BMW Automobiles - Porters 5 Forces Model - Essay Example

? Executive Summary: The BMW group leading the path to head towards becoming the number one producer of premium cars in the world. The brand image, positioning and sales majorly contribute to the exposure and publicity of the group in particular. Attaining the rank after the Big 5 was not a easy task. A few faults were made along the way which slowed the development of the automobiles and lead the group into dilemmatic situation which in the end resulted making big loss for company. Under the new management the automobile segment looks to make a promising start and the strategies have been formulated for achieving the goals and objectives beforehand. Introduction: During the 1990’s BMW had managed to established itself as one of the most profitable automobile manufacturer in the world. Ranking right after the BIG 5 in the automobile industry i.e. General Motors ,Ford , DaimlerChrysler , Toyota and Volkswagen. Originally Aero-space engine manufacturer the BMW had somehow manage to position itself amongst the top luxurious and stylish automobile producer competing with the top car producers in the world. BMW by 2000 through its class and elegance made itself actually what it claimed , ‘The ultimate driving machine.’ A style icon BMW had three brands operating under the group name , BMW which was the last contributor to the sales of automobile , MINI a remake and rebuilt version of the famous English style icon and the Rolls Royce. In the mid of 90’s the BMW group acquired the UK owned Rover. This take over did not prove a successful one at all as it brought a lot of financial damages to the group along with that defaming the face of the group. Along with this the size of the company and range of cars also became an issue. To tackle this issue Rover was sold. Quandt family’ the major share holder of the group applied pressure on the group to stop over 900million Euro worth of yearly losses caused by Rover. As a result the CEO resigned and a New CEO was appointed. The new CEO faced a tough situation where threat of Quandt family disposing of its share will leave the group open for Acquisition though the group was fair in size in comparison with Big 5. In 2002 Helmut Panke a nuclear physicist took the post of CEO and decided to turn the wheels by choosing aggressive approach so as to increase market share and become market leader. Factors Effecting Market There were various factors effecting the automobile marketing causing the autmobile manufactures to make a shift if strategies. The economies had been hit by recession effecting buying power of customers. Hence they’ll go for cheaper options. To stay in the market BMW has to Reduce cost but reducing cost mean earning less marginal profits which previously was quite easy to earn. Environmental concerns: Global warming and greenhouse gases are increasing day by day, BMW cars are on petrol which is a contributor to green house gas. Geopolitical tensions: The war in the middle east and the disturbance in the rich Arab world which would be high contributors to BMW sales globally. BMW group has to look for ways to compensate for these sales. Fuel consumption and efficiency: The war in the middle east lead to fluctuations and dramatic increase in oil prices hence making the gas consumption uneconomical for most engines . Purchases in the asian markets for automobiles increased: The economy depressed in the USA and European markets where BMW sales were high but an increase in sales in Asian countries was observed. Porters 5 Forces Model 1) Competitive Rivalry The competition would grow tough as the focus will be on Asian markets with their already being rivals there eg Honda, Toyota, Suzuki etc Though they don’t match BMW on the class and elegance scale but these makers are much less expensive then BMW. 2) Power of suppliers There wont be no significant change but there will be more suppliers willing to negotiate terms as productions have been slowed down or cut down. 3) Power of buyers The customers will become powerful as few of them will be buyers and there will be cheaper substitutes to BMW. They’ll be willing to buy product at the cheapest rate which fulfils their requirements 4) Threats of substitutes All the automobiles manufacturers have ranges defined in which they already compete with already pre existing makers. So there will be a genuine threat of substitute. 5) Threat of new entrants. Manufacturing automobiles require a lot of investment and next years worth of name making experience to make itself recognizable. The market does not suffer that much from new entrants. Acquisition and Sustainability of Competitive Edge: The reasons for BMW’s competitive edge can be seen from many aspects. It can be trailed down to An intelligent marketing and branding strategy. A very dedicated work force. Good Relationship with suppliers chain partners. A very efficient retail pricing strategy. Now we look at all these factors one by one which were critical in bringing success to the group and make it rank next to the Big 5. Considering the BMW’s marketing and branding strategy. BMW marketing and branding team can be termed as very professional and experts who totally understood what the company demanded and expected from BMW automobiles and what kind of image they had to set and position in the mind of consumers. Although BMW’s cars are powerful, reliable and luxurious as mentioned in case but they are not exceptions but the product has been branded and positioned in such a way for years that people consider the standard look and touch of BMW exceptional over other car makers like Audi, Citroen etc. which have better technologies and functions. Over the progress of years it has been developing itself into a status symbol and in Europe its being considered as a symbol for young professional i.e. high-performace saloon automobile are synonymous with BMW. Considering this fact we can easily say BMW ranks on the top level of the Brand Value Pyramid i.e. Emotions. Next BMW management was quite competent and possessed tremendous negotiation skills as they were able to produce flexible work schedules based on the demand which ranged from 60 hrs a week to 140 hrs. The work force helped BMW achieved targets of producing about million cars a year and was constantly participating and supporting the production incase of excess demand. The plants were located across different countries across the globe and in three continents i.e. Europe , North America and Asia. The management had exceptional skills in dealing in diverse workforce and providing them motivation. The main success could be linked to the more flexible working environment rather than autocratic working culture. BMW capitalized on its name and on the fact it has been present in the automobile industry since its early days. The developed brand image which positioned it as a Perfect Driving Machine enabled it to keep a pricing which capitalized more on the brand factor i.e. its demand in various geographic areas and according to that it was priced. Other factors considered while pricing was competition , in an market where there was more competition then a competitive pricing strategy was followed. For a environment with more value for it as brand , it followed premium pricing. In every way BMW retail prices were higher then what they were giving creating\ perception of class and status which made it earn margins higher then many other competitors. The importance of relationship with suppliers was given upmost importance. A supplier who has been with the firm provides good quality material as it develops an association with the company itself. If the material is good the end product produced will be best quality. Next the automobile industry over the period of time has seen various trends and cannot be predicted i.e. unforeseen demand can be expect. In such a situation suppliers collaborated with the group and as mentioned earlier the efficient workforce joined together to produce what is demanded hence helping BMW move a step ahead of the competition. BMW (Bayerische Motoron Werke) Group BMW popularly known for its automobiles is actually a group which apart of automobile has under its belt a portfolio of various products which include motorcycles, softwares and financial services. BMW was known for its automobiles since start whose key differentiating characteristic was skilled German labor producing quality automobiles. With the passage of time the group acquired ROVER in mid 90’s because of which it suffered a heavy set back. To cover the losses the group had to set up production plants across various countries employing cheap but skilled labor but the essence was effected. Next extension of BMW automobiles into smaller models like 1 series i.e. the smaller version in comparison with z4 roadster and x5 SUV can create image collision. BMW accounted for most of the sales in automobiles while Rolls Royce and Mini only contributed fraction creating a dilemma for the group regarding production. Future and Conclusion The strategic development plan proposed by Helmet Panke includes Releasing a new models at a faster pace to increase overall market share Increasing sales by expanding into new markets. BMW is following market development and product development strategies both at the same time. Increasing numbers of car produced to level of attaining number one producer of premium cars. Selling high end models in the US and Asian markets which they weren’t able to sell in European markets. That is catering and analyzing demand trends and allotting products to regions according to customer demand. Labor cost control issue in European markets , moving production to US and China where the cost of skilled labor was much less then it was in the west. Employing skilled labor at cheap cost making the group save quite a huge amount of money which it can utilize in R&D and innovation. ************************************************************************************* The BMW under new management promises a bright future although there are a few threats but if they are monitored the group will move smoothly and steadily to the path of achieving its ultimate goal , becoming the largest producer of premier automobiles. Read More