Better Future – Porter’s Five Forces

Threat of New Entrants

The threat of new entrants will be relatively low with the establishment of self-driving
vehicles. As of 2018, the biggest car manufacturers include of Volkswagen, Toyota, Ford Motors
and General Motors to name a few (Jha, 2018). All these manufacturers all have goals to achieve
autonomous driving vehicles within the next decade. The idea of autonomous vehicles is
relatively new which will bring out new manufacturers however, they will not have the
reputation of the trusted manufacturers who have been around for several decades. The high
start-up costs that poses a barrier to entry consists mainly of research and development costs. An
example of this would be Ford Motors, who invested $4 billion dollars into their new subsidiary,
Ford Autonomous Motors LLC, dedicated solely to the development of autonomous vehicles
(Korosec, 2018)

A new entrant to be aware of is Zoox Inc. who has created a vehicle from the ground up
having already invested $800 million and said to be valued at $3.2 billion (Vance, 2018). Zoox’s
prototype is unlike Google’s self-driving Waymo vehicles which are modified pre-existing cars
such as the Toyota Prius and the Audi TT (Waymo, 2018). They are eager to reinvent the
meaning of a self-driving car, a Zoox is said to operate bidirectionally, and features such as
message panels to communicate with pedestrians (Vance, 2018).

A big factor regarding the initiation of autonomous vehicles is safety regulations. After
the first pedestrian death involving a self-driving Uber in Tempe, Arizona, Uber suffered from
consumer criticism regarding autonomous vehicles (Shields, 2018). This could pose a major
setback for new manufacturers who are not yet equipped to handle the liability associated.

Threat of Substitution

The threat of substitution will be low in the autonomous vehicle manufacturing industry.
Autonomous vehicles will be a major convenience in the urban life as consumers may then
commute whilst performing other activities such as responding to emails, eating or even
sleeping. Substitutes to autonomous vehicles can include long-term modes of transportations:
planes, trains or, long distance buses, and short-term modes of transportation: city transit, mass
rapid transit also known as metro. Through all these modes of transportation, the commuter does
not have to actively participate in the operation of the vehicle which is a shared feature of the
autonomous vehicle. However, there is no perfect substitute for autonomous vehicles as they are
specific to the consumer. In other words, autonomous vehicles are able to get a person from the
initial starting point to their destination virtually at any point in time without the dependency on
another driver, or a schedule.

On the other hand, it is important to note that the autonomous vehicles may not be
adopted fast as they need to gain public trust. (Kaur et al., 2018). Therefore, non-autonomous
vehicles, the current product of car manufacturers, will be taken into account as a valid
substitute. This is especially true in the initial release of autonomous vehicles where the cost of
an autonomous vehicle is far greater than one operated by human drivers. For example, GM’s
model of self-driving bolt costs around $200,000 to build whereas the current, non-autonomous
Bolt has a market price of $35,000. (Welch, 2018)

Bargaining Power of Suppliers

The bargaining power of suppliers will be low with the introduction of autonomous
vehicles. Similar to the current auto manufacturing industry, raw materials such as iron and
petroleum will have a highly competitive market. There are many suppliers and paired along
with the anticipated success of the autonomous vehicle industry, suppliers will be eager to sign
onto contracts with manufacturers. However, since 1982, there has been a slow change in the
way materials are supplied. Now, “mega-suppliers” have been formed, which consists of the top
20 automotive suppliers. Instead of supplying the raw materials to then be transformed at the
manufacturing plants, mega-suppliers will take on the role to mass-produce automotive parts to
be sold to the manufacturer (Kallstrom, 2018). Since there are fewer suppliers, the mega-
suppliers have relatively more bargaining power.

Bargaining Power of Buyers

Bargaining power of buyers will remain high as customers have many options of
autonomous vehicles to choose from. 52 different automotive companies are already on the roads
in the state of California, test-driving their vehicle prototypes (Miller, 2018). Initially, the early
adopters of the autonomous vehicles will have less bargaining power as there will be only a few
models released on the market to choose from. The autonomous vehicles believed to hit the road
first are Google’s Waymo and GM’s (General Motors) Chevy Bolt (Welch, 2018). However, as
the autonomous vehicle industry starts to mature, customers will be faced with multiple options
which forces manufacturers to have a competitive advantage.

Another buyer that is expected to have a lot of power are businesses themselves.
Manufacturers are already beginning to compete in the business to business market. For
example, Amazon and Walmart are competitors in the retailing industry. To ensure that Walmart
does not fall behind, they have signed onto a contract with Ford Motors. The partnership
between the company is crucial for Walmart because 90% of Americans live within 10 miles of a
Walmart (Bigelow, 2018). Other companies such as restaurants, post offices, will also adopt
autonomous vehicle as shipping costs will be reduced by 50% using automated deliveries
(Naughton, 2018).

Rivalry amongst Competitors

Rivalry amongst competitors remains to be a high force in the auto manufacturing

industry. The simple reason is that technology is constantly changing and new features are
continuously being introduced. In the early stages of the autonomous vehicle, only few
companies will be competing in the market but it is certain that almost all current major car
manufacturers will be a threat soon. The high rivalry will lead to aggressive marketing strategies
and competitive pricing. Manufacturers must be aware of the intense rivalry and avoid price wars
since the investment into autonomous vehicle is already substantial.
 Better Future – Marketing Strategy

Segmentation

Segmentation is important for the autonomous vehicle manufacturing industry simply

because there is a general skepticism regarding the safety of a vehicle without a driver. In terms
of demographics, age and income are both methods of relevant segmentation for autonomous
vehicles.

According to Business Insider, in a survey of 1000 participants, only 63% would trust a
self-driving car. More specifically, the survey noted the difference between men and women, as
well as the different generations: Millennials, Generation X, and Baby Boomers (See Figure 1).
The generation most likely to adopt autonomous vehicles are the millennials whereas Generation
X are the least likely to adopt autonomous vehicles. The results show that different marketing
strategies must be used for different market segments. As previously mentioned, the fatal
pedestrian incident with an Uber autonomous vehicle raised many flags regarding the safety of
driverless cars. Consequently, manufacturers will have a harder time marketing to those of
Generation X and will benefit on focusing their marketing on millennials who adapt to new
technology in significantly less time (Gardner, 2018). As millennials start using the new
technology of autonomous vehicles, it is more likely that the percentage of trust in autonomous
vehicles will undoubtedly increase.

As cars are a big expense for most individuals and households, one’s income will largely
affect their decision making process when it comes to autonomous vehicles. Those who are
interested and can afford the newest technology will be eager to be the early adopters of the
autonomous vehicle. Audi, BMW, and Mercedes-Benz will have an advantage in this regard as
their customers are more affluent compare to their competitors’ (Tannert, 2014).

The establishment of autonomous vehicles will open up new market segments from the
current consumers of cars (non-autonomous). Those who currently do not own a driver’s license
will be able to be an owner of a car. For example, people with certain disabilities would be able
to own a car without having to operate it which would be impossible in today’s market.
Furthermore, depending on government laws, children may now be able to commute in a car
without their parents which would make parents a market segment. Being able to transport their
children with a trustworthy technology will be a serious change in the way families spend their
time.

Figure 1
Shields, N. (2018, March 20). Here is the potential Impact of Uber's self-driving car crash.
Retrieved November 24, 2018, from https://www.businessinsider.com/here-is-the-potential-
impact-of-ubers-self-driving-car-crash-2018-3

Targeting

Through the market segmentation analysis, it is clear that there are many different
segments to market, all with different needs and wants. Consequently, it would be most useful to
use multi-segment targeting which leads to a different marketing mix for each segment.

For example, the millennials. They are an anomaly compared to other generations
because they are much more brand aware. Further, the majority of automobile purchases are
made by millennials (Schroeder, 2017). The relevant personality traits include: tech-savvy,
sensitive to prices, and longer purchasing process. For manufacturers, this means that millennials
are interested and will be able to fully use whatever technology and features that are sold with
their product. This is important because, marketers will need to find out which features are
relevant to the needs of millennials. Because millennials are price sensitive, marketers will need
to market the value of their product. The most efficient way to add value would be to focus on
customer service (Alton, 2017). This can be done by customer post-purchase follow-ups or
comprehensive test drives.

Positioning

Brand positioning is crucial in the success of an automotive brand. In general, the

autonomous vehicle industry must position themselves as a better future. Currently, companies
such as BMW has positioned themselves as a car that is enjoyable to drive, whether that is free
maneuvers or accelerating and feeling the power of the engine (Schultz, 2017). However, with
autonomous vehicles, the new position that must be placed in a consumers mind is the freedom is
not being able to drive the car itself but the range of activities that can now be done without
having to worry about the road.

The Google-branded vehicle, Waymo has chosen to be an autonomous vehicle that is

“whatever you want it to be: a minivan or a sedan, an EV or an SUV” (Wayland, 2018). The
position that Waymo has taken on shows consumers that this vehicle is meant for every purpose
and for every consumer.

Tesla vehicles are known for their luxurious yet, environmentally friendly vehicles.
Teslas have become a status symbol known internationally. The autonomous feature will only
add to the luxury aspect that consumers admire and competitors envy (Team, 2015). Tesla’s
current positioning has led to exceptional brand loyalty despite their relatively low advertising
efforts (Rutter, 2014). Tesla’s success comes from a “grass-roots marketing approach” which is
simply the value of the car, the relationship with Tesla and the customer being passed through
word of mouth (Alvarez, 2018). Tesla is believed to sustain this brand loyalty into the new era of
autonomous vehicles.

Differentiation

In the manufacturing industry, there are many ways for a company to differentiate their
product and it is crucial that they do differentiate their products to have a sustainable advantage.
The most evident differentiator is the perceived class of the product, from high-class to economy
class. Companies such as Uber, Ford Motors, NuTonomy (Singapore), and Baidu (China) will be
mass-producing vehicles for robot-taxi services. On the other hand, high-end, luxurious car
companies such as BMW and Mercedes-Benz will introduce autonomous vehicles with the
newest technologies for individual users (Muiuo, 2017).

Another method of differentiation are the software features of the autonomous vehicle
which includes mobility services, safety features, GPS services, in-vehicle content and remote
analytics (McKinsey, 2016). An autonomous vehicle used for transporting children to and from
school to their extra-curricular activities will focus on in-vehicle contents such as educational
videos which will attract parents. On the other hand, autonomous vehicles used for driverless
deliveries may want advance GPS services and remote analytics.
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