Analysis of Automobile Industry in the UK - Coursework Example

Marketing Plan Part PESTLE Analysis: Automobile Industry in UK Political Factors The general election held in the United Kingdom in May resulted in a hung parliament. This has led to political instability in the country (BBC 2010). Economic Factors The pangs of the latest recession are still being felt in the UK economy (Hills, Thomas, Dimsdale 2010). At such times, demand for all automobiles, and BMW is no exception, wanes. The rising cost of motoring which includes cost of insurance as well as cost of fuel is impacting the automobile sector. BMW (UK) Ltd. Imports cars and pays in Euros (BMW 2012). Thus when the UK Pound is strong, these cars cost more and therefore become more expensive. However, when the Euro is strong imported cars become relatively cheaper. Social Factors The United Kingdom is highly urbanized with 90 percent of the population living in urban areas. The country is however besieged by rising unemployment. UK witnessed five days of social unrest and riots in August of 2011which resulted in loss of reputation and goodwill for the country (Internet Business News 2011). Technological Factors The rate of change of technology impacts the UK automobile sector considerably. All players in the industry have to keep abreast of the latest technologies and incorporate them in the subsequent models of automobiles. The growth of internet has provided the automobile industry a new sales and communication channel. At the same time, it has provided the consumer an extremely powerful tool to compare and contrast not only the prices of automobiles, but also their specifications and features. Legal Factors The UK government initiated a ‘scrappage incentive scheme’, wherein a car buyer was given £1,000 trade-in incentive for replacing a 10 year old vehicle with a new, more efficient car. This scheme helped boost sales, but of smaller vehicles and not the likes of BMW (Reed 2009). The government is also giving incentives to buyers to opt for alternative-fuel vehicles (AFVs). Environmental Factors The CO2 emissions have risen alarmingly over the last few years leading to global warming (Allen et al 2009). This has had a monumental impact on the automobile sector in the UK. Under enormous pressure to go ‘green’, the automobile manufacturers have not only rolled out AFVs but have also invested heavily in enhancing productivity through modular design, flexible manufacturing technology and highly skilled shop floor workforces. Michael Porter’s Five Forces Model Rivalry among Existing Players The UK automobile industry is extremely competitive with automobile manufacturers from Europe, Japan, China, India and the United States operating in the country. Being a mature market, the rate of growth of UK automobile sector is very low. Threat of New Entrants All major automobile brands are available in the UK market. The car industry thrives on brand loyalty which is to the advantage of existing players. Other potential entry barriers include high investments and long gestation period. Supplier Power The automobile industry requires raw materials and parts of varied kinds. Over the last few years, the auto manufacturers have opted to obtain these parts from suppliers based in countries like China (Machine Power 2010). Since the labour and production cost is extremely low in China, the auto companies get a cost advantage. It is for this reason that the supplier power in the home country has diminished considerably. Buyer Power In present times, the buyer has the real power by virtue of the fact that he has umpteen automobile brands to choose from. The buyer wants the best of everything in terms of quality. With various financing options available to the buyer, the bargaining power increases manifold. At the same time, buyers hunt for discounts, offers and freebies before finalizing the purchase. Threat of Substitutes With practically all major players operating in the country, there are numerous substitutes available. However, cars provide 90 percent of all passenger transport needs in the UK which suggests that alternative options of commuting are not considered by the average consumer. In that context, real substitutes are absent. Opportunities and Threats The changeover from present technology to low carbon solutions represents a potential opportunity for BMW. Furthermore, in connivance with the automobile manufacturers, the company can coax the government to roll out more incentive schemes to boost the sagging sales in the industry. The biggest threat for the company is political instability and the fears of a double-dip recession. Part 2 SBUs The BMW has been operating in the UK since the year 2000 and has the following plants/divisions/SBUs (BMW 2012): BMW Group Plant Oxford where MINI One, Cooper, Cooper S, MINI Convertible and MINI One D are manufactured Rolls-Royce Motor Cars Limited where the Rolls-Royce Phantom is manufactured. BMW Plant Hams Hall where Four-cylinder petrol engines are manufactured. BMW Group Plant Swindon where steel body pressings and sub-assemblies are manufactured. BMW (UK) Ltd which is a sales, marketing and after sales subsidiary of BMW AG Vehicle Distribution Centre near Doncaster where all imported vehicles are inspected. Softlab Ltd based in Munich which provides IT services. BMW Financial Services (UK) Ltd provides personal finance and insurance cover. Portfolio Analysis The BMW models include 1Series, 3 Series, 5 Series, 6 Series, 7 Series, X3, X5, X6 Z4 and M Series. Different body styles such as sports hatch, saloon, touring, coupe, convertible, roadster and sports activity vehicle are available. In addition to the BMW motorcycle, the group has MINI and Rolls-Royce brands in its product line (BMW 2012). McKinsey 7S Model Strategy BMW has adopted what it calls ‘Strategy Number One’ whereby the company intends to strengthen its position within the global motor vehicle market. The strategy stands for New Opportunities and New Efficiency (BMW 2012). In addition to achieving key numbers, it also focuses on ensuring employee satisfaction and sustainability along the value chain. Structure The company follows a typical corporate structure with management board responsible for the daily operations and the strategic development of the organization. Meanwhile, the advisory board which consists of shareholders representatives as well as employee representatives takes care of the corporate governance issues (BMW 2012). Systems The company has robust systems that ensure top quality output. The company ensures that quality audits are deployed at every stage of the manufacturing process. All cars undergo a pre-delivery inspection before being delivered to the customer (BMW 2012). Shared values The shared values of high quality standards, customer focus, continuous improvements and sustainability are ingrained into each and every employee. Skills, style and staff The employees of the organization are highly skilled. In addition to providing active support to the workers on-the-job, the company also imparts training programmes to encourage personal development. BMW establishes objectives for each and every employee fort the forthcoming year and reviews the performance against the agreed objectives at the end of the year (BMW 2012). Marketing Mix The BMW brand caters to the premium segment of the society. The company has a large product portfolio to choose from. The price range starts from £15,000 and goes as high as £50,000 and above. The cars are sold through exclusive dealerships spread across the country. The company uses both the print and electronic media for advertising (Brownsell 2008). Strengths and Weaknesses The inherent strength of the company is the internal quality control checks which enable roll out a reliable brand. With a strong and committed workforce the company is geared to face the competitive world. On the weakness front, the company has relatively higher cost associated with each of their cars. Furthermore, Mini and Rolls Royce brands are produced only in UK and shipped to other markets. Part 3 SWOT Analysis Strengths Strong brand Focus on quality Global acceptance Large product repertoire Ability to innovate Weaknesses Caters to the premium segment only Worse affected in recessionary conditions Bulk production and economies of scale not possible Opportunities Non-aligned to Euro entails sovereignty over interest rates Development of alternative fuel vehicles Threats Fears of double dip recession Political instability Euro-zone crisis Part 4 Key Issues Target Market The target market for the company is the rich people of the society. Since the BMW carries a hefty price tag, its sales are likely to be worst affected during periods of recession. Currency Fluctuations The cost of imported cars fluctuates along with currency fluctuations. This increase in price may not be easily explainable to the customers. Strategy The BMW Group intends to increase sales to more than two million automobiles per year till 2020. This may not be achievable, especially in recessionary conditions. Economies of Scale Many car manufacturers have outsourced production, especially of key parts to countries like China primarily to save on costs. In this manner the other manufacturers may achieve economies of scale, much to the disadvantage of the BMW group. Part 5 Positioning The all new BMW M6 convertible is equipped with TwinPower Turbo technology, a V8 engine which provides more power and consumes less fuel. The car has a Seven-speed M DCT Drivelogic and an Auto Start Stop function. The car can be positioned as ‘a premium car that provides individual mobility and propels the sporting prowess.’ The target market for the vehicle would be young rich people who are inclined towards sports, thrill and adventure. The short term marketing strategy would be to induce trials by offering ‘free trials’ of the car by the target group. The company should aim to capture 5 percent of the market share in the first year of operation. References Allen, R.D., Seaman, S.M. & DeLascio, J.E. 2009, "Emerging Issues: Global Warming Claims And Coverage Issues", Defense Counsel Journal, vol. 76, no. 1, pp. 12-39. BMW. 2012, [online] available at http://www.bmw.com/ Brownsell, A. 2008, BMW draws best sales value from UK adspend, London, United Kingdom, London. "Cheap labor in China? Not for long", 2010, Machine Design, vol. 82, no. 14, pp. 8-8. Eskildson, L.E. 2010, 5* Michael Porters Five Competitive Forces (4/2010), Washington, United States, Washington. Hills, S., Thomas, R. & Dimsdale, N. 2010, "The UK recession in context - what do three centuries of data tell us?", Bank of England.Quarterly Bulletin, vol. 50, no. 4, pp. 277-291. Hung UK parliament result of weakening political system - Iran expert 2010, , London, United Kingdom, London. Poblete, J.D. 2008, "How luxury products can be good for the Earth", BusinessWorld, , pp. n/a. Reed, J. 2009, Extension of car scrappage scheme ruled out, London (UK), United Kingdom, London (UK). "-Social networks play little role in UK riots", 2011, Internet Business News, , pp. n/a. Surchi, M. 2011, "The temporary store: a new marketing tool for fashion brands", Journal of Fashion Marketing and Management, vol. 15, no. 2, pp. 257-270. Wolf, M. 2001, A robust Britain gets set to cope with recession: During past global slowdowns, the UK had neither low inflation nor sound public finances. This time it has both, London (UK), United Kingdom, London (UK). Simonian, H. 1999, Under siege: BMWs UK acquisition has left the luxury carmaker looking vulnerable, says Haig Simonian:, London (UK), United Kingdom, London (UK). Read More