Question

Discussion: (Minimum one page is required)

This Discussion is on emerging submarkets in the fast food industry and creating alternative responses. We also discuss competition in the high growth markets of sports drinks and electronic PDAs. This discussion is also on the future of the fax machine and scenario analysis on hybrid/alternative fuel automobiles.

Please answer all questions associated with the discussion. Some are opinion-based and just require that you weigh in with your thoughts or perspective.

Scenario: Hybrid cars will continue to improve and take 15% of the automotive market in a few years. Analyze it from the point of view of an energy company like Shell, a car company like Mercedes (who makes diesel cars) and Chrysler (who does not).

Answer 1

Scenario: Hybrid cars will continue to improve and take 15% of the automotive market in a few years.

Hybrid cars improving to take up 15% perfect of the automobile market would mean that the share of pie would decrease for energy companies and companies that only manufacture cars that run on fossil fuel. However, to see the net effect of this change one has to consider the change in size of the pie. The share of the pie or in other words the size of the automobile industry in developed nations will be nowhere near 15% (usually between -1 to 2%). However, the growth rate in a developing country like India can far exceed the 15% at which hybrid cars are expected to grow. This means that for companies invested in fossil fuel or automobiles running on fossil fuel can mitigate the risk of losing market share to hybrid cars by concentrating on the right markets. On the other hand, a company invested in hybrid cars can ride the wave and establish itself as a leader in the up and coming hybrid car market.

The threat or opportunity at the doorstep of an energy company like Shell, a car company like Mercedes and a company like Chrysler would be very different from each other.

Shell:

It is logical that energy companies like shell will face business threat if Hybrid vehicles continue to grow, however, technology and production capacity of hybrid vehicles cannot keep up with the current rate of growth. A lot of hybrid car demand is fueled by incentives offered to the customers on purchase. This incentive too is not sustainable in the long run. In absence of mass production capability for hybrid cars, keeping up with the ever-competitive automotive industry pricing will be difficult. Thus, the threat to energy companies like shell is present but not imminent. A real threat will not materialize for decades. This would give an energy company like Shell enough time to invest in other sources of energy. Especially with the financial muscle possessed by energy companies, this gradual shift in business model over time will not be a huge challenge. Companies like Shell will have to take a broader view of business. They can no longer be just an Oil company. A truly energy company will produce any energy that will run the cars.

Mercedes:

The threat to Mercedes is more than what is faced by Shell. The customer base of Mercedes will have the financial prowess to move to Hybrid cars easily. Switching cost is unlikely to be a deterrent for their customer base. The two options available are 1) Innovate to retain current customers while maintaining existing growth rate or 2) Combine current competency with hybrid vehicle manufacturing capability to jump ahead of the time. Both the alternatives are equally tricky and come with their unique set of challenges. However, should Mercedes decide to enter the Hybrid cars market, it has the potential to leverage its existing brand and blow competition out of the water. Also not entering the hybrid cars market would mean allowing current players to have a free run at capturing the up and coming market. Even though quantum leap from petrol/diesel vehicles to hybrid vehicles is unlikely to happen overnight, a car company like Mercedes will have to start immediately to ensure it does not arrive too late to the party. The mantra should be to pitch itself as a master when it comes to cars and not diesel cars only, thus projecting hybrid cars as just a type of car would help Mercedes win customers.

Chrysler:

A company like Chrysler has to capitalize on the early mover advantage. It is easy to understand that as the hybrid car market continues to grow more and more players will enter the market. The company has to be ready to switch from blue ocean mindset to red ocean mindset at the right time. Chrysler’s focus has to be on capturing as much market as possible before the honeymoon period ends. As opposed to Mercedes Chrysler will have to project how hybrid cars are very different from diesel cars and needs a particular set of expertise to create the best in class hybrid cars. The aim would be to create a niche and establish itself as the undisputed leader in hybrid vehicles.