Industry analysis
Industry choice
I have selected the Salvage Auto Industry because it plays an integral role in making the rejected vehicles useful. For example, I interacted with this industry when I took my friend to purchase a salvage Audi at Insurance Auto Auctions. They explained that the vehicles were good and had passed the state inspection.
Intra-Industry Rivalry
On a scale of 1 to 10, I would rate the intra-industry rivalry in the Salvage Auto Industry as eight due to intense competition. One of the reasons for the high competition in this sector is the existence of exit barriers (Kreps, 2019). A company is likely to incur losses if they decide to leave the market. As a result, most of the exits are mostly through bankruptcy. The other reason is the high number of competitors in the market. When the concentration of sellers in the market is high, there is a likelihood of intense competition and a threat to the organization’s profitability.
Potential Entrants
On a scale of 1 to 10, I would rate the potential threat to entry into the industry as 2. This means a low threat of entry to the market from new competitors. This is because the existing companies like Insurance Auto Auctions have acquired great wealth through steady revenue. This gives the incumbents a cost advantage against the new entrants (Kreps, 2019). The experience-based advantages of the existing companies also play a role in the low threat of new entrants.
Bargaining Power of Buyers
I would rate the threat to the industry by bargaining of buyers as 9 on a scale of 1 to 10. The buyers in this industry have high bargaining power because the buyers can find a substitute for industry products. Customers have the ability to purchase non Salvage vehicles in the market. The bargaining power is high due to the few dominant customers and many sellers (Kreps, 2019). As a result, they can dictate terms and conditions for sellers. In addition, the prices in the market are negotiated between buyers and sellers.
Bargaining Power of Suppliers
On a scale of 1 to 10, I would rate the bargaining power of suppliers to the industry as 5. The suppliers are unable to price discriminate among prospective customers in the market. The supplier’s bargaining power is moderate because of backward integration by buyers. There are many suppliers in the market compared to buyers (Kreps, 2019). However, the companies in this industry depend on suppliers for rejected vehicles to make Salvage vehicles.
Substitute Products or Services Produced by Other Industries
On a scale of 1 to 10, I would rate the threat of substitutes to the industry as 8. The availability of a close substitute in the market, such as non-salvage vehicles. If substitutes are more reasonably priced, consumers may be more likely to switch products (Kreps, 2019). In addition, this can act as a constraint on how much a company can raise its own product’s price. Any efforts to price products higher than substitutes may result in consumer migration and profit loss.
Anticipated Changes
In the next 3-5 years, buyers’ bargaining power will shift from high to low due to an anticipated increase in the number of buyers. In addition, as conversations on conserving the environment continue to rise, the demand for Salvage vehicles is expected to grow. This means that there will be more buyers in the market compared to sellers.
Segment-Specific or Niche-Specific Differences
Customers who are unable to afford new vehicles are the target of companies such as Insurance Auto Auctions. This segment is a source of profit for the industry because they are the main customers. Since the bargaining power of the suppliers is moderate, companies in this industry can purchase rejected vehicles and transform them to meet the market demand (Kreps, 2019). Thus, companies can provide their customers with vehicles at affordable prices.
Competitive Advantage
Company
The company that I have chosen for this assignment is Insurance Auto Auctions. I came across this company through my friend, who wanted to purchase a Salvage vehicle.
Type of Strategy or Competitive Advantage
Insurance Auto Auctions uses a product-leadership approach to achieve a competitive advantage in the market. The company majors in building a culture that brings superior products to the market. They ensure that the vehicles go through a state inspection before being taken to the market. The company believes that its success lies in being outstanding in the market by ensuring that the products meet the customers’ needs.
Sources of Competitive Advantage or Disadvantage
Different from its competitors, Insurance Auto Auctions, runs the primary activities itself. The company obtains vehicles declared unfit for use and makes them usable. In outbound logistics, the company reaches its customers physically and online. The company ensures that all customers are brought on board during the auction. In support of the product leadership approach, they perform all the operations themselves, and they can control the quality of the product.
Insurance Auto Auctions have heavily invested in its support activities to achieve its objectives in the market. They ensure that the support activities run effectively by focusing on its leadership. For example, the employees are treated fairly to enable work effectively. Furthermore, in support of the product leadership approach, the leaders ensure that all operations are geared towards delivering quality products and services.
Insurance Auto Auctions’ ways of performing primary and support activities do not undermine the product leadership strategy. Instead, the ways are geared at promoting efficiency in all business operations. For example, running the company’s operations enables them to check and eliminate errors constantly. In addition, the company ensures that only qualified employees are allowed to engage in the operations.
Sustainability/Protection of Competitive Advantage
The company uses physical resources, human resources, and social-capital resources to perform primary and support activities effectively. Human resources such as employees help the company make sure that the vehicles are acquired, transformed, and sold to customers. The company also uses physical resources such as a warehouse to store vehicles before customers purchase them. Social-capital resources such as leadership are used to ensure that the operations are running effectively to achieve the set goals.
All the company’s resources are mobilized to ensure a competitive advantage. With skilled employees and effective leadership, the company is set to attain its strategic goals. In addition, with automation and digitalization of operations in the company, they are able to eliminate errors and ensure the products are quality. The leaders also ensure that only qualified employees are involved in the process. As a result, the resources are used to achieve organizational goals and objectives.
The resources outlined are not scarce in the market because they can be acquired. However, the main challenge for a competitor to imitate the resources is the cost. A competitor must be prepared to spend a lot of money hiring qualified employees and purchasing equipment to perform the operations effectively. In addition, a competitor is required to develop a culture for quality products, which can take some time.
There is an appropriation risk that prevents the company from keeping the profit. If the sales of its products decline in the market, the company is forced to pay its employees and other bills for running its operations. The company also risks lawsuits if the products are still ineffective even after regeneration. Lawsuits are likely to drain the profit the company earned.
The competitive advantage is rarely sustainable because the company is vulnerable to factors that might affect its profitability. For example, in case of a decrease in sales because of economic and political issues, the company may lose its competitive advantage. An increase in demand for new vehicles also reduces the company’s competitive advantage. Reputational damage also has an adverse impact on its competitive strength.
Corporate-Level Strategy
Vertical Integration
The critical functions that should be performed in-house are acquiring rejected vehicles, transformation, quality checks, and hiring employees. These functions are effective because they directly impact the effective performance of an organization. In addition, any error in these functions, the company’s reputation is at stake. These operations also have a link to its product leadership strategy.
The less critical functions of the company are marketing and selling its product. The company can outsource a marketing team to handle its promotion. They can also outsource a sales manager to manage sales operations. Again, these operations can be trusted in the hands of outsiders.
Diversification
No, Insurance Auto Auctions have not diversified its operations. The other lines of business that the company can enter are automobile repairs and selling brand-new vehicles. This will enable the company to widen its customer base in the market. In addition, it will enable the company to earn more money, which adds value to shareholders. This opportunity can be created by exploiting core competencies such as available skill sets.
Reference
Kreps, D. M. (2019). Microeconomics for managers (2nd ed.). Princeton University Press, New Jersey.
