The Prestigious Manufacturer of Luxurious Cars - Essay Example

? BMW: The Ultimate Driving Machine An analysis of positioning strategy of BMW Introduction The primary reason for purchasing a product is that it satisfies some need of the consumer and, as every student of marketing is aware of, there are basically two types of needs – emotional and functional. There is an upper limit to functional needs – a person cannot ride two cars simultaneously but there is no upper limit to emotional needs – a person can keep as many cars in their garage as they please. If marketers can create a distinct brand image of their offerings they would be able survive the relentless onslaught from rival brands, else they would simply fade away from this intensely competitive niche market (Ries and Trout 1982). Firm’s comparative position in a market It is obvious that a manufacturer tries to attain an unassailable position in the market by playing on its strengths and hiding its weaknesses. Michael Porter has elaborated on the issue of market leadership and strategies that a firm can opt in his several path breaking studies in this regard (Porter, How Competitive Forces Shape Strategy 1979). It should be further mentioned that business economists have coined the term ‘strategic groups’ (Hunt 1972) which means clusters or groups of firms that operate within an industry and have nearly similar responses to threats and challenges that they continually face. Porter’s Generic Strategies Generic strategies are those that can be applied to any market scenario and for any type of producer. Porter identified several generic strategies that can be adopted by any marketer to perform more efficiently in a marketplace (Porter, Competitive Advantage 1985). Source: (London Management Centre 2008) He stipulated producers try to gain competitive advantage either on the cost front or on the product differentiation front. The basic aim of cost leadership is to out-price competitors through increasing efficiency in production. The firm either sells its wares at market price but at a lower than industry average production cost, or, sells at below market price in an effort to garner larger market share. The basic aim of differentiation strategy by a firm is to accentuate the points-of-difference of its products and create strong customer loyalty, so much so that, the firm is in a position to charge higher price and still retain its market share. Bowman’s Strategy Clock Firms devise many strategies to beat competition and moving forward from Porter’s theory of competitive advantage, Bowman and Faulkner (Bowman and Faulkner 1996) devised what is known as Strategy Clock. Bowman has studied the different strategic options available to a firm with respect to cost and differentiation advantage. Source: (Marketing Teacher.com 2000) There are basically eight different options available with a firm. Option 1: A firm might opt for low price and low value addition for its products but such an approach would be suitable only if a firm wishes to target a specific segment and the product is no better than a necessity. Option 2: A firm might focus on lowering the price of its product. But there is always the risk of price war between competitors and a firm would have to be extremely efficient and be prepared to work on slender margins of profit if it wishes to succeed with such a strategy. Option 3: This strategy is generally termed as hybrid as it incorporates both cost and differentiation strategies. Firms following this strategy adopt a low cost approach and tend to reinvest in a manner that differentiates its products without substantially increasing cost of production. Option 4: Firms often focus on product differentiation that is accompanied by either a price premium or without a price premium. Firms that have enough goodwill and are able to command a premium in the market opt for this strategy. Option 5: This approach is adopted by firms that focus on a niche market and charge premium price as its products have a special and unique appeal to the targeted market segment. Option 6: Firms might also opt for improving the standard of their output and start charging a higher price. This strategy is particularly risky as they might lose market share if other firms do not replicate this strategy and more particularly if customers do not perceive any improvement in quality that would justify the price increase. Option 7: If a firm enjoys monopoly position in a market it can afford to increase the price of its product without any corresponding increase in its value. A monopolist has absolute control over the market but if it increases price it should also be ready to lose turnover, not to any competitor but to consumer reluctance in buying anything more than just what is absolutely necessary. Option 8: A firm might also opt for providing low value addition at standard market price. However, this strategy is bound to backfire as consumers would very soon be able to identify the shortcomings of the product and would shift their preference to products manufactured by competitors. BMW’s Strategic Positioning BMW adopts the strategy of focused differentiation. Buyers of luxury cars are generally not that much concerned about price but they rest a huge premium on luxury and uniqueness. So, if their perception about a particular product changes they might forsake the product without thinking twice. The esteem value is perhaps the lone decider for a customer of such luxury vehicles. It is mainly due to this reason that manufacturers of luxury cars like BMW go the extra length to retain the points-of-difference from competitors. That could be the reason why BMW Mini returned to the rally circuit after a gap of forty seven years when it had made its mark by winning the Monte Carlo rally (Leggett 2011). It has been observed that luxury car buyers tend to select only those brands that retain their exclusivity and they fight within their segments to remain mutually exclusive (Porter, Competitive Strategy 1980). Exclusivity or uniqueness becomes the dominant competitive strategy of car manufacturers as BMW. But, often these manufacturers tend to exhibit flexibility and combine both exclusivity and cost benefits if such an approach enhances their chances of dominating the market segment (Porter, Competitive Advantage 1985). It could be described as a modified version of option 3 of Bauman’s Strategy Clock. Such a combination provides a comparative advantage that few manufacturers can ignore. If, for example, the market structure demands a combination of cost consciousness through economies of large scale together with exclusivity, car manufacturers like BMW have repeatedly shown that they have no hesitation in following that route. Possibly because of that BMW started its manufacturing operations in India in 2007 (Gow 2007). The result was there for all to see as BMW earned record profits in 2010 and it could do so primarily because it had had record sales in China during that year (BBC News: Business 2011). So, while enjoying the fruits of entry barriers in the niche markets they operate in, BMW and other luxury car makers do not hesitate to enter new markets if such a move bolsters their bottom-line. BMW has attained such a stature that it does not have a substitute. A customer either owns a BMW or they do not. The threat is not really of a substitute but of a prospective customer moving over to another luxury car maker. So, it is more a question of rivalry among producers rather than threat of substitutes. There is intense rivalry between luxury car manufacturers as each tries to outdo others in accentuating the points-of-difference of their products from others that are available in the market. In such a situation often car makers opt for almost unlimited expansion in new markets by grabbing the first mover advantage (Belk 2000). Conclusion BMW being the prestigious manufacturer of luxurious cars that it is, has always focused on positioning its products in a manner that highlights their uniqueness and has undertaken several measures in order to achieve this. The aim of the management is evidently clear in that though they are not averse to increasing their sales volumes and are also willing to reduce their cost of production by locating their production centers in low cost countries, they will never compromise on their quality and class and often will charge higher price than what they might simply to ensure the esteem value associated with their products do not diminish. Luxurious car markets provide an important departure from Porter’s concept of competitive advantage and competitive strategy (Porter, Competitive Strategy: Techniques for Analyzing Industries and Companies--With a New Introduction 1998) because profit, though an important benchmark in judging the comparative efficiency of these manufacturers, is not often the final measure in this market. Oftentimes, these manufacturers keep a deliberately high price simply in order to retain the esteem value that is associated with their products. References BBC News: Business. "BMW in record profits helped by strong sales in China." BBC News: Business. March 10, 2011. http://www.bbc.co.uk/news/business-12701854 (accessed March 17, 2011). Belk, R.W. "Wolf Brands in Sheep's Clothing: Global Appropriation of the Local." In Brand New, by Jane Pavitt (Ed.), 68-69. Princeton, NJ: Princeton University Press, 2000. Bowman, C., and D. Faulkner. Competitve and Corporate Strategy. Irwin, 1996. Gow, David. "BMW unveils assembly plant in India." guardain.co.uk. March 29, 2007. http://www.guardian.co.uk/business/2007/mar/29/india.internationalnews (accessed March 17, 2011). Hunt, M. S. Competition in the Major Home Appliance Industry 1960-1970. Doctoral dissertation, Cambridge, MA : Harvard University, 1972. Leggett, Theo. "Mini plan return to world rally." BBC News: Business. January 21, 2011. http://www.bbc.co.uk/news/business-12252216 (accessed March 17, 2011). London Management Centre. "Management Tools: Generic Competitive Strategies." Knowledge Resource Centre. 2008. http://www.lmcuk.com/management-tool/generic-competitive-strategies (accessed March 19, 2011). Marketing Teacher.com. "Bowman's Strategy Clock." Marketing Teacher.com. 2000. http://www.marketingteacher.com/lesson-store/answer-bowman.html (accessed March 21, 2011). Porter, Michael E. Competitive Advantage. New York: Free Press, 1985. —. Competitive Strategy. New York: Free Press, 1980. —. Competitive Strategy: Techniques for Analyzing Industries and Companies--With a New Introduction. New York: Free Press, 1998. Porter, Michael E. "How Competitive Forces Shape Strategy." Harvard Business Review, March-April, 1979. Ries, A., and J. Trout. Positioning: The Battle for your Mind. New York: Warner Books, 1982. Read More