Volvo Business Analysis

The Scandinavian automobile manufacturer founded in 1927 in Gothenburg, Sweden, Volvo, got its name from the conjugated form of the Latin verb, volvere which means I roll. The vision of the company was to produce cars that could withstand the cold weather and rough roads in Sweden. Taking thins challenges in consideration, Volvo decided to create the safest car in the world, this becoming their trademark ever since.

The car manufacturer became renowned for creating stodgy cars lacking in design also called boxes on wheels. By conducting a PEST Analysis and taking in consideration Porters Five Forces the company could identify and overpass the external challenges that they could face in future.

Kotler claims in 1998 that PEST Analysis is a strategic tool used for understanding of the market growth or decline. The PEST Analysis studies the political, economical, social and technological factors including competitors and the standpoint of the company. This business analysis used in addition to Porters Five Forces models can be applied to Volvo to review its market position and create the new marketing planning. Porters five forces have shaped a generation of academic research and business practice. With prodding and assistance from Harvard Business School Professor Jan Rivkin and longtime colleague Joan Magretta, Porter here reaffirms, updates, and extends the classic work. He also addresses common misunderstandings, provides practical guidance for users of the framework, and offers a deeper view of its implications for strategy today.(Michael E. Porter, The Five Competitive Forces That Shape Strategy, The Magazine, January 2008)

Political

Like all other automotive companies, Volvo is facing the same new higher taxation on trades and the constant increasing regulations on the car industry but also the higher and higher pollution taxation. Another political factor that influences Volvo is the impact of globalization which brings the regulations to the same level in every country which makes the car manufacturer lose its small advantages in some countries. Globalization means that the biggest multinational car manufacturers, like Toyota who is becoming the worlds largest and successful automotive manufacturer, or the well renowned Mercedes-Benz are going to dominate the market. As the governments around the world are starting to give new laws on the protection of the environment and environmental protection acts such as Clean Air Act, the whole automotive industry has been affected, this implying Volvo as well having a stronger effect over the Swedish car manufacturer because of its big sized cars and not so fuel-efficient engines.

Economical

The major economical problem that Volvo, but not only, is facing now is the big and continuous rise in the fuel prices. Because of the high oil prices, all car manufacturers have something to lose because people are going towards cars that are consuming fuel as little as it could possibly be, but Volvo is lowering its performance more than the others again because of the less fuel-efficient engines and big cars. Another economical factor is the

economic crisis which affects the car manufacturer by collapsing its sales, and the best example is USA, where is the Volvos biggest market with sales equating to 19.5% of total sales. The economic crisis reduced the sales in USA by 31% because the market is focusing on eco-friendly alternatives rather than large SUVs like Volvos XC-90. In all the developed markets the growth is flat or it is more of a decline than a growth but in emerging markets such as Asia, Volvo has good prospects.

Social

Taking in consideration the big shift in the consumers preferences from a luxury, large engine cars to fuel-efficient cars, Volvo lowered its sales. The car manufacturer is also losing on the European market because the typical owner of a Volvo was a middle-aged, part of a family with a 2.5 kids and nowadays, in Europe, there is a decline in the number of families. The attitude that the customers have towards Volvo has been changing due to the awareness of the car industry business. Volvo current market segmentation is not leading to sales growth.

Technological As Stewart Brand was saying Once a new technology rolls over you, if youre not part of the steamroller, youre part of the road. Volvo is part of the steamroller just in safety matters, becoming the best, as their trademark states, but not far away, being followed by Renault. Looking at the Swedish car manufacturers technological breakthroughs as a whole, they became the road because of not understanding the need for the other features of the product, like fuel-efficiency, eco-friendly, advanced features which had

become the centre of attention in the market. Volvos competitors managed to understand the upcoming technology and included in their cars features as Night-View Assist at Mercedes or Windshield GPS Display from BMW, which raises their car sales. Volvo did not take in consideration that the society depends on technology even if they do not understand it, as the astrophysicist Carl Sagan states We live in a society exquisitely dependent on science and technology, in which hardly anyone knows anything about science and technology..

Michael Porter created a framework for the strategic business managers willing to develop more than their rivals and to understand in which the company operates in an easier manner because an industry is influenced by five forces, such as Existing Rivalry, Bargain Power of Customers, Bargain Power of Suppliers, Threat of New Entrants and Threat of Substitute Products.
Supplier Power Supplier Concentration Importance of Volume to Supplier Differentiation of Inputs

Threat of New Entrants Barriers of Entry Absolute Cost Advantages Access to Inputs Governme

Threat of Substitutes

RIVALRY

Switching Costs Buyer Inclination to Substitute

Being one of the strongest brands in car industry, after reports on 31 March 2011, Volvo had 91.595 employees and 17.322 temporary employees and consultants. Compared with the figures in 2010 (90.409 employees and 14.851 temporary employees and consultants) there is an increase which grants the Swedish car manufacturer great flexibility. Volvo became an international car manufacturer so now they have car factories or assembly plants all over the world, making its presence in over 120 countries. The most important are the factories in Sweden, Belgium and Netherlands but for their international development the Swedish company is also helped by other units such as those in Canada, Australia, Chile, South Africa, Thailand and Malaysia. Volvo cars are being sold through a network of 2400 dealers, most of them being in Europe, 1500 and in USA 400. The car manufacturer does not have a very wide product range but it includes cars from the small-family class (Volvo C30) to the big SUV class (Volvo XC90). Volvo tries to reach all the markets by introducing the turbo-charged hardtop coupe C70, the mid-luxury car S80 and the compact executive car S60. Keeping their trademark Volvo does not let go to their safest family car XC70. Being on such a wide market as the car industry means Volvo has part of a fierce competition. The biggest rival the Swedish car manufacturer has is Toyota, but also having other key competitors such as Mercedes-Benz, BMW, Volkswagens Audi and General Motors SAAB.

The car industry faces a great turmoil because of the impact of globalization, increasing regulation, growing environmental/energy concerns, rising fuel prices, manufacturing overcapacity, pressure on margins and changing socio-cultural influences. Because of all this impediments the threat of new entrants is not so big but it is, so Volvo being followed by the well renowned car manufacturer, Renault, which has also integrated safety as an important feature of their cars, have to offer to their customers something new. Because of the small market share held by Volvo in comparison to its competitors, their bargaining for supplies power is reduced. Buying less than the rivals confers them a higher price for the supplies which induce the higher selling price of their products, but they have a great advantage because Volvo runs under Ford Motors and by buying supplies together they obtain lower prices for their supplies. The customers power comes from standardized and undifferentiated products as Porter theorized. Offering the same products as competition confers the buyer the power of choosing the most attractive product taking in consideration the features, price, services and availability. Volvo tries to meet all their customers requests by offering a car for every class but being smaller than its competition (Mercedes-Benz, Toyota, BMW), they have fewer choices and higher prices. Big breakthroughs in cars technology and changing in market trends cause Volvo sales decline, customers being able to buy a car from the same class but with a better price and more features or a car with a fuel-efficient engine from other brands. By not improving its models the Swedish car manufacturer remains behind, the customers having the

availability of alternatives creates the general substitution which is able to reduce the demand for a particular product, so the Threat of Substitutes is very high at Volvo. Operating in a mature, flat market where the competitors are about the same size or even bigger with almost the same strategies and with not so much differentiation between companies and their products, Volvo is in disadvantage because of its less innovative ideas and not so accelerated development comparing to its competitors. Having less sales than the other car manufacturers in the market, the Swedish car manufacturer does not have so much information based on its customers feedback so communication with consumer Ritz is smaller than at their competitors such as Toyota which is accruing large amounts of consumer information. A Volvo car is unaffordable for a common man taking in consideration the smallest starting price being 17.545 for their smallest class, Volvo C30, which is higher than the price from its competitors on the same class such as the Audi A1 which has a starting price from 13.640. The Swedish car manufacturer has to introduce a car model that is affordable to the middle class people but offer at least as their rivals are offering at the same price. In this market penetration strategy they have to reduce the cost of the substitute for their competitors models on the same market so they can reduce the price of the product and increase sales. The development market strategy at Volvo is evolving, Volvo trying to extend on other markets where until now they were lacking in sales. The market penetration strategy may not be the best strategy for Volvo because of the external challenges that Volvo faces such as higher prices for complimentary goods and environmental protections laws, which changed the customers preferences. Because of this Volvo should adopt another strategy to raise their sales. The car manufacturer should offer volume discounts

and create wholesale pricing for companies looking to expand their car fleet, but also create seasonal prices or discounts for early payments. Another missing strategy at Volvo that would increase their income is bundling. Compared to its rivals such as Mercedes-Benz, Audi, BMW or Toyota who force the buyers to buy more features for their cars just by creating packages and not allowing customers to add one feature without another, Volvo is lowering its income by allowing buyers to select features on their own. The Swedish car manufacturer discovered that in the developed markets people afford to buy a premium car for the same price as their own, so they started extending in other markets such as Asia, being the only market where they increased sales from 2007 to 2008, for example in China where in 2007 they have sold 12.460 cars and in 2008 they managed not only to keep the same sales but even improve them to 12.640 cars while on the other markets such as United States the sales suffered a significant 33% decrease. Being under a unique dual-partnership with Ford Motor Company, Volvo has the chance of reducing costs warehousing, distribution centres or transportation. But being in this partnership has more advantages for their Place from Marketing Mix Strategies. Not only that they reduce costs by working with Ford Motor Company, but also they make customers of Ford take a glance, just out of curiosity, at their cars. By using an indirect channel of distribution, Volvo gains much more sales because customers being able to buy cars in more ways from more places. The distribution strategy should be an exclusive one because is the most suitable for car sales through exclusive dealers. A very important marketing activity that every company must take into consideration is the management of the companys marketing mix which is composed of four major elements: product, price, promotion and place. The conditions that a business

must meet in order to create the right marketing mix are as follows: the product must have the right features and meet the costumers needs and expectations, the price must be in accordance with what they are selling and also with the competitors price, the product must be in the right place at the right time and the targeted segments of the market must be aware of the firms products and their availability at all time through promotion. Volvo products managed to comply with the Founders Assar Gabrielsson and Gustaf Larson expectation in 1927. Cars are driven by people, they said, Therefore, the guiding principle behind everything we make at Volvo is and must remain safety. Over time, other values have been added to the Volvo brand identity quality, innovative design, and environmental sustainability and each has made its mark on the company and its products. Safety features like anti-lock braking systems, collapsible steering columns, front and rear crumple zones, energy absorbing bumpers, side-impact protection systems, threepoint seatbelts are all features that appeared first in Volvo cars. Also the company long-term vision is to design cars that wont crash reflected in the shorter-term goal that by 2020, no one will be killed or injured in a Volvo car. Although safety is one of the most important features in the car manufacturer industry, because of the costumers changing trend and desires, Volvo products become out of date and inferior to those of the competition (Toyota, Audi, BMW, etc.) especially in features like fuel-efficiency, best performance, ecofriendly, styling, reliability, handling and value for money, which are all vitally important. Volvo could consider a product development strategy, where a new product is introduced in the current market also new features of the product which make it different from the competitors. This strategy takes into consideration the changing trends and requirements of the costumers and this could lead to a growth. If they manage to produce cars that are up to

date with the new trends of the industry they will increase their sales and also could lead to differentiation among the completion. Volvo benefits from the shared research and development department of Ford Motors, being its subsidiary, therefore an investment in the future product development is easy and can help Volvos products to meet all the requirements of the demand of its costumers which will lead to a rapid growth for the business. Volvo should even perform certain product development programs and innovations in flexi-fuel cars, cars that are currently distributed only to some geographical areas. Also they can make improvements in the distribution channels for these cars so they can be found to all the 120 countries that the firm operates. The focus of Volvos sponsorship since 1970s have been sports events such as Volvo Youth Sailing ISAF World Championship that complement its core target market, Volvo golf tournaments directed to their main target, a middle age costumer, Gothenburg Horse Show, and cultural events such as the Gothenburg Symphony Orchestra and the Gteborg Opera. In addition they are among the sponsors for The Swedish Ship Gtheborg. They also offer sales promotions for example for the thrilling Volvo S60 sports sedan, one of their best products, which can be bought in a pack of 10 with a starting price of $149,999, also associated with the well know movie Twilight through an advertising campaign. The investment in advertising should increase proportionally with the technological upgrades of their products, conducting a budgetary process on the available resources. The best strategy and most profitable for Volvo to choose would be the product development strategy because the car manufacturer lacks in models and features that meet the customers needs and demands. This strategy is the most suitable for Volvo also because of the challenges they are facing such as big competition or fuel price rising. Being under a partnership would not allow Volvo to create and distribute cars as they will which

also indicates to the best choice they have at the moment, product development strategy. Having a not a very well evolved promotion strategy would be too expensive to invest in a promotion strategy rather than investing in the developing of products. By managing to develop all other features of their cars, the Swedish car company would achieve many goals, such as those from the VOLVO 2020 program where they promise to reduce fuel consumption and become more eco-friendly. Managing to do this they will become the safest car in the world, as the two founders Assar Gabrielsson and Gustav Larson stated about Volvo Volvo.For Life, but not only because the safe environment it confers to the driver but also for nature because of its eco-friendly, fuel-efficient engines.

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