Marketing for the Next Three Years for BMW I3 - Case Study Example

An Outline Marketing Plan for the Next Three Years for BMW i3 Key objective of this paper is to outline a marketing plan for next three years for BMW i3. BMW has announced to launch i3 as eco-friendly plug-in hybrid electric vehicles (PHEV). In home market, the company has already launched the car while in different parts of global market; the product is yet to be launched. In order to develop functional background of the marketing plan, the study has conducted market segment analysis and external environmental analysis. As the product is eco-friendly, hence a green marketing plan has been suggested by the researchers. Budgeting for different marketing initiatives has also been incorporated in the study. As part of marketing plan recommendation, the study has identified two market segments and adjusted marketing mixes as par requirements of target market. As part of rationale for marketing plan, published reports and findings of previous researches are being used. In the last part, control mechanism for the marketing plan has also been proposed. Table of Contents Chapter 1: Introduction 6 Chapter 2: Current marketing situation 6 2.1 Internal analysis 6 2.1.1. Market Description 6 2.1.2. Product Review 7 2.1.3. Competitive Review 8 2.1.4. Distribution Review 8 2.2 Macro Environment Analysis (Porter’s Five Forces analysis) 8 2.2.1. Bargaining power of buyers: Low-moderate 8 2.2.2. Bargaining power of suppliers: Low 9 2.2.3. Rivalry: High 9 2.2.4. Threat from substitutes: Moderately High 9 2.2.5. Threat of New Entrant: Low 10 Chapter 3: SWOT analysis 10 3.1 Strengths 10 3.2 Weaknesses 10 3.3 Opportunities 11 3.4 Threats 11 Chapter 4: Objectives and issues 11 4.1 Objectives 11 4.2 Issues 11 Chapter 5 Marketing strategy 12 5.1 Target Market & Positioning 12 5.2 Product strategy 13 5.3 Pricing strategy 14 5.4 Distribution strategy 15 5.5 Marketing Communication Strategy 15 5.6 Marketing research 15 Chapter 6: Marketing implementation 15 6.1 Financial Aspects of Marketing Implementation 15 6.2 Marketing Implementation 16 Chapter 7 Budget 17 Chapter 8: Control 18 Reference List 20 Chapter 1: Introduction In the last 20 years, competitive dynamics of global car market has increased manifold due to market saturation, entry of new players etc (Cardenal and Garcia, 2013; Gerzema and D’Antonio, 2011). In such context, auto giants like BMW (in English, Bavarian Motor Works or in German, Bayerische Motoren Werke AG) are facing the challenge maintain the leadership position by innovating new products and implementing a robust marketing plan in order to in order to support its product diversification strategy (Cardenal and Garcia, 2013). In similar context, BMW launched i3 as its latest product innovation in order to exploit untapped market potentials (Cardenal and Garcia, 2013). As a result, this paper will focus on outline marketing plan for the next three years for BMW i3 and from strategic perspective, Porter’s Five Forces, Ansoff’s matrix, SWOT, Bowman’s Strategy Clock and Gutman’s (1982) Means-End Chain Model etc will be used to validate assumptions in marketing plan. Chapter 2: Current marketing situation 2.1 Internal analysis 2.1.1. Market Description It is evident from the report published by International Energy Agency (2013) that global electric vehicles sales is just over 180,000 units that is just 0.02% of total passenger cars. USA being the most prominent market for electric car with 38% market share (International Energy Agency, 2013). Figure 1: Sales Growth of Electric Car (Source: International Energy Agency, 2013) It is evident from the above figure that although the market for electric car is small but annual demand for electric cars is increasing at rapid pace. In USA, the electric vehicle market is being dominated by players like Tesla, Nissan but auto manufacturing giants like Ford, General Motors etc are also catching up the competition. International Energy Agency (2013) and AEA Technology plc (2009) identified two major market segments in electric vehicle industry such as battery electric vehicles (EV) and plug-in hybrid electric vehicles (PHEV). However, sales volume for plug-in hybrid electric vehicles (PHEV) contains 53% of total sales volume while the segment is showing double digit growth rate. In Context to US market, Tesla is the market leader with 43% market share while Nissan Leaf contributes more than 35% of market share. However, annual sales volume for electric cars in USA is less than 1, 00,000 while price range for electric cars varies within $19,500 to $75,000 (Motavalli, 2013). Demand for battery electric vehicles (EV) and PHEV is low due to reasons like, 1- lack of availability of charging stations, 2- poor battery backup of existing electric cars, 3- high price, 4- excessive time required to recharge the engine and 5-small holding capacity inside the car (International Energy Agency, 2013). 2.1.2. Product Review BMW i3 can be classified as plug-in hybrid electric vehicles (PHEV) that comes under hatchback segment. According report published by BMW (2008), the car is being designed with Lithium-Ion battery, electric engines, active cooling, power electronics, carbon-fibre etc. Such components have been used in order to make BMW i3 as zero carbon emission and light weight vehicle that can be used to satisfy environmental sustainability and mobility requirements of target customers. Globally, BMW i3 is being available in all three trim levels such as Terra, Giga and Mega (Autos, 2014; BMW, 2014). According to report published by Krix and Reinking (2014), BMW set target of selling 500 units globally for the first year but at pre-launch phases, ordered units has already crossed 10,000 marks. At this moment, the auto making giant has set the target to launch BMW during mid of 2014 in while the proposed retail price will be (without handling and destination) at US$41,350. In USA, customers will need to pay additional $925 for handling and destination (BMW USA News, 2014). Although, the car is premium priced and might not attract price sensitive customers but interesting fact is that demand for the car is growing at double digit growth rate among first time buyers. 2.1.3. Competitive Review It has been already mentioned that Tesla leads the electric car market with its Model S while other major competitors for BMW i3 will be Nissan Leaf, Audi E1, Daimler Smart, Chevy Volt etc. It has been found by the researcher that BMW i3 is being priced comparatively in contrast to its mainstream models and such competitive price will help the brand to compete with its competitors (AEA Technology plc, 2009). Although, Tesla’s Model S is the costliest car in the segment but is being regarded as best available electric car due to its long battery range and comparatively low cost of ownership (Krix and Reinking, 2014). Therefore, it is expected that BMW i3 will face stiff competition within global marketplace after its launch. 2.1.4. Distribution Review Due to restriction on international cross channel transfer of electric cars in some countries, small market size and selected product category, distribution channel for electric car has not been developed in full fledged manner. Products like Chevy Spark EV, Daimler Smart etc are being distributed to selected regions in countries like USA, UK etc. Another problem is that customers need to wait for many months after order processing to own electric cars. However, companies like Nissan Automobiles, Audi, Honda have invested money on establishing retail store and franchisee based distribution channels and also they are establishing charging stations in facilitate electric car ownership among target market. Tesla follows unique distribution channel where there is no dealers or commissioned sales executives of the company to sell cars. Online transactions are being done to sell the product while Model S is being delivered in built to order mode hence the distribution channel can work with zero inventory level (International Energy Agency, 2013). 2.2 Macro Environment Analysis (Porter’s Five Forces analysis) In the seminal research work, Porter (1980 and 1991) proposed five forces framework that can be used by companies in order to assess existing opportunity and threat in the market. 2.2.1. Bargaining power of buyers: Low-moderate Bargaining power of buyers in the electric car segment has reduced due to high switching cost and uniqueness of product offering for each electric car. Although, buyers can collaboratively put pressure on companies like BMW, Tesla etc to adjust the market offering as par their requirement but at individual level, these customers are too small to put pressure on auto manufacturing giants like BMW, GM, and Nissan etc. Products like BMW i3 offers multiple benefits including superior engine quality, long battery life and unique hatchback driving experience. With the increase of product features, choice availability as well as bargaining power of buyers get further reduced (Porter, 1985). 2.2.2. Bargaining power of suppliers: Low Companies like BMW, Tesla, GM, Nissan etc maintain strong supplier network and alternate sourcing channels in order to ensure steady backward integration during product manufacturing (Fan, 2008). Uniqueness of supply sourcing requirements for each car manufacturer makes it difficult for supplier to bargain on their demand and in some cases, companies like BMW uses in- house production facilities in order to meet its sourcing requirements. Abundance of large suppliers further decreases bargaining power of small level suppliers (AEA Technology plc, 2009). 2.2.3. Rivalry: High It has been already mentioned that global electric vehicle market is unsaturated in nature and companies like BMW, Tesla, GM, Nissan, Honda, Audi etc are spending money in research and development in order to lead the competition through product innovation. Most of the competitors are using competitive pricing policy in order to attract customers. Such activities have further increased competitiveness of the market (Krix and Reinking, 2014). 2.2.4. Threat from substitutes: Moderately High Segment wise, there is no direct substitutes for electric vehicles (EV) and plug-in hybrid electric vehicles (PHEV). However, in cross segment, cars running on bio-diesel or fuel efficient cars can be substitute of electric cars. Establishment of charging stations needs huge capital investment and cost of ownership of electric car is far greater than fuel fed cars. Even, price sensitive customers would like to avail public transports instead of owning high priced electric cars (AEA Technology plc, 2009). 2.2.5. Threat of New Entrant: Low Market size for electric cars is small and entry to the electric car segment requires year long commitment and huge amount of investment of financial and non-financial resources in research & development activities. It becomes difficult for new entrants to invest so many resources in launching electric cars without becoming sure about return on investment (ROI). As a result market attractiveness for new entrant decreases and threat of new entrant also gets reduced for the electric car segment (International Energy Agency, 2013). Chapter 3: SWOT analysis It is evident from the research works of Olson, Slater and Hult (2005) and Schaap (2006) that SWOT analysis can be used as functional basis of designing marketing plan. Therefore, the researcher will use SWOT analysis in order to substantiate assumptions of proposed marketing plan. 3.1 Strengths BMW has established strong market reputation and strong brand equity through product innovation, bringing technological revolution or catering need of target market in responsive manner. International Energy Agency (2013) and BMW (2008) reported that the company has made significant amount of capital investment in order to give shape to project I and as part of “Number One” strategy. Strong control of the company on every step in value chain helps them to stream line it strategy while wide distribution channel helps the company to reach target market in efficient manner (Jurevicius, 2012). The company uses its strategic business units and resource capabilities to drive constant innovation. 3.2 Weaknesses Till now, focus of the BMW is on luxury car and electric car segment. Market sizes of these segments are small and it becomes increasingly difficult for the company to earn sufficient revenue from this segment to finance other strategic initiatives. International Energy Agency (2013) predicted that hype regarding electric car might turn into short lived fad due to increasing ownership cost and research & development cost. In such context, the company might not achieve sustainable competitive advantage through its electric car segment. 3.3 Opportunities Customers who are aware concerned about environmental sustainability and technological evangelists who are ready to experiment with low capacity electric cars can be target customers for plug-in hybrid electric vehicles (PHEV) for BMW. The company can even decrease price of PHEVs in order to attract large base of price sensitive customers. BMW has opportunity to enter emerging markets and BRICS (Brazil, Russia, India, China and South Africa which are observing rapid industrialization boom and emergence of high net worth individuals (Jurevicius, 2012). 3.4 Threats Market for electric vehicle might get soon be saturated due to entry of international player and decreasing choice availability for customers due to existence of similar product portfolio. Economic volatility and fluctuation in currency exchanges can negatively impact demand for electric cars. High cost requirements for establishing charging station will further limit penetration of distribution channel for BMW. Chapter 4: Objectives and issues 4.1 Objectives According to report published by International Energy Agency (2013), BMW plans to achieve 20% to 25% market share in electric car segment within next 3 years. Krix and Reinking (2014) reported that the Company previously set target of selling 500 units of car fetching sales value of £17.5m but the actual sales was 20 times of that target. Taking help of such phenomenal growth, the marketing plan sets target of achieving 25% market share in the next 3 years. As of first quarter 2014, global volume sales of BMW i3 is inclining to touch 12,000 units. Considering existing growth rate annually, marketing target would be to achieve 50000 units by 2016 (International Energy Agency, 2013). 4.2 Issues There are issues that dampen the spirit of selling BMW i3 or even negatively affect the predetermined target of the marketing plan. First of all, BMW i3 is not being built to carry heavy loads or cover long distances. Therefore, recharging of dried up lithium batteries might be needed in order to keep the car running. At present, BMW has not been able to establish charging boots within short road distances and such disadvantages might create problem for BMW i3 during driving long distances. At present, most car garages do not have charging facilities. Price of the BMW i3 is on higher side in comparison to other hatchback electronic cars. Additionally, customers need to pay $925 for handling and destination of the car. As result, cost of ownership of the car gets increased. Due to presence of such negative factors, potential of the marketing plan might not be achieved within next 3 years. In order to adjust influence of negative market sentiments, the researcher has reduced magnitudes of different indices of marketing objective and smoothen the irregularity component in time series regarding sales projection. Chapter 5 Marketing strategy Allsop, Bassett and Hoskins (2007) and Martin (2009) pointed out that companies need to select its target market carefully otherwise it might end up wasting resources on marketing activities that for wrong target market. 5.1 Target Market & Positioning Although, BMW i3 has been priced comparatively lower in comparison to its mainstream automobiles but yet the price comparatively higher than price of existing electric hatchbacks. Krix and Reinking (2014) reported that BMWi3 is being mostly ordered by youngsters and first time car users. Therefore, possibilities are there that mature drivers might perceive BMWi3 as second car and they will not be ready to buy the product in first place. As the company is trying to position BMWi3 as eco-friendly product, therefore the company can use green marketing strategy in order to select its target market (Finisterra do Paco, Barata Raposo and Filho, 2009; Ginsberg and Bloom, 2004). Primary target market- aspirational drivers who do not have sufficient money to buy traditional BMW cars and those drivers who are concerned with environmental sustainability will be primary target market for the company. High price of the product might create purchasing barrier for this segment but the company can attract them by decreasing price and cost of ownership (Krix and Reinking, 2014). Secondary target market- existing BMW owners who might not be happy with low engine power and small size of BMWi3 but ready to spend money on the car in order to use it as second car, this segment can be secondary target market for the company. This target segment is loyal to BMW brand and ready to buy BMW i3 for their spouse or children who have started learning driving. Bowman’s strategy clock can be used to understand positioning of BMW i3. Figure 2: Bowman’s Strategy Clock (Source: Voropajeva, 2012) 5th component of the clock is appropriate for the product because BMW has positioned the product as zero carbon emission and lightweight environmentally friendly car but it is being target for focused market (Haytko and Matulich, 2008; Hood, 2012). Therefore, the car BMW i3 will be positioned in terms of its benefits such as superior design in comparison to other five door electric car, quality of driving, superior technologies and brand heritage of BMW. Tesla S is sedan category electric car hence there is no direct competition with BMW i3. As the price of the product is still high for its category, hence BMW i3 should justify the premium price by positing technological innovation and superior performance of the car among target market. Gutman’s (1982) Means-End Chain Model can be used to strengthen the positioning of BMW i3. Psychological level- eco-friendly aspect of BMW i3 would make target customers that buying the product would enable them to increase environmental sustainability of society. Functional level- superior technology, design and engine power will help drivers to enjoy comfortable BMW i3 ride. 5.2 Product strategy Product strategy for BMW i3 can be set on the basis of Ansoff Matrix. Figure 1: Ansoff Matrix (Source: Ansoff, 1987) Considering the model, it can be said the company is selling a green product that might not be suitable for large market segments due to low utility, low cost/benefit ratio, low resell value, high cost of ownership (McKay, 2010; Lee, 2011). According to Ansoff Matrix, BMW i3 should follow 2nd alternative of offering new product to existing market in order to drive more business revenue. In such context, BMW i3 should be targeted to customers who are ready to buy electric hatchback cars and the company has already presence in the target market, it will be less costly for the company to implement the marketing plan. As part of product strategy, the company should use of Lithium-Ion battery, electric engines, active cooling and power electronics in the car and even add more features that can attract target market. 5.3 Pricing strategy At this moment, proposed retail price for BMW i3 (without handling and destination) at US$41,350. In USA, customers will need to pay additional $925 for handling and destination (BMW USA News, 2014). The price is even higher in home country for BMW. As the BMW i3 is being high priced in comparison to Nissan Leaf, Audi E1, Daimler Smart and Honda Fit EV, hence, it is being suggested to the company that they should work with value chain partners in order to decrease price of offering. In future, two categories (low specification and high specification) of BMW i3 should be launched in order to offer the car within price range of US$30,000 to US$35,000. 5.4 Distribution strategy Online ordering system should be established by the company and contractual supply chain network might be used by the car maker to ease sourcing process. Closed supplier network will also help the company to technological innovation through value chain integration. On the other, dealership network, event sponsorships, commissioned sales executives, car shows and in-store sales promotion can also be used to sale BMW i3 to customers. In future, the company even establish partnership with car rental companies to enhance fleet sales for the product (BMW USA News, 2014). 5.5 Marketing Communication Strategy As part of above the line (ATL) promotional technique, BMW should use TV commercials, celebrity endorsement, bill boards to promote the product. In store electronic displays, car shows, car rallies, print advertisement etc to promote the product to private owners. In order to attract fleet buyers, the company can use road shows, commercial meetings, seminars for engage fleet managers. On the other hand, the company should invest significant amount of advertisement expenditure on social media advertising through Facebook, Hi5, and Twitter in order to engage online users (Smith, 2010; Smith and Brower, 2012). 5.6 Marketing research The company should hire global market research companies like AC Nielsen, IDC etc in order to conduct longitudinal study on customer needs, demand pattern for BMW i3, latest trend in electric car segment, buying pattern, reasons for customer switching etc. Based on the market research results, the company should formulate its marketing strategy. Chapter 6: Marketing implementation 6.1 Financial Aspects of Marketing Implementation Total budget for Year 1: US$ 30,000,000, Year 2: US$ 40,000,000 and Year 3: US$ 50,000,000 Sales Target for Year 1: 15,000 (US$ 6, 000, 000, 00), Year 2: 30, 000 ((US$ 12, 000, 000, 00), and Year 3: 50, 000 (US$ 200, 000, 000, 00), [per unit price of BMW i3= US$ 40, 000] Advertising Expenditure: 25% of the total expenditure, research & development cost: 20% of the expenditure, other marketing and operational expenses= 55% of the expenditure (Rauwald, 2013) Advertising expenditure will be reduced for each coming years and majority of the advertising expenses will be used for social celebrity endorsement, print advertisement, ATL promotions, and social media group formation, road shows and public relation activities. For targeting existing BMW users who might purchase the BMW i3 as second car, the company can use e-mail marketing. For fleet buyers, the company should invest financial capitals for establishing partnership with commercial buyers and car rent companies. 6.2 Marketing Implementation Table 1: Gantt chart: process of marketing implementation Year 1 Year 2 Year 3 ID Task Name Predecessors Duration Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 1 Market Research and target market identification 3 months 2 Launching 1 3 months 3 Roll out of advertisements 1,2 12 months 4 Follow up i3 series 1, 2,3 6 months 5 15% market share 1,2,3,4 6 months 6 Diversifying offering and identifying new segment 5 3 months 7 Achieving 15% market share through aggressive marketing 5,6 3 quarters 8 Fulfilment of marketing objective 6,7 0 [Note: Q= Quarter] Chapter 7 Budget Table 2: Projected Financial Expenses Description 2013/14 Cost US$ million 2014/15 Cost US$ million 2015/16 Cost US$ million Developing New Product R&D and evaluation of final product 60 65 70 Roll out of BMW i3 10 13 15 Subtotal 70 78 85 New market development Market research 5 7 10 Marketing activities 30 40 50 Subtotal 35 47 60 Sales Services Process Design 5 7 10 Roll out of the services 12 15 20 Subtotal 17 22 30 Grand total 122 147 175 Return on Investment Chapter 8: Control Following control intervention mechanism can be used by the BMW to address uncertainties regarding marketing of i3 models. 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