BMW Auto Company Analysis - Case Study Example

BMW AUTO COMPANY ANALYSIS BMW Auto Company Analysis Introduction Bayerische MotorenWerke AG commonly known as BMW is a German automotive and automotive parts producer that has its headquarters is in Munich, Bavaria. BMW’s productions are categorized into four brands. The four brands are: BMW, Rolls-Royce Motor Cars, MINI, and BMW Motorrad. BMW Motorrad designs and produces motorcycles only. BMW produces motorcycles for races, for social travelling, luxury touring bikes, and urban bikes. Rolls-Royce Motor Cars deals with the production of luxury cars. MINI is popular for the production of small and economic automotive. These are cars that have only two doors with much of their interior being minimally detailed to create space for passengers. The BMW brand is known for its inventive creation, making it one of the most known brands in the luxury car industry. BMW has operations and subsidiaries in many countries. Most of the automobiles that are produced by BMW are sold through distributors. Currently, BMW has more than 20 factories in more than 10 countries, the United States of America being included. BMW has built the factories in places where they have the largest markets so that they can be able to produce with the assurance of market. For the countries where BMW does not have factories, BMW sells their products through exportation. The decision of market entry is always affected by the nature and size ofthe market. Having a factory in a country where their products are not highly is not economically viable. BMW can be said to be well positioned in terms of competition. Section 1 Industry Environment Analysis (Porter’s 5 Forces) Threat of new entrants In the luxury cars industry, it can be said that the possibility of competition resulting from new entrants is highly unlikely. This is contributed to by the fact that there are numerous requirements for entering the automotive market. For instance, for any investor who is aiming at entering this market capital is always considered to be required in large amounts. The in-depth research that is required before entering this market is also a factor that can be termed as a discouragement to many investors. Furthermore, a new firm will need to have explicit and implicit regarding the design and manufacturing of automotive. This is the only way through which they can be able to design and manufacture in absolute uniqueness and originality. Brand equity can also be said to be a hindrance to entry into this market. The already existing luxury vehicle brands had been able to build brand equity in their periods of existence making it hard for new entrants to match Threat of substitutes Vehicles developed and manufactured by BMW are popular all over the word are popular for being luxurious and powerful. However, it can be said that BMW is not the only automotive company thata has the ability of producing vehicles that are luxurious and powerful. They face competition from companies from various parts of the world that have the ability of producing cars that are luxurious and powerful. Some of these companies are Toyota, GM, and Mercedes. This is the main reason as to why it can be said that BMW faces a high threat of substitutes. Bargaining power of customers In the luxury vehicles industry, it can be said that competition is high given the fact that there are a number of companies that are dominant in this sector. High competition implies that customers have a number of producers to choose from. In such situations, customers are usually attracted to the companies who offer them the best prices. This implies that if a company is unable to have a flexible pricing policy they might end up losing a big portion of their market capital. The customers can also be able to choose from a variety of designs and qualities, making it necessary for producers in this industry to pay much attention to design and quality details (Kiley, 2004). Bargaining power of suppliers The supply chain used by BMW can be said to be a contributing factor to their success in the global market. Much of this success is attributed to the effective management of the company’s supply system and the good relationship that the company has developed and maintained between them and their suppliers over their many years of existence. However, it should be noted that the bargaining power of suppliers in this industry is believed to be high because of their ability to determine the prices of raw materials (Lehrer &Asakawa, 2004). This is the reason as to why BMW has always made sure that they maintain good relationships with their suppliers. Intensity of Existing Rivalry The industry size has been a contributing factor to the fact that the luxury car industry is not considered to be fiercely competitive. The industry and markets are large enough to make sure that players in the industry can be able to create their own identity thus creating attraction without having to employ price competition or any of the other commonly used techniques in the other industries. Competitor Analysis (Mercedes-Benz) Mercedes-Benz is one of the most popular brands of luxury cars globally. Mercedes-Benz is well established and is known for the production of high quality vehicles. As a result of the nature of the cars that are produced by Mercedes, the company has been able to earn respect and prestige in the industry. At the moment Mercedes-Benz can be said to the main competitor of BMW. Mercedes-Benz has had a number of agreements and alliances globally, making the distribution of their products to various parts of the world allot easier. This is the main reason as to why Mercedes has been able to be highly competitive in the luxury car sector. However, it can also be said that the prices of cars produced by Mercedes-Benz has been a hindrance factor to their dominance of the market. At the moment, Mercedes is more popular in most parts of the world as compared to BMW. This is a factor that BMW has to seriously look into if in any case they will have to do better in the global market. Figure 1: sales comparison of Mercedes, BMW, and Audi Section 2 Core Competencies and 4 Criteria of Sustainable Competitive Advantage Valuable resources There are a number of resources that can be said to have highly contributed to the success of BMW in the global market. One of their most valuable resources is their brand equity. BMW is known in all parts of the world for the production of luxury vehicles. Their investment in innovation and creativity has been one of the ways through which the company has been able to keep their popularity for the production of luxury vehicles. The fact that the company has invested in a total of 12 factories in various parts of the world has also been a contributing factor to their global performance. They also invest in researches and studies that enable them to come with more innovative products, thus remaining competitive in the highly competitive luxury car market. They have also invested in a highly effective distribution system, enabling them to avail their products to most parts of the world through dealers and distributors despite having just 12 factories. Rare resources As opposed to their main competitors, Mercedes who offers products with class, BMW has been able to offer their customers with products that are both classy and sporty. They have also been able to work together with a number of higher learning institutions in the UK, enabling them to enhance their innovation standards through encouraging fresh and new ideas. They also have factories in the US and China, something that most of their competitors cannot boast of. Imperfectly imitable resources Due to the fact that BMW has highly employed technology in their design and production processes, making it highly difficult for their designs to be imitated. Apart from the technology that they employ, they have always used patents to make sure that their designs are safe from imitation. Unsubstitutable resources The resource that BMW has that cannot be replaced are their brand equity, which has given them the popularity of their products in most parts of the world. Value Chain Analysis At BMW high volume production is categorized as either mass or flow production categories. The same strategies are used even when there is an increase in production so that they can reduce the cost of production. An automated flow line refers to a production system under which computerized systems are used in the production processes. Production of BMW- Z-4 take place in three places which much of the productions taking place in Germany, the USA, India, and China. The factories are categorized into: the body shop, the painting shop, and the assembly section (Avery &Bergsteiner, 2011). Temporary storage usually takes place at the buffer stores. The parts are later transported to various distributors and dealers in the world. Figure 2: production process at BMW body shop In most cases BMW uses a dealerised system for selling their cars. They do not go through distributors, but instead focus on directly appointing showroom dealers. This has been helpful as it can be costly to use distributors. However, with the spare parts, BMW uses both distributors and stockists. Their showrooms are found in the most premium parts of urban cities because of their targeted market segment. The company relies on the use of a lean distribution System. BMW is one of the most reputable brands in the world. This is mostly associated with the promotion techniques used by the company. Over the years, the company has always strived to create a positive brand perception of their brand. For promotion of their products BMW has been using methods such as television commercials, out of home advertisement, online advertising, and print advertisement. All these methods are used with keen consideration of the brand’s targeted market segment. It can be said that BMW is more reliant on the pull strategy than the push strategy of brand promotion. Section 3 BMW demonstrates a high dedication to German Engineering, exceptionalism and precision and its contrast is most evident, according to the audience the company targets. In the automobile industry, it enjoys an equal customer reputation as other major German automobiles like Mercedes Benz. However the advantage that BMW has over its competitors is that it has a powerful brand image that forms the foundation of the company’s success. It is one of the few multi-model automobile companies in the world that concentrates exclusively on the premium segments of the market. BMW is placed as “The Ultimate Driving Machine” due to its mini-brands that have a clear profile, high quality, superior technology, reliability, and commitment to the products it produces. With its great workforce working throughout the world, it has clearly captured the eyes of the international market. With other leading vehicle companies like General Motors, Toyota, Ford, Daimler Chrysler, Renault and Volkswagen accounting for over 60% of the worldwide production, BMW is a force to reckon with and has caused a shockwave with great effect in the last one decade. Competition from global players in Germany, the United States and Japan, who also venture into luxury production, has been the major drive in the development of BMW as a global player (Vuskane, 2010). The company is able to generate its revenue through its three business divisions. These divisions include the automobiles, financial services and motorcycles. The automobiles generate a little over 70% of the company’s total revenue. The financial services division generates a little over 20% of the revenue while the remaining percentage is contributed by the motorcycles. BMW has placed its central focus on the premium segments of the global motorcycle and passenger-car markets. It also provides financial and IT services. Through Softlab Group, BMW offers IT services such as management of Supply chains and management of the customer relationship. The company uses company-owned showrooms, subsidiaries, independent dealers and importers to market its vehicles. Under the brands BMW, MINI and Rolls-Royce, the Automobile division develops, manufactures, assembles and sells passenger cars and off-road vehicles. BMW and MINI brand products within Germany are sold through company owned outlets and other dealers who are independent. Outside Germany, passenger cars are sold through independent importers and subsidiaries. BMW brand Motorcycles, motor-cycle parts and accessories are developed, manufactured, assembled and sold by the motorcycle division. The company has built a strong market based on the success of the premium brand strategy. This is because it is expected that in the future, brands will not be based solely on horsepower, but on the level of sustainability. Through Strategic re-alignment, BMW moved up the market when, in 2007, strategy number one (New Opportunities, New Efficiency) was announced for implementation. The aim of this strategy was to turn BMW into the leading provider of Premium Services and premium products for the purpose of individual mobility. The four pillars that that support this strategy include growth, shaping the future, access to technologies and customers, and profitability (Smith, 2003). BMW has been able to prepare for the future by placing great emphasis on understanding the global luxury automobile market and how it changes with different preferences over time. This has further been supported by efforts to understand the current market trends and retaining a key focus on the customer. Through this, it is clear that BMW is not coming down any time soon but is instead expected to rise by the day. However a diagnosis into the performance of the company still indicates symptoms that should cause concern because of the intensity of their occurrence. BMW Group is loosing shares to new Japanese market players that are also rising fast in luxury automobile production. It is also a big worry that a only a small percentage of BMW customers who dispose of their BMW’s purchase new BMW’s. Most of those who purchase new cars end up with a Mercedes a lexus or the new Japanese brands hitting the market. These sysmptoms should be a sign to the group that there are issued that they need to deal with before it is too late. The Lexus brand, especially, being a bit cheaper yet still with fresh luxury features, is easily penetrating the market with a high levelo of aggression. Figure 3: BMW market performance between 2009 and 2014 Section 4 Strategic Marketing analysis generally starts by assessing a company’s strengths and weaknesses as a part of the greater SWOT analysis. Studies have indicated that top managers have a tendency to emphasize financial strength while lower managers indicate lesser emphasis on the same. A such, there arises an inconsistency related to who conducts any analysis. At BMW, the systems and strategies are selected to enable a proper operation of the system. The company develops and effects strategies aimed at achieving different goals. In choosing strategies, a lot of focus is placed on the objectives of the company. When the objectives of the company are already clearly defined, it becomes easy and possible to move on to developing competitive advantages that are sustainable and fitting to the objectives. Using the theory of business, it becomes possible to analyse the key assumptions of the business environment, the mission of the organization and the core competencies of the organization. BMW has been able to place itself in a position to face the future by placing an emphasis on understanding the global luxury automobile market, current market trends and at the same time retaining the main focus on the customer, innovation and the company brand. The company has been able to portray a premium brand image that is quality therefore enhancing its growth in the market. The introduction of new models and new accessories enhancing safety every year has been a result of the economic conditions, listening and understanding customers and by generally understanding the environment. Through surveying available strategic options, it is possible to select one single option in strategic choice. The corporate strategies of BMW over the last two decades have indicated many important strategic choices in order to remain relevant, competitive and sustainable in the premium automobile market. Milberg can be taken to be responsible for the planning and implementation of most BMW’s strategic choices. According to Michael Porter (1985), the goal of strategy is to come up with competitive advantages that are sustainable and which are not easy for rivals to imitate. The strategy should also be constantly evolving in order to ensure it remains ahead of the game. BMW has over the years tried out strategies successfully leading to improvement over the years. In the differentiation strategy, an organization is expected to concentrate on being unique and superior in important customer areas of benefit and in segments that are widely valued by the target customers and the market leading to a premium price. Organizations that are able to maintain differentiation remain as above-average performers in the industry if the price premium is always above the extra cost incurred in being unique from its competitors. BMW focuses on forming competitive advantages through the channels of innovation, technology, its brands and customer focus by creating premium vehicles that are exclusive to the luxury market. Through programs such as Project i, Efficient Dynamics and Individual Mobility, BMW has accomplished differentiation. Organizations that engage in each of the original strategies of cost leadership, focus and differentiation, but who fails to achieve any of them fully is said to be “stuck in the middle” thus has no competitive advantage. This situation is usually explained by a trade-off between differentiations and low cost because conflicting actions are required in order to accomplish different types of competitive advantage. However, companies that are in this situation are usually unable to make choices about how to compete thereby leading to poor financial performance. The acquisition of Rover in 1994 is a clear example of conflicting strategies as it tried to implement a wide differentiation strategy within the mass market while at the same time trying to place focus on a differentiation strategy in the premium market. These conflicting strategies caused the leadership styles and organizational cultures to clash in Germany and the UK, leading to the disastrous sell of Rover at a loss in 2000. Since companies need to choose which strategy to go by, BMW settled on the differentiation focus strategies for its brands (BMW, MINI and Rolls-Royce) leading to the company concentrating on the premium market with its specially luxurious automobiles in the large, mid-size and small segments (Smink,Jørgensen& Nielsen, 2007). Organizations that decide to work on a focus strategy, select a segment within an industry and direct its strategy to serve this specific segment exclusively. If the company decides to venture in differentiation focus, it seeks differentiation in the segment that it targets and attempts to study and exploit the special needs of the customers within the specific segments. As a result of the failed Rover acquisition, BMW saw an opportunity in the niche market for small automobiles, thus leading to its strategic choice of holding onto the Mini Brand. Section 5 The success of BMW Group can be associated with a number of factors that work in the firm’s favour. The structure of the organization and its controls is one of the most exclusive in the world. The group has a compliance organization with different divisions, each of them, ensuring compliance in a different way. An annual report is issued by a compliance committee that is comprised of division with mandates on legal compliance, communication, training, human resources, reporting, investigation and monitoring, and compliance contact. The compliance committee office overlooks this process (Gomes, 2013). Informal networks in the company are vital for innovation as it ensures creation and sharing of the best ideas. Employees buzz at the company is quite practical at the company. It is a hot theory of management in action at the company. BMW manages discipline with creativity and maintains the anarchy of networks within its controls by building a network of personal ties and the creation of fresh ideas by savvy workers who are retained by the group. Even though its original markets were based in the United States and Europe, the group has channeled its efforts towards the other parts of the world like Africa and Asia. This is manifested by the sales volume in the other areas of the world. The company makes use of highly skilled professionals to guarantee maximum quality of products and services. It maintains a high level of safety standards and develops new technologies over time in its design process (Smith, 2003). BMW is headed by a president who is the chief head of the firm; he is closely assisted by a board of management which consists of six of the most successful managers in Europe together with the chairman of the board. The areas of management include Risk Management, Accidental Management, Talent Management, Energy Management, Brand Management and Anti-Crisis Management. Each of these areas of management is headed by a single manager who represents his/her division in the board. The management process at BMW is comprised of the planning, organizing and implementing phases. This sequential order allows for risk management within the different phases. Through internal audits, the system is regularly tested for effectiveness and appropriateness. The findings of these audits form the basis for further growth and development. The company has an accident control package that ensures that customers who are stranded are taken care of through emergency services. This is done through the accidental management division. The talent relationships manager ensures excellence in leadership through training of staff and dialogue with the current employees and the prospective ones. This includes a program offered by the group where students are able to get bachelor and PhD degrees. The best financial year of the company was in 2011 when the volume of sales, revenues and high earnings exceeded the set targets. BMW has entered into alliances that the company viewed to be necessary for success and development. One of such alliances was the on formed between the company, Shell, UBS and Deutsche Bank aimed at building enterprise cloud standards. The alliance, formed in 2010, was aimed at setting hardware and software requirements for the purpose of cloud computing to be able to tackle challenges faced by organizations such as automation, security and interoperability. The firm also entered into an alliance with Mercedes in 2008 to try and out-do the VW/Porsche/Audi warehouse in quality of engines produced. Similarly, in 2013, BMW went into an alliance with Toyota to develop hydrogen-based fuel cell technology and to develop a new sports vehicle that would be expected to run on hygienic, high-mileage gas. Such alliances target the immediate needs of the customers and are expected to better the products of the duo. Similar alliances have been formed and intended for with other automobile companies such as Fiat and Daimler. They are all meant to better the general final product of the alliance. BMW employees are a happy lot because of the benefits they enjoy from the company. These benefits are aimed at encouraging the employees to increase their efforts during work and to outstand amongst all workers. The employees of the company are entitled to a health and fitness package that includes a medical scheme to ensure all employees are medically covered (Vuskane, 2010). Under the Careers division, the employees are provided with career development opportunity through vocational training, professional development programs, intercultural programs and many other programs. The workers are allowed to drive their own BMW and Mini brands at special rates. High performers are awarded through remuneration and an attractive occupation pension is also offered to all the employees. These benefits are meant to initiate a sustainable high input of work from the employees. Section 6 The main goal of any company of the same magnitude as BMW is to be able reach out to its target niche market in a better way than its competitors. The BMW Group also wishes to appeal to its market in a similar way. During target market analysis, the company should seek to find the attitude of customers towards the products. Apart from carrying out demographic studies of possible target areas, the company can also study the characteristics of the target population to seek an oversight of what is generally expected by their niche market. The company should also carry out a more specific competitor analysis that is meant to rate the group’s product against active competitors such as Audi, Mercedes Benz, Mitsubishi and Outlander. This analysis should be based on similarity and difference to find out what other companies are not doing that BMW could do instead. The analysis should be aimed at building a high Brand Equity that targets the younger generation. Similarly, in order to dominate the market share, the company could strategize in dominating in areas that are uncontested by the competitors. For public relations to be improved in the company, it is necessary for the management of BMW to develop a system that issues immediate feedback to the customers over their product at any time of the day. Through online media, the company can simulate a customer service response center that is all day on operation to enable those in need of the company information and help to access it at that time when they most need it. Furthermore, this channel together with advanced print and outdoor ads do have a magical effect on the general public. Through the use of a microsite, the company can promote the campaign of its divisions products. High traffic online media that are based on alexa rank such as the kompas website can be used for advertising purposes. Establishing a community for the BMW products users with sophisticated web design can make customers feel sophisticated too, thus bringing in the special feeling effect (Smink, Jørgensen & Nielsen, 2007). Pleasing one’s employees is yet another strategy that increases volumes of production and overall work input since it boosts their morale. Apart from the benefits that BMW employees enjoy, the firm could tend these benefits of a more exciting package. This can be done by increasing the number of employees being sent on international duty. The employees would definitely come back with a chunk of new ideas that will work for the better of the group. Senior employees at the company could also be allowed to drive their own Rolls-Royce Brands a rate since all employees are allowed to drive the BMW and Mini Brands at special rates. The company should engage in the production of small SUVs, minivans, and pick-up trucks. This will not only broaden its market, but will also create marketing channel that will reach out to new customers wishing to start operating luxury automobiles. The company can make these products with improved performance as compared to other industry participators who specialize in their production. In bid to publize the company’s new products, the company can create new films that feature more and more of its products. Similarly, the company can liase with film producers to use their products in their films in order for the company to be able to reach out to the general public. Most unspecialized customers buy products, especially automobiles based on what the public eye sees. Computer games in this age are a great way to reach out to the public because most adults and teens engage in them more intensely as compared to there before. Through the invention of new computer games, such as unheard-of racing games, BMW can be able to display all its brands in a single simulation. Whereas other computer games are not specific to any single company brand, this will enable BMW to display all its brands in the game. Most people buy great products from what they see in games and movies. References Avery, G. C., &Bergsteiner, H. (2011). How BMW successfully practices sustainable leadership principles. Strategy & Leadership, 39(6), 11-18. Gomes, L. V. (2013). The case of BMW Group and Tesla Motors: mergers and acquisitions. Kiley, D. (2004). Driven: Inside BMW, the most admired car company in the world. Hoboken, NJ: Wiley. Lehrer, M., &Asakawa, K. (2004). Rethinking the public sector: idiosyncrasies of biotechnology commercialization as motors of national R&D reform in Germany and Japan.Research Policy, 33(6), 921-938. Smink, C. K., Jørgensen, T. H., & Nielsen, E. H. (2007).Coherence in Process-and Product-oriented Environmental Policies in the Car Industry: Cases of BMW and GM. Technology, Environment and Society, Department of Development and Planning, Aalborg University. Smith, D. J. (2003). Strategic alliances and competitive strategies in the European aerospace industry: the case of BMW Rolls-Royce GmbH. European Business Review, 15(4), 262-276. Vuskane, L. (2010). BMW Business Strategy - An Overview.München: GRIN Verlag GmbH. Read More