The Improvement of Online Marketing - BMW Films - Case Study Example

Name Course Professor Date BMW Films Introduction Originally founded in 1916, Bayenche Motoren Werke (BMW) was first established as a manufacturer of aircraft engines (Moon, 3). In 1929, the company produced the first automobile and the position of the company in the global market luxury segment had already been firmly established by the 1980s. BMW headquarters are based in Munich, Germany. BMW is one of the biggest automobile manufacturing companies and its main competitors in the luxury segment are also German based companies Audi and Mercedes Benz. The company has its presence felt globally with cars being sold in over 140 countries spread over five continents. Based on the demographic factor of age and gender, most of BMW customers are male, aged around 46 years with an average annual income of 150 000 USD. BMW focused on branding in the early 2000s in order to beat the competition in increasing annual sales, market innovation, and increasing market share. The company's focus on branding led to the establishment of BMWFilms that interested the young generation but the current customers were neglected. BMW achieved its record high sales in North America in 2000. With the record sales and no production of new models for about a half a year, the company took the opportunity to brand its name through the films on BMWFilms.com. The key goals of this marketing strategy were strengthened luxury segment brand image, attract the younger generation at the same time maintaining focus on the older generation, and enhance growth and maintain sales. Apart from the films, there was a conflict of interest on whether to expand the market segment to mass or stay in the luxury car segment. It would be an issue for the future because of the success that the BMW films as a marketing strategy would bring. The company release of the five new models in 2002 including the 3, 5, Z, X and 7 series was to target a different psychographic market in order to beat the competition. Case Premise BMW looked to be number one in the luxury cars segment of the automobile industry and this led to the company finding a solution to achieve this during a period of six months where no product was to be launched. The company, therefore, put in place current advertising technique, which was the BMW Films as a campaign for product placement. BMW competitors in the automobile industry started to use the same technique by focusing on movies, videos, and performance. Marketing Issues. The company faced several marketing issues. Ensuring that the company’s marketing was maintained at high productivity and creativity. There was a conflict of interest on whether to expand the market segment to mass or stay in the luxury car segment. Third, was how the company would increase brand loyalty and get both the old and young consumers. Finally, the company looked for ways to become a leader in the luxury market segment and ensure growth in relation to market share. These issues led to the establishment of the Hire in 2001, which was basically a branding strategy using entertainment. Important aspects of the strategy included five short films that would sell a lifestyle to the consumers with BMW as actors in the films. The films are named Chosen, The Follow, Ambush, Powder Keg, and Star and were available on the company's official website (Moon, 26). Objectives and Goals of BMW Films "Our goal was to produce the most exciting, the fun thing people had ever seen come out of their computer. To create something so involved that people would remember the experience ten years down the road” (Moon, 26). With the Films would attract the younger consumers which the company viewed as the next generation of customers. Secondly, the brand image would be strengthened and growth sustained. Finally, the marketing efficiency would be maintained and this would lead to a rise in sales. Results of BMW Films The results of the marketing and advertising strategy of using BMW Films were instant and excellent. BMW was able to achieve a strengthened brand image, gained an advantage as a fast mover, increase sales by 12%, and new customers were reached. Positive reviews from the customers and the awards received by the company due to this advertising strategy summarizes the excellent results gained. Major Competitor Analysis BMW has many competitors in the automobile production industry but its main competition in the luxury cars segments are Mercedes-Benz, Audi, Porsche, and Lexus. Mercedes-Benz is a Germany-based company with its headquarters in Stuttgart. Founded in 1926, Mercedes employs over 280,000 people and averages a revenue of 130 Billion Euros since 2014. Mercedes also has partnerships with Daimler AG and with over 4 million USD spent on research and development recently it is bound to offer tight competition. The gross profit margin of Mercedes-Benz is +1% that of BMW at approximately 21%. Audi is also a German based company with its headquarters in Zwickau and is one of the oldest automobile companies founded in 1909. Volkswagen has been joint with Audi as since 1966 as a wholly owned subsidiary. The company employs over 70,000 people and with about 200 billion Euros in revenue since 2014, the company is a major global force in the automobile industry. Audi annual net profit margin is +1% better than BMW’s at 8.23%. Porsche and Lexus also offer competition to BMW but were founded later than Mercedes and Audi. Porsche was founded in 1931 also in Stuttgart, Germany. The company has a small number of employees compared to the other competitors at around 20,000. Nevertheless, the company still generated an annual revenue of 14.33 Billion Euros compared to 76 Million Euros for BMW in 2013. This clearly shows the level of competition the company offers to the luxury car segment of the automobile industry. Lexus is the youngest of the major competitors, founded in 1989 in the United States of America with Toyota being its parent company. Being one of the fastest growing companies in the luxury car segment, the company has generated and an average of 20 Billion USD since 2013. SWOT Analysis and Strategy Formulation Strengths Strong and valuable global brand. Inter-brand reported in 2015 that the BMW brand is ranked third in terms of value among the global automobile brands (Interbrand, n.p). Forbes values BMW at 28.8 Billion USD and second in the automobile industry (Forbes, n.p). The brand value, which relates to brand name and reputation depicts that BMW has a high brand recognition and thus an advantage competitively. Diversification in terms of the market. BMW does not entirely depend on the home market for revenue since its diversification geographically has allowed the company to earn revenue from different markets globally. The table and chart below show the company revenue and sales volume in 2015 by country respectively. Revenue by Country (BMW Financial Report, 2015). COUNTRY REVENUE (Euro Billions) Rest of Europe 28.617 Rest of America 3.361 Germany 13.394 USA (North America) 18.155 China 15.856 Clearly developed strategies to ensure that the future trends and challenges would be dealt with. The current company strategic plan known as ‘Strategy Number One’ shows where the company directs focus. The strategic plan is based on three mobility issues (Bhandari, et al., 34). E-mobility, which is hybrid electric vehicles as the future of the automobile industry. Mobility services based on connectivity and digitalization. Autonomous driving which presents a clear transitional vision to autonomous luxury vehicles. Strong innovation especially in marketing and advertising as proven by the BMW Films that led to an increase in sales by 12%. Weaknesses Inadequate product differentiation due to an automotive brand portfolio that is poor. The company’s product portfolio is small and medium luxury vehicles. It lacks differentiation, as it does not produce commercial vehicles and trucks including pickups. Inadequate partnerships and acquisitions has limited the company regarding expansion and growth of the market. High prices on the vehicles. Production of vehicles to target the low and middle-income earners do not exist a BMW and this becomes a disadvantage to the company. Large debts, which as at the year 2015 was at the highest levels ever recorded in the history of the company. The debt levels have achieved significant growth over the past few years amounting to 130 Billion Euros by 2015. The large debt is a limiting factor when it comes to investing especially in research and development. BMW Debt from 2012 to 2015 (BMW Financial Report, 2015). 2012 2013 2014 2015 DEBT (Euro Billions) 101.229 102.777 117.386 129.410 Percentage Yearly Growth - 1.5% 14.2% 10.3% Opportunities The Euro exchange rate is weakening and since from the revenue table previously shown, a majority of the company revenue is from the Eurozone this becomes an advantage. The low rate of exchange between the Euro and US dollar means that the company vehicles become cheaper for citizens in the United States. The timing of releasing new models by the company, which determines the market share in the automobile industry. Upgrading of models in the current market scope requires frequent production due to customer demands and preferences and the company is well positioned to perform these upgrades. With an expected demand for autonomous vehicles, BMW is expected to increase its sales as more resources have been put in research and development of these models. With an expected rise in fuel prices, the demand for small to medium luxury vehicles is expected to rise therefore providing an opportunity for BMW to increase sales and revenue. Creation of new products such as Minivans and SUVs will lead to an attraction of new market segments. New opportunities in relation to marketing on both the unconventional and traditional methods. Threats The automotive market industry has had a significant rise over the past few years concerning competition notwithstanding the fact that the industry was already competitive. With new companies, for example, Telsa that is focusing on electric vehicles it will be a highly competitive market for BMW. In 2001, for example, the company faced extreme competition from companies such as Ferrari, Audi, Saab, Porsche, Lexus, Mercedes-Benz, Volvo, Infiniti, and Jaguar. With most of these companies restructuring and new entrants, there is an expected increase in competition in the automobile industry since some of them offer the luxury cars at lower prices compared to BMW. The automobile market industry is expected to slow over the coming years because of oversaturation according to research from different competitors General Motors and Ford. Emerging copycat companies that produce the same products as BMW. Strategy Formulation Strength-Opportunity (SO) Strategies SO strategies utilize the internal strength of an organization to take advantage of external market opportunities (Bhandari, et al., 67). Many organizations and its managers prefer to be in such a position and thus the first SO strategy developed was to produce new car models and versions using the innovation, research and development skills to meet the opportunity created by the lower income group of earners, this includes S1 and S2 to meet opportunities O2 and O3. The second strategy is the introduction of new version of vehicles such as environmentally friendly models as an establishment of the green brand and this creates an opportunity for expanding the brand portfolio. The third strategy is the development of infrastructure such as warehouses and sales points in underdeveloped areas to create an opportunity for expanding the global market share. Weakness-Opportunity (WO) Strategies WO strategies are essential in the utilization of external market opportunities to improve an organization's internal weaknesses (Kozami, 112). It is often clear in situations that there exist major external opportunities but the internal weaknesses of the company hold it back from taking advantage of the opportunity. The first strategy is to expand to new markets such as the inclusion of lower income consumers. This combines the inadequate product differentiation weakness and high prices on product weakness and the opportunity of expanding into new markets. Another WO strategy developed is building and expanding warehouses in the lucrative Asian and American markets. This strategy is a combination of the inadequate product differentiation weakness and the opportunity for international market share expansion. The third strategy is forming partnerships in terms of acquisitions and joint ventures especially in the Asian market to take advantage of the rapid rate at which the industry is growing in the region. The third strategy is a combination of the company weakness of inadequate partnerships and acquisitions and the opportunity for expected automobile industry market growth. Strength-Threat (ST) Strategies ST strategies entail making use of the strengths of the organization to deal with the effects of external threats of the market. Sometimes it is important for business organizations to avoid the impacts of threats instead of taking advantage of the opportunities to ensure that its competitive advantage is maintained (Bhandari, et al., 70). The first ST strategy is to increase marketing to the customers that are loyal to its competitors. This strategy combines the strength of BMWs strong global brand and the threat of increased competition. The second ST strategy is to ensure customer satisfaction through meeting all their demands and needs. This second strategy takes advantage of the strong innovation as a strength of BMW to deal with the threat of copycats that have been emerging and producing the same products as BMW. The final strategy is to produce products that are of high quality and are of value to the customer. This strategy involves the strengths of innovation and diversification of product and the threat of increased competition from rival firms such as Mercedes and Porsche. BMW will find new technological ways through its innovative strength to increase the quality of product and ensure value for the customer and thus sustain its advantage competitively in the luxury car segment. Weakness-Threat (WT) Strategies WT strategies employ tactics to deal with an organization's weaknesses and therefore avoid external market environment threats (Kozami, 114). Most of the organizations that take up this kind of strategies are often fighting for market survival. Even though BMW has never reached this stage, there is need to formulate strategies nonetheless. The first WT strategy to reduce production cost. Reduction in the cost of production involves dealing with the high debts the company has accumulated over the past decade to deal with the imminent threat of the automobile industry slowing down due to oversaturation. Another WT strategy is to reduce the cost of materials to deal with the rising costs of raw materials. This strategy also will aim at dealing with the high debts by the company in the last few years, which will deal with the projected imminent threat of the automobile industry slowing down due to oversaturation. STRENGTHS-OPPORTUNITIES (SO) STRATEGIES Meet the lower income group consumers by offering more models (S1, S2, O2, O3). The introduction of new version cars to the market (S3, O2, O4). Develop infrastructure in areas where the company is underdeveloped in terms of sales points and warehouses (S1, S4, S5, O1). WEAKNESSES-OPPORTUNITIES (WO) STRATEGIES Expand sales to new markets (W1, O1, O2). Build warehouses for spare parts in Asia and USA (W2, W3, O1). Form partnerships with other automobile companies that sell cheaper cars (W4, W5, 04). STRENGTHS-THREATS (ST) STRATEGIES Increase marketing to customers that are loyal to its competitors (S1, S2, T3). Ensure customer satisfaction (S2, S4, T1, T3). Produce products of high quality and value. (S5, T1). WEAKNESSES-THREATS (WT) STRATEGIES Reduce Material Costs (T1, T2, W2, W3). Reduce production costs by producing in cheaper nations (W2, T2). Compare itself with other automobile companies in terms of maintaining market share (W1, T3) SPACE Matrix Strategic Position and Action Evaluation (SPACE) Matrix entails external and internal dimensions (Dyson, 75). SPACE Matrix is essential in determining the overall strategic position of an organization. The positions include competitive and financial positions, which are internal dimensions while stability and industry position are external dimensions. A ranking is provided for each component of the positions depending on how BMW performed in them. The number 1 in the ranking represents the poorest performance and 7 being the best. The overall SPACE Matrix is found in Appendix A. Financial Position The financial position of an organization entails the cash flow, earnings per share, leverage & liquidity, and return on investment (Koontz, 16). BMW Cash flow statements return a negative number and thus it is rated at two. The current return on investment for BMW is 6.7% and this is ranked at seven. In simple terms, it depicts that BMW returns are six times the investment. Many organizations have their ROI at 3% during good periods and this means that BMW is performing well. BMW leverage ratio is at 4.4. This ratio shows that BMW has $4 in assets for every equitable dollar. The leverage ratio is ranked at 4 since it is classified as risky. Liquidity is analyzed by considering the cash, current, and quick ratios. As of 2015, the quick ratio was 0.8, current ratio 0.96, and cash ratio 0.22. Considering these ratios, the liquidity is given a ranking of four. Earnings per share (EPS) for BMW is at 8.8 and this is good since Mercedes-Benz, which is a competitor, has an EPS of 6.5. BMWs EPS is therefore ranked at six. Competitive Position The ranking for an organization's competitive position is formed negative one to negative seven. Negative one being the best and -7 being the worst. Compared to its competitors, BMW as the largest market share as shown in Appendix B and thus the market share is given a ranking of negative one. Product quality compared to most of its competitors is low as proven by the recalling of about 1.6 million cars recently and thus it is ranked negative five. Customer loyalty for BMW is at approximately 32%, which is second among its competitors and thus ranked negative 2. Control over distributors and suppliers for BMW is ranked negative one, as the company has not had significant problems with its supply and distribution networks. Employee acquisition and training at BMW is effective as a two-year experience, factory training is required for any job applicants at the company, and thus it is ranked at negative two. Industry Position Analysis of the industry position includes financial stability, growth potential, productivity, resource utilization, capacity utilization, and ease of market entry (Kozami, 43). Ranking of these aspects start from one to seven; seven being the best and one being the worst. Financial stability at BMW is ranked three with an average annual net profit margin of approximately 6% compared to about 21% for Mercedes-Benz. Ease of market entry for BMW is six since new competitors often find it hard to enter the market the last being Tesla in 2002 and before that, it was Lexus and Porsche in 1989 and 1931 respectively. Resource utilization for BMW is ranked seven due to increase in resources allocated to research and development. Productivity or capacity utilization is also given a ranking of seven since the company is distributed across fourteen countries on four different continents. The growth potential is ranked at seven due to the large company market share. Stability Position A company’s stability performance is analyzed depending on demand variability, technological changes, the rate of inflation, competitive pressure, and price range of competing products (Koontz, 18). Ranking starts at negative one to negative seven just like in the competitive position. Compared to Audi and Mercedes-Benz, which are its main competitors, BMW's price is lower and thus price range of competing products is negative two. Inflation rates influence to the company is negative three as proven by the dipping rate of 7.5% due to the last inflation period in 2012. Competitive pressure for BMW is at negative seven as the company has been impacted by competitive pressure before, in 2001. Demand variability has had a significant impact on BMW and thus it is ranked at negative six. Finally, technological changes at BMW is ranked at negative two due to the innovative nature of the company, which has allowed for great technological advancements in the global automotive industry. Conclusion and Recommendations BMW Films was a successful market strategy for BMW a seen by the instant success factors it brought to the company including achieving a strengthened brand image, gaining an advantage as a fast mover, increasing sales by 12%, and reaching new customers. However, some improvements and recommendations can be implemented to ensure that the company maintains a competitive advantage over its rivals in the automotive industry. Overall, the company needs to keep the focus on both the current and future customers to increase sales and thus focus on online marketing and improved focus on production quality are major strategies to ensure this is achieved. Some of the recommendations include. First BMW can increase locations of their advertisements and at the same time target their adverts to the current customer. The working male in the upper-middle-class earnings could be targeted better. Moreover, the BMW Films and other company advertisements could be expanded to other platforms such as the BusinessWeek, finance.yahoo, The Wall Street Journal and DVDs to be distributed by several retailers. Improve the focus on the quality of vehicles and reliability to avoid issues such as the recall of over 1.5 million vehicles in 2013/2014. By increasing the brand portfolio, BMW can attract new customers to its product brands (Kozami, 94). A good way of achieving this is the acquisition of a lower performance company. Although it is an involving strategy in terms of resources, the results can be fruitful since it would allow the company to satisfy the needs and demands of the lower class consumers. A focus of the advertising technique on the strong markets of North America and China should also be on the cards for BMW. This will aim at reducing costs of production and thus increase profit margins beating its competitors. Since 85% of the target customers are internet users, BMW should maintain the films alive and introduce other online marketing techniques through increasing resources allocated to it. With online marketing, the company would be able to satisfy customer needs and expectations for related contents in the future (Ginty, 43). Improve traditional advertisements for example TV or Luxury car magazines to retain the old generation customers. Strategy Implementation The improvement of online marketing would be achievable through an increase in resource allocation to the same (Newlands, 28). The resources include human resource, time, and money. Moreover, improvement of the quality of production also through resource allocation would improve revenue, assets, and profit margin by up to 5%. Nevertheless, there would be a projected rise in expense and debt due to the allocation of more resources. With this as a factor, there, however, will be an increase in overall profits and market share due to more sales. Works Cited Bhandari, Arabinda, and Raghunath P. Verma. Strategic Management: A Conceptual Framework. New Delhi: McGraw-Hill, 2013. Print. BMW Group. “Annual Financial Report 2015.” 2015. Accessed June 8 2017 from: https://www.bmwgroup.com/content/dam/bmw- groupwebsites/bmwgroup_com/ir/downloads/en/2015/12784_GB_2015_engl_Finanzberi cht_Online.pdf. Dyson, Robert G. Strategic Planning: Models and Analytical Techniques: [articles. Chichester, West Sussex, England: Wiley, 1990. Print. Forbes. "The World's Most Valuable Brands." 2016. Accessed June 8, 2017, from http://www.forbes.com/powerful-brands/list/ Ginty, Maura, Lauren Vaccarello, and William Leake. Complete B2b Online Marketing. Hoboken, N.J: J. Wiley & Sons, 2012. Print. Interbrand. "Best Global Brands 2016." 2016. Accessed June 8, 2017, from http://interbrand.com/best-brands/best-global-brands/2016/ranking/ Koontz, Harold, Heinz Weihrich, and Heinz Weihrich. Essentials of Management: An International Perspective. New Delhi: Tata McGraw-Hill, 2007. Print. Kozami, Azhar. Business Policy and Strategic Management. New-Delhi: McGraw-Hill Published, 2005. Print. Moon, Youngme. “BMW Films,” Harvard Business School, October 12, 2005, 502(046): 1-26. Newlands, Murray. Online Marketing: A User's Manual. Chichester, West Sussex: Wiley, 2011. Print. Appendices Appendix A Appendix B Read More