Most multinational target firms exist in a broad market for a long time because they tend to enjoy economies of scale. Mercedes Benz is one of the target companies that specialize in the production of high priced cars that are meant mostly for rich people. Below is an overview of Mercedes Benz Company based on various considerations.
History of the Company
Mercedes Benz Company was started by Karl Benz in the year 1889 in Stuttgart, Germany, as one of the multinational firms specializing in the manufacturing of high brand luxury automobiles. The Company produced its first vehicle in 1926 immediately after Karl Benz merged with Daimler to form one firm earlier that year. The Company is well known for its quality and durable products, most of them being high priced and luxurious. Mercedes Benz firm extensively uses high innovation and technology in the production of its automobiles since the 1930s after producing the model by the name 770. Perhaps, the Company by 2018 was estimated to have produced about 2.3 million vehicles globally.
Supply and Demand Conditions
Mercedes Benz firm has a broad market since it occupies various countries in the world, and it’s among the firms that have a good reputation for the production of durable and quality automobiles and hence high demand for its products. Moreover, the price of the Company’s products is very high, and therefore the target customer includes rich people in various parts of the globe. The income of the company increases with an increase in demand and hence sales. Mercedes has been receiving direct completion from Volkswagen and BMW, who offer close substitute products, however, due to customers’ preference, the Company has remained the best provider of luxurious products over the years with the USA as one of the markets which lead in terms of demand. The price of Mercedes Benz products is always high, and it’s expected to keep rising even in the future with respect to other similar companies such as BMW.
Price Elasticity of Demand
Mercedes luxury vehicles experience price elasticity of demand in that it exists in a market where substitutes such as Jaguar and Porsche exist. An increase in the price of Mercedes cars may lead to a reduction in market share, and a reduction in price will lead to gain in market share. Some customers believe in high prices of Mercedes cars, and a reduction in the price of the cars may make most of the customers opt for substitutes from other firms that are highly-priced. Mercedes cars being the most luxurious vehicle makes customers build a positive reputation about the prices, and therefore keeping prices high will maintain some customers. Besides, changes in prices of Mercedes cars and products will affect the quantity demanded in that some customers will buy the product upon reduction of the price while at the same time the others, especially the rich, will opt for other high priced vehicles upon reduction of prices for Mercedes brands. This, therefore, constitutes to price elasticity of demand.
Cost of production
The Company experiences both fixed and variable costs in terms of production of goods and services. Income or revenue of companies like Mercedes is arrived at after consideration of expenses and costs used in production. Besides, Mercedes Benz’s firm has recorded an increase in revenue in 2019 with a balance sheet from 281.6 billion Euros to 302.4 Euros. Furthermore, as per the 2019 financial statement, the Company was able to reduce expenses and cost in order to arrive at the meaningful output. Mercedes has been able to produce millions of cars by 2018 due to its high innovation aiming at minimizing the cost while maximizing the output. However, the cost of production of most modern Mercedes cars ranges between 2 million dollar s and 2.5 million dollars and hence high market price in order to generate profit.
In general, Mercedes Benz firm is adopting a strategic market structure aimed at maintaining the high reputation of the company by providing various models of products that are always advertised through social media. The ability of the company to remain relevant and reliable has been contributed by its pricing strategy, as well as the quality and durability of its products, preventing more start-ups due to high competition. Being among the best producer of luxurious cars, Mercedes has relied on rich people to achieve some of its long term goals.