CURRENT MARKET CONDITIONS COMPETITIVE ANALYSIS
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ECO/365 Version 4
Principles of Microeconomics
Learning Team
Current Market
Conditions Competitive
Analysis
Imagine you are part of a strategic planning group at a large corporation that is considering developing a
new proposed product. The marketing director has asked your team to do a competitive market analysis to
determine the product’s potential success. The analysis will focus on your primary competitor in the
product’s market.
Select a potential competitive organization and a product in that organization.
Write a 1,400 – 1,750-word paper of no more than analyzing the current market conditions. Address the
following topics:
A short history of the competitor organization (a real firm) and a description of their product.
Factors that affect demand, supply, and equilibrium prices in the market in which the competitor
organization operates: Define the market for your chosen product, including an analysis of its competitors,
potential customers, or potential buyers.
Any issues or opportunities your organization or industry faces that affect its competitiveness and
long-term profitability with regards to your product: This may include, but is not limited, to the following
elements.
o
Price elasticity of demand
o
Technological innovation
o The relationship between the amount of labor & capital employed and the law of diminishing marginal
productivity
o
Cost structure
Factors affecting variable costs, including productivity and others that change the supply of and
demand for labor
Factors affecting fixed costs
Make recommendations on how your organization can maximize their profit-making potential, and
successfully compete in the new market. Consider the effect your recommendations may have on marginal
revenues and costs.
Format your paper consistent with APA guidelines.
Current Market Conditions Competitive Analysis
In 1903, American industrialist Henry Ford started a company that revolutionized how the
world moved. With $28,000 in his pocket, Ford Motor Company was born. Today, it has grown
to be the world’s third largest automaker, and the largest family-controlled company which has
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been in family control for over 110 years. Throughout the existence of Ford Motor Company,
their success would not have been possible without knowing and understanding certain factors
that affect not only the supply and demand, but also the equilibrium prices in the automobile
industry. Every organization within the industry faces the same issues and opportunities that
may affect competitiveness and long-term profitability, but Ford Motor Company continues to
develop new and improved products to gain the advantage over their competitors.
Ford Motor Corporation
Henry Ford began the creation of Ford Motor Company by his fascination of gas-powered
engines. In 1903 with the help of 11 investors Ford Motor Company was incorporated through
the New York Stock Exchange and its home office originated in Dearborn, Michigan. This giant
automotive manufacturer created the first Model T. in 1908 that became to be one of the largest
selling vehicles in history. Ford Motor Company later began to build vehicles for the
government to support in World War II. This made the automotive manufacturer a very vital
business to the U.S. economy and now one of the largest in the world.
Ford Motor Company has developed new technological advancements throughout the life of
the business, which has shown to be very profitable. Ford Motor Company now produces cars,
trucks, SUVs, hybrids, and commercial vehicles to meet the demands of individuals throughout
the world.
This strategic planning group has chosen to design a car for first time drivers. The safety of
all drivers is a primary objective at Ford especially the safety of young adults. Ford is excited to
introduce the Alpha, the first car specifically designed with first time drivers in mind. Several
safety features are standard in the Ford Alpha such as My Key, which prevents the car from
starting if the seat belt is not fastened and allows the parents or administrators to control radio
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volume and mileage radius. Additional features include BLISS- blind spot mirrors, GPS
tracking, front, side, knee and rollover airbags, and a back up camera. Ford also realizes that
economy and style are also important features.
Because of the many safety features included in the Alpha, buyers will qualify to receive a
discount on insurance premiums. Enforcement of seat belts within the U.S. has improved the
safety and well-being of vehicle drivers and passengers. The Alpha makes it mandatory for
drivers to wear their seatbelt. The Alpha will be available in a wide range of exterior and interior
colors and buyers will be able to mix and match to create the perfect color combination. Even
though the Alpha is sporty in appearance, insurance companies do not consider it a sports car.
The strategic planning group feels there is a need for a car designed specifically for first time
buyers.
Supply, Demand, and Equilibrium Price Factors
Sales in the car market have gradually started to increase. The recession caused a negative
shift in the demand and the supply of automobiles, however an increase in the labor market has
created an increase in the demand for automobiles. Consumer confidence and motivation are a
driving force behind an increase in demand. Most economists have high expectations for
continued economic recovery. Ford’s vehicle prices are extremely competitive. The standard
features, quality and extended factory warranties have made the purchase of a Ford even more
desirable. Since the recession, consumer purchases of American brand cars have increased.
Low interest rates and cash incentives attract consumers to buy American brand cars.
The supply of automobiles has responded to an increase in demand. The equilibrium price of
certain automobiles has risen slightly with the increase in demand. Hybrid cars and economy
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cars currently have the attention of consumers. Firms have responded by making SUV’s and
trucks more fuel-efficient.
Ford competes in an oligopoly market. There are a relative small number of car dealerships
in the industry. Competition comes from American and international firms. International firms,
especially Toyota and Honda are Ford’s biggest threat. At this time, there is not a car
specifically designed for first time drivers. There are automobiles on the market with some of
the proposed safety features, but not all in a standard package. Pricing the Alpha with a low
profit margin should discourage competitors from immediately jumping into the market.
Depending on the success of the Alpha, it is certain that other automobile firms will follow suit.
The potential buyer of an Alpha car is a parent, grandparent or guardian of a first time driver.
Safety, economy, standard features, insurance discounts, and a reasonable price are features that
are designed to attract the perspective buyer. The price of the Alpha should not prohibit middle
to low-income families from making a qualified purchase. The smart style of the Alpha should
attract the attention of young drivers, along with the many options for customization.
Competitiveness Issues or Opportunities
There are many issues and opportunities Ford Motor Company currently faces today and
could possibly face in the near future that could easily affect their competitiveness and long-term
profitability. Advances in technology, relationship between the amount of labor & capital
employed and the law of diminishing marginal productivity and certain factors that affect the
variable cost are just some of the issues that management must consider before implementing
new and improved ideas.
Ford recognizes the importance of staying ahead of the game with technological advances.
The strategic plan for the Alpha is to include the latest safety features and strive to continually
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improve and enhance these features. Research that provides evidence confirming the
effectiveness of proposed standard safety features increases the potential success of the Alpha.
Consumers are more likely to purchase a product that is deemed to prevent injury and increase
safety for the driver. Competitiveness and long term profitability are likely based on the
proposed Alpha product description.
The Marginal Product of labor is known as the increase in output resulting from a one –unit
increase in the amount of labor employed. The marginal products can be found by dividing the
change in total product, by the change in the variable input. The law of diminishing marginal
productivity is when the number of new employees increase, the marginal product of an
additional employee at some point, will be less than the marginal product of the employee before
them. The Law of Diminishing Marginal Returns should be taken into consideration when the
managers would like to expand their production. In regards to the Ford Motor Company, they
employ laborers to manufacture its products. If all factors of the production remain the same,
eventually each additional laborer will provide less output than the previous one, which will end
up with each laborer providing less output than the previous laborer that leads to less return
because of the number of employees. According to Novinson, E. (2013) “As the marginal
product of labor decreases, the marginal cost usually increases. If the company has to pay more
money to each worker compared with the number of products that each worker makes, its labor
cost for each item increases, so its cost to make each item will be higher.” As long as the
product increases with the amount of labor that is being used, the total product curve will rise.
As the Ford Motor Company increases in size, they use more machines specifically designed to
manufacture their cars, as well as hire more employees to compensate for the growing demand.
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Since the product of labor curve has risen, the company has experienced an increase in marginal
returns.
Another issue Ford Motor Company has to consider is an increase in labor and variable costs
to implement the seatbelt and vehicle start technology. Additional labor will be needed to install
the electrical wiring and sensors in the driver seat belt along with programming the vehicle’s
mainframe to acknowledge the new integrated component. Current fixed cost may be affected
by the production change. For example, price rates for the material used, the company has an
opportunity to become the trendsetter with this safety technology, which can be patented. It
could also be a future government requirement by the Department of Transportation, which can
increase revenues because Ford Motor Company owns the rights to the technology.
Recommendations
In order to ensure Ford has maximized its potential profits, they must follow some guidelines.
When looking at the potential market, Ford must decide if they should focus more on the parents
or the teenagers. If they put marketing into the parents, they have a higher chance of creating a
larger profit. This is due to the simple fact that most of the parents are going to be the one who
is actually paying for the vehicle. In order to make the sale to them, the car must be marketed to
make them happy which means having all of the safety ratings being a big seller on the new
vehicle. Instead of focusing on a sleek look of the car, Ford should focus on all the safety
features. This could potentially raise the cost of the selling price. Finding the price that
maximizes profit but is still affordable will be one of the biggest hurdles. Most parents will buy
their first time drivers a “beater” car. This is due to the fact that first time drivers are normally
very hard on their vehicles. Ford’s biggest hurdle will be convincing their customers that the
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new car is the better choice. Using advertising, Ford can prove that their cars lessen the chance
of first time driver crashes.
The current market for vehicles has gone down since 2008 mainly due to the recession. This
has caused prices of new and used cars to drop. More people are buying used cars over new cars
because used cars are more affordable. In order to compete, new car dealerships have been
forced to reduce their prices. Ford Motor Company will need to determine the price that will
intrigue the consumers.
In closing, this strategic planning group unanimously believes the recommended product will
have both short-term and long-term success in the industry. Ford Motor Company has been the
leader in technological breakthroughs due to the dedication and perseverance aiming to stay
ahead of the competition. This thorough market analysis conducted by this group has confirmed
that since 1908, Ford has continued to show the world why they are the leader in the automobile
industry.
References:
Colander, D. C. (2010).Economics (8th ed.). New York, NY: McGraw-Hill.
CURRENT MARKET CONDITIONS COMPETITIVE ANALYSIS
Ford Motor Company. (n.d.). Our Company. Retrieved from http://corporate.ford.com/ourCompany
Novinson, E. (2013). Explain the relationship Between the Marginal Product of Labor and
Marginal Cost. Retrieved from
http://www.ehow.com/info_7888762_explain-product-labor-marginal-cost.html
Npr.org. (2006). A Timeline of Ford Motor Company. Retrieved from
http://www.npr.org/templates/story/story.php?storyId=5168769
Teen Driving Statistics. (2012). National Driving Statistics. Retrieved
http://www.rmiia.org/auto/teens/Teen_Driving_Statistics.asp
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