In reality who is going to bargain for a brand new Mercedes-Benz?.
The threat of potential new entrants:.
The markets that Mercedes-Benz operates in are characterized by economies of scale, where as the level of sales increase unit cost decreases. This poses a major barrier to new entrants. Also Mercedes-Benz has a wide range of cars to jeeps and each of them are different as they know their customers and also offer special levels of after sales service which also create barrier to new entrants.
Capital requirements are high in the car manufacturing industry, for a new entrant it would require huge amounts of investment in technology, plant, distribution and service outlets. .
Over the long established existence of Mercedes-Benz, customers have become loyal, in general, a customer who previously bought a Mercedes, will buy another and the same applies to a BMW customer.
As mentioned above Mercedes-Benz has distribution channels globally, so that customers are able to view new models, and make purchases of Mercedes-Benz products. .
Daimler-Benz knows the car market extensively well and has confidence in its operation due to its expertise. This too causes a barrier to new entrants.
Finally government policy has a major effect on new entrants. In Mercedes-Benz case it holds good relationships with government for obvious reasons such as employment and contribution to the German economy.
The threat of substitutes:.
Over the last few years Toyota has managed to introduce its way into the luxury car segment. How it has accomplished this is not a miracle, simply the above mentioned barriers to new entrants don't all apply to Toyota as it already held plants and had already entered the US and European markets with the Toyota brand. What Toyota did with success, is it introduced Lexus, high-end luxury sedans and coupes. This did pose some threat to all the luxury car producers because Lexus offers everything that a Mercedes-Benz, a Jaguar, a BMW etc offers at a lower price.