Imagine You Are An Analyst For A Major Car Manufacturer ✓ Solved

Imagine you are an analyst for a major car manufacturer. You need

Imagine you are an analyst for a major car manufacturer. You need to write an email that discusses whether or not the company should attempt to expand its car line into a new space -- sporty cars aimed at the active lifestyle consumer. Currently, there are 2 other major car manufacturers making this type of car. You think that your company can develop, design, and produce the car for an average cost of $25,000 per car. Right now in the market, the average price of this type of car is $35,000.

Given what we have learned about market structure, write a brief note discussing whether or not the company should enter the sporty car segment of the market. In your answer, be sure to make any assumptions explicit and consider the market structure of the car industry as well as the potential response of competitors. Feel free to draw any diagrams of models you feel will help explain your ideas, but be sure to explain all the economic concepts clearly.

Paper For Above Instructions

Subject: Proposal for Entry into the Sporty Cars Market

To: [Recipient's Name]

From: [Your Name]

Date: [Today's Date]

Dear [Recipient's Name],

I hope this message finds you well. As asked, I have conducted an analysis regarding the potential for our company to diversify into the sporty car segment aimed at active lifestyle consumers. This analysis takes into account current market conditions, our production capabilities, and competitor dynamics.

Market Structure Overview

The car manufacturing industry is characterized as an oligopoly, with a few dominant firms controlling a significant market share. In our case, we have identified two major competitors within the sporty car segment. In such an oligopolistic market, firms must consider not only their pricing and production strategies but also how competitors may react to any market changes.

Cost-Benefit Analysis

Our projected production cost for a sporty car is approximately $25,000, while the average market price for such a vehicle stands at $35,000. This gives us a potential profit margin of $10,000 per vehicle sold. Assuming we are able to capture a reasonable share of the market, this could result in substantial revenue. For example, if we manage to sell 10,000 units within the first year, that equates to $100 million in profit before overhead costs.

Assumptions

1. Demand Elasticity: I assume the demand for sporty cars is relatively elastic, meaning that price changes could significantly affect demand levels. An entry at the calculated cost could make our offering more attractive compared to competitors.

2. Brand Strength: Our brand’s reputation for quality and reliability will play a crucial role in appealing to consumers in this segment.

3. Market Growth: The sporty car market is expected to grow as consumers increasingly seek performance-oriented vehicles aligned with an active lifestyle. This trend is evident in various studies indicating a rising preference for performance-oriented cars among millennials and Generation Z consumers.

Competitive Responses

Given the two existing competitors, entering this market segment could provoke aggressive responses. These could include:

  • Price Competition: We may see our competitors reducing their prices to maintain market share, potentially leading to a price war.
  • Increased Marketing: Competitors may ramp up their advertising efforts to strengthen brand loyalty.
  • Product Improvements: Existing brands may enhance their vehicle features to outshine our offering.

To counter these potential responses, it is critical that our strategy includes not only competitive pricing but also superior marketing that emphasizes our unique selling propositions, such as sustainability, advanced technology, or customizable features.

Strategic Recommendations

Based on this analysis, I recommend that we move forward with developing our sporty car line while considering the following strategies:

  • Conduct thorough market research to identify specific consumer preferences and price points.
  • Invest in marketing campaigns that highlight the uniqueness of our vehicle, appealing to adventure-seeking consumers.
  • Monitor competitors closely to preemptively address any strategic moves they make in response to our market entry.

Conclusion

Entering the sporty car segment appears to be a promising opportunity for revenue generation and brand expansion. However, it requires careful planning, strategic pricing, and effective marketing to navigate the competitive landscape of the oligopolistic car market. With our current production capabilities and leveraging our brand identity, we can successfully penetrate this market.

I look forward to your feedback and discussing our next steps in this strategic initiative.

Best regards,

[Your Name]

[Your Job Title]

References

  • Porter, M. E. (2008). "The Five Competitive Forces That Shape Strategy." Harvard Business Review.
  • Baye, M. R. (2010). "Managerial Economics and Business Strategy." McGraw-Hill/Irwin.
  • Schmalensee, R. (1989). "Inter-Industry Studies of Structure and Performance." In: Handbook of Industrial Organization.
  • OECD. (2020). "OECD Economic Outlook." OECD Publishing.
  • IBISWorld. (2021). "Car Manufacturing in the US - Market Research Report."
  • Statista. (2021). "Automotive industry - statistics & facts."
  • McKinsey & Company. (2021). "The Future of Mobility: How the Digital Revolution is Reshaping the Automotive Industry."
  • MarketWatch. (2021). "Active Lifestyle Consumer Trends in Automotive."
  • Pew Research Center. (2020). "The Future of Car Ownership."
  • J.D. Power. (2021). "2021 U.S. Automotive Brand Loyalty Study."

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