Industry Assignment #2 Volkswagen AG Group Essay

Industry Assignment #2 Volkswagen AG Group - Essay Example Volkswagen with it's headquarter in Wolfsburg is one of the world's leading automobile manufacturers and the largest car producer in Europe. It operates 44 manufacturing facilities in 12 countries in Europe and in a further six countries in America, Asia and Africa. While the Company operates in two divisions, Automotive and Financial Services, our research is focused on its car manufacturing division. Volkswagen AG ('Company') is engaged in the manufacture and sale of automobiles worldwide. The Company's brands cut across different vehicle classes, from the top luxury class occupied by the Bentley, Bugatti and Lamborghini models, down to the bottom class where Skoda, Seat and Volkswagen are positioned. But the Volkswagen and Audi brands in particular cut right across the vertical class range. Each brand has maintained its own individual character and operates independently in the market. Its diverse range of brands gives the Company a critical competitive advantage. While it is difficult to track consumer habits in a rapidly evolving automobile market, price competitiveness will certainly remain a critical success factor. The mass-market consumers are likely to make product selections based on the price competitiveness, fuel efficiency and liberal credit availability. Valued-added features, more lucrative sales incentives to dealers, extended warranty coverage will emerge as some of the means to retain and increase market share in this extremely price sensitive market segment. Strategies of Volkswagen For many decades, Volkswagen was a classical single product mass manufacturer of Beetle brand; thus achieving a high level of inflexible and dedicated automation. In the late nineties, while the Company continued to focus on scale economies it changed its strategy from being a single product manufacture to a modern volume manufacturer offering a range of vehicles for different section of the market. A multi-brand strategy gives a clear market positioning. Volkswagen keeps adjusting its structure and strategies to cope up with the dynamics of car manufacturing industry. As per the Porter's 5 force model, the profit potential of an industry depends on the combined strength of the following five basic competitive forces: 1. Rivalry among existing firms 2. Threat to new entrants 3. Pressure from substitute products 4. Bargaining power of buyers 5. Bargaining powers of sellers According to Michael Porter, any company in any industry can achieve a competitive advantage through cost leadership, product differentiation and market segmentation. Volkswagen is a good example of proving Porter's theory. The Company has followed the strategy of product differentiation and market segmentation to achieve the competitive advantage. The following section highlights the strategies followed by Volkswagen to achieve its competitive advantage in the dynamic car manufacturing industry. Multi-Brand Strategy Volkswagen's brands cut across different vehicle classes, from the top luxury class occupied by the Bentley, Bugatti and Lamborghini models, down to the bottom class where Skoda, Seat and Volkswagen are positioned. However, each brand has maintained its own individual character and operates independently in the market. This multi-brand strategy enables the Company to generate economies of scale and to fill up price gaps and quality gaps