sensitive to price |Few potential of customers | Audi was the first â€Å"premium segment† manufacturer to produce vehicles in China, in 1988. It gives an advantage on the Chinese Market, and a leadership position compared to its competitors. B. SELECT AN INTERNATIONALIZATION STRATEGY (SON) 1. Select an internationalization strategy i) Evaluate the advantage and drawbacks of the adaptation policy and the standardization policy: | |Advantages |Drawdown | |Final Sale Made in Germany |Costly (Labor costs in Germany is very | | |Protect know how |high) | | |Quality control |Risky | |Foreign Direct Investment |Saving cost |No made in Germany | | | |No profit before long term | ii) Pr opose an internationalization strategy: transnational strategy |GLOBAL STRATEGY |TRANSNATIONAL STRATEGY | | |Audi 2010 and Audi 2015 | |INTERNATIONAL STRATEGY |MULTINATIONAL STRATEGY | 2. Audi 2010: TRANSNATIONAL STRATEGY AUDI â€Å"Premium† Brand (2010 and 2015)Principle Market: Germany, Europe (not including Germany), Emerging Markets (China, Russia), United States. Reference norm: Global Developmental logic: Standardization and Adaptation (Apply the same standards at the international level) Principal modes of internationalization: Exporting, International Joint ventures and Owned Subsidiaries. 3. Audi 2015: keeping and improving the same strategy With transnational strategy, it will help Audi create competences of global relevance, responsiveness to local condition and innovation and learning on an organization –wide scale. It responds specifically to the challenges of globalization and tends to have a high proportion of fixed responsibilities in the horizontal l ines of management.If it is to work, the transnational structure must have very clearly defined managerial roles, relationship and boundaries. That means, Audi should adopt the geocentric orientation. The employees are recruited from all over the world, so that the best people are recruited to solve global problems. Audi will have to try to develop both global differentiation and global integration between headquarter and foreign subsidiaries. The focus is therefore to gain the potential advantages of an integrated company, and to gain the advantages of differentiation in product offerings. The alignment between Transnational Strategy and Audi’ profile is below: |Concentrated decision making power |Dispersed decision making power | |High interdependence between | |Transnational Strategy | |activities | | | | | |Geocentric Orientation | |High interdependence between | | | |activities | | | C. STUDY THE RELEVANCE OF A COOPERATION STRATEGY (CHI) 1. The current situation of Audi AG’s symbiotic marketing strategy: |LATERAL COOPERATION |OUTSOURCING COOPERATION | |(Alliance) |(Sub-contracting) | |None. POLYTEC GROUP to manufacture some of Audi’s engine components for Audi | | |A4, A6, A8†¦ | |CORRELATION COOPERATION |ELECTRIC COOPERATION | |(Co-branding) |(Sponsoring/New products) | | | | |A â€Å"Bose HiFi Audi car†: customer can enjoy a high-quality sound |Movies sponsoring: | |system provided by BOSE in Audi cars. |Audi sponsored â€Å"Iron Man 2† and created the â€Å"Tony Stark Innovation | |Audi’s Google-enhanced navigation system (Google Map, Google |Challenge† contest. | |Street View, Google Navigation). |Audi sponsored â€Å"Knight and Day†:  Tom Cruise and Cameron Diaz drove the | |Apple’s button on steering wheel or in the dashboard of Audi cars |S5 Cabriolet. | |for connecting to Apple’s Siri-based â€Å"Eyes Free† solution (coming |Sport sponsoring: | |in 2013. |A udi Cup 2011 with 04 famous soccer teams: Bayern Munich (GER), AC | |Audi – UNICEF joint programs in several activities: emergency |Milan (ITA), Barcelona (SPN) and SC International de Porto Alegre | |giving, fund-rising (esp. in China market) |(BRA), of which three first teams are members of Audi's international | | |soccer family. | | |Bayern Munich's basketball team joined the football players in flying | | |the flag for Audi brand. | |Charity donation: | | |Emergency giving: During China's 2008 Sichuan earthquake emergency, | | |Audi donated US$2,205,107 for UNICEF’s relief effort and long-term | | |recovery needs of children. | | |From 2005, Audi sponsored a fundraising project ‘Audi Driving Dreams’ | | |in China, to support UNICEF efforts to provide children with access to | | |sports, recreational activities and a variety of activity-based | | |lessons, through which they can realize their fullest potential within | | |society. | |Envir onmental activities sponsor: | | |AUDI AG provides backup for the â€Å"Oak Forest† research project with the | | |Bavarian State Forestry and the Chair of Forest Yield Science at the | | |Technical University of Munich | (Source: Audi annual report 2011, UNICEF website, Audi website, Polytech website) 2. Recommendation for Audi AG’s symbiotic marketing development: Alliance cooperation: Currently, Audi does not have any kind of alliance with other partner outside Germany (except for a joint venture FAW-Volkswagen Group set up in China).Audi AG is a strong and well recognized brand name for premium high-end car, so in this time it is important o maintain the high homogeneity of their standard and image by ‘standing alone’ and not with an alliance with other automobile makers. Outsourcing cooperation: Besides outsourcing engine parts and car interior parts, Audi should outsource their customer service to the local service providers. Outsoaring such serv ices such as customer care and/or car maintenance-repairing service is not only provide Audi owners the standardization quality of Audi services worldwide; but also provide the customized local values, especially in important foreign markets such as U. S, China, or Great Britain. Correlation cooperation:By co-branding with leading names in other industries, Audi will continue to confirm its premium quality of the automobiles, for example, high-quality sounding system from BOSE, or Audi’s Google-based map and navigation. This collaboration will provide a convenient and interesting driving experience to the Audi owners. [pic] An Audi-Bose sound system & speaker inside an Audi A4 (Source: internet) Electric cooperation: For Audi, electric cooperation such as sponsoring for social activities, especially in their important market such as China or U. S, is very important not only for marketing strategy but also for showing their commitments to the development of the society.Audi sh ould involve more in many kinds of social activities as recommended below: ? Blockbuster movies production (Hollywood movies) ? Sport games / sport tournaments (such as Olympic Games, FIFA World Cup, UEFA Euro Cup) ? Charity donation & fund raising event (such as UNICEF fund for children, or poverty relief funds) ? Music event (such as Beijing Music Festival, Audi Summer Concerts ) ? Environmental activities (such as forest research program) ? Safe driving campaign (together with the local government) Participating in such above activities will prove the commitment of Audi AG about corporate social responsibility (CSR) towards the society.Those activities would also bring back the good result to Audi: supporting to penetrate Audi image to the market, increase the goodwill of people towards the company, and bring them the potential customers in the future. D. PRESENT A MARKETING PROCESS (TUAN) 1. Market segmentation: | |China |Western Europe |NAFTA |JAPAN |Central eastern Europe | | | | | | |and South America | |Automotive industry |Growing |Maturity |Maturity |  Maturity |Growing | |trend, demand and |Stagnation |Stagnation |Stagnation | | |production | | | | | | |Competitors |New competitors coming |Traditional |Traditional |Traditional |Traditional competitors | | |due to emerging process |competitors |competitors |competitors | | 2. Target marketing strategy From the market segmentation and information, China is most attractive market (consist of 13. 5% of global market) in front of Central Eastern Europe (9. % of global market) and South America (7% of global market), Western Europe (market maturity, decreasing demand), NAFTA (market maturity, decreasing demand), Japan (market maturity, decreasing demand). Therefore, Audi should target to maximize their volume of products, new products and profit in China Market and Central Eastern Europe (including Hungary market) and South America. On the other hand, Audi should also maintain their position, products i n the other markets to control their traditional competitors. Audi should adopt the selective specification strategy while the several marketing mixes are implemented in different segments. The same product is marketed differently in different segments. 3. Position the company and/or product Perceptual (Positioning) map: [pic] E. GIVEN MAIN ORIENTATION FOR THE MARKETING MIX (TUAN) P(Product) |Create new models of car with innovative technology (brand new). | |P (Price) |Economies of scale and try to use maximum advantage of supporting from Volkswagen Group to have maximum | | |savings in production. | |P(Distribution) |Coverage maximum China market and central eastern Europe and south America and try to maintain market in | | |remaining areas. | | |Joint venture and/or 100% subsidiaries approach should be considered. | |P (Promotion) |Enhancement of personalized customer service. | |Attend every professional trade shown in every market area, especially in China and Central Eastern E urope;| | |South America. | ———————– Fit and Finish Serviceability Reliability Name [pic][? ][lmnorsvw†¦Ã¢â‚¬  Ã¢â‚¬ ¡? e? O?  ©?  ©Ã¢â‚¬ [email  protected]$JIhJ5OJQJ^Jh$JIho5h$JIhJ55? OJQJh$JIhuF? 5? OJQJhuF? 5? OJQJhJ55? OJQJ(j{:h$JIhA OJQJU[pic]mHnHu[pic](h$JIh ±-N5? B* CJOJQJaJphâ‚ ¬Ã¢â€š ¬(h$JIhA 5? B* CJOJQJaJphâ‚ ¬Ã¢â€š ¬(h$JIhirM5? B* CJOJQJaJphâ‚ ¬Ã¢â€š ¬h$JIhAConformance to Specifications Durability Performance AUDI BRAND IN CHINA Features 31% Audi BMW 21. 6% Mercedes 21% 21% Other 2004 Brand Equity High High Low Market penetrate level