Business Strategies Used by BMW Group - Case Study Example

Industry Analysis - BMW Group - Number and Number Number of Words: 2,028 Introduction BMW Group is one of the finest automobile and motorcycle brands available in the market. Under the BMW Group includes three of the world’s famous automobile brands which include: BMW, MINI, and Rolls Royce (BMW Group 2010). After restructuring the business plan back on the 30th of November 1960, the company managed to remain strong despite its past financial and economic crisis (BMW Group 2010 b). As a sign of business success, the company managed to sell a total of 1,319.827 automobile units or 19.8% higher as compared to the sales volume of BMW back in November 2009 (BMW Group 2010 c). (See Appendix I – Summary of BMW Group’s Sales as of November 2010 on page 10) This report will focus on analyzing the business strategies used by BMW Group. Using Porter’s generic strategies, strategic choices of BMW will be identified followed by identifying the key resources and capabilities of BMW in support to its strategic choices over the past five years. After evaluating how BMW’s strategic choices has lead to the development of sustainable competitive advantage, this report will discuss the extent of BMW’s ability to meet the critical success factors for the automobile sector over the last five years. Prior to conclusion, criteria of “Suitability, Feasibility and Acceptability” will be used to further evaluate BMW’s current strategies against possible future competition in the global market. Strategic Choices of BMW The ability of BMW Group to position its BMW, MINI, and Rolls Royce brand as automobiles that offers the users a “cutting edge technology” combined with unique designs that makes the cars different from other regular automobiles (Rolls Royce 2010). This strategy enables BMW, MINI, and Rolls Royce demand a premium market price for its masterpiece. As explained by Porter (1985, p. 11), “the fundamental basis of above-average performance in the long-run is sustainable competitive advantage” for the company. In other words, the ability of BMW Group to sell its automobiles higher than the average market price enables the company to have a competitive advantage over its competitors. One way or the other, this factor made the company more successful over the past five years. Using Porter’s generic strategies, it is possible to identify the strategic choices of BMW Group. Within a broad market scope, BMW Group was able to create competitive advantage over its competitors because of its differentiation strategies (Porter 1985, p. 11). As part of BMW Group’s differentiation strategy, the company manufactures unique luxury and high performance automobiles by investing on new technologies like the hybrid- and electric-motors aside from the Efficient Dynamics (BMW Group PressClub Global 2010 b). This particular strategy is clearly a part of the company’s mission statement which states that “In 2020, the BMW Group will be the world’s leading provider of premium products and premium services for individual mobility” (BMW Group PressClub Global 2010 b). Cost leadership or low cost competency also enabled BMW Group to have competitive advantage over other automobile companies. In line with this, the management of BMW Group is manufacturing and selling unique BMW, MINI, and Rolls Royce automobiles made out of cutting edge technologies at a premium market price (Rolls Royce 2010). Aside from taking advantage of low salaries and wages by expanding its manufacturing plant in China and Germany, the company effectively controls its direct material and operational costs by implementing collaboration with its accredited suppliers and business partners (BMW Group PressClub Global 2010 b). Likewise, the practice of using standard automobile components and limiting the number of available automobile models in the market also enabled the company to reduce the cost of production (Porter 1985, p. 12). Within a narrow market scope, BMW Group was able to gain competitive advantage over its competitors because of its ability to establish a good market segmentation strategy which aims to focus on selling BMW, MINI, and Rolls Royce automobiles to elite group of individuals throughout Europe, America, South Korea, South Africa, and Asia particularly in China and Japan (BMW Group PressClub Global 2010). By limiting the selling of BMW, MINI, and Rolls Royce automobiles to the upper market segment in each of its target countries, the company is able to maintain the prestige of its brand equity without sacrificing its annual corporate sale and profitability. Ways on How BMW’s Strategic Choices has Lead to the Development of Sustainable Competitive Advantage The ability of BMW Group to establish strong brand equity has lead to the development of its sustainable competitive advantage over its competitors. According to Yoo, Donthu and Lee (2000), perceived quality, brand loyalty, brand awareness and brand associations are the common dimensions of brand equity. Because of perceived product quality, BMW’s target consumers may end up purchasing a unit of BMW, MINI, or Rolls Royce automobiles. In the process wherein the public consumers are using BMW automobiles, brand awareness is being established. Once these customers are satisfied with the product, repurchasing automobiles of the same brand is possible. Because of strong brand association, brand loyalty in most of its satisfied customers is possible (Bennett and Rundel-Thiele 2005). Even though BMW Group is capable of keeping its operational cost low, the company continuously sells its premium automobile at a premium price because of its differentiation strategy (Porter 1985, p. 14). Selling its premium automobiles at a premium price will also enable BMW Group to preserve the prestige of the equity of its brand (Anselmsson, Johansson and Persson 2007; Ailawadi, Donald and Neslin 2003). In line with this, the money that is being saved out of the material and operational cost will be used in further business expansion and investment on new technology which will enable the company maintain its differentiation strategy. The Extent of BMW’s Ability to Meet the Critical Success Factors for the Automobile Sector over the Last Five Years One of BMW Group’s critical success factors includes the company’s strong brand equity and brand image (Bennett and Rundel-Thiele 2005; Yoo, Donthu and Lee 2000). Since BMW, MINI, or Rolls Royce automobiles are known for its high cutting edge technology in terms of its automobile engine and unique automobile designs, the company is capable of selling the product at a premium price despite the recent global economic challenges. Despite the global economic crisis, the company’s strong brand equity enabled the company maintain its position as a globally known premium brand of premium luxury cars. Aside from having a strong brand image, the company’s effective market segmentation strategy is another critical success factors that contributes to the company’s success (BMW Group PressClub Global 2010). Since the company was able to clearly identify its target market, the company was able to create effective marketing materials that could entice its target consumers to purchase at least one unit of BMW, MINI, or Rolls Royce automobile. The company’s credibility as a reliable manufacturer of premium cars also contributes to BMW Group’s success. Since the brand of BMW, MINI, or Rolls Royce are widely known around the world, the company’s target consumers are less likely to become sceptical about purchasing the product. Because of the positive testimony coming from its loyal customers, many of the company’s target buyers are able to establish a strong brand awareness which could eventually lead to brand loyalty (Bennett and Rundel-Thiele 2005). Another factor that contributes to BMW Group’s success is the effectiveness and efficiency of its official websites in terms of communicating its latest automobile models to its target consumers (BMW Group, 2010). Since the company managed to improve its Search Engine Optimization (SEO), its potential buyers are able to easily enquire about the company’s latest car models that are readily available in the market (Enge et al. 2010, p. 2). On top of having a reliable corporate website, the company also allows its target buyers to test drive their preferred car models to encourage them to close the business transaction within the shortest possible time (BMW 2010). Another critical success factor of BMW Group includes the company’s ability to keep its operational cost low aside from its ability to continuously sell its luxury automobile at a premium price (Porter 1985, p. 14). In line with this, the company’s effort to keep down the real cost of its operations and cost of its materials by implementing collaboration with its accredited suppliers could somehow protect the business standing in times of global economic crisis. Aside from keeping the company financially stable, the extra amount of money that will be saved out of tight management control over its finances can be used for the continuous business expansion and future investment on technology. The company has recently invested on new technologies such as the hybrid- and electric-motors aside from the Efficient Dynamics (BMW Group PressClub Global 2010 b). In line with this, the company’s decision to continuously upgrade its automobile technology is one of the critical success factors that enabled the company maintain its market position as one of the best automobile manufacturers of high-end cars. By continuously investing on product development, BMW Group is capable of entering or penetrating a new market by creating a new market development. (See Appendix II – BMW Group’s Long Term Strategy on page 11) Further Evaluation of BMW’s Current Strategies against Possible Future Competition in the Global Market Upon analyzing the current strategies used by BMW Group, it is clear that the company has already protected the company from any forms of corporate weaknesses which may arise out of future competition with other automobile companies that manufactures luxury cars. The company’s strategy to invest on product development will enable BMW Group penetrate its existing and future target markets. For this reason, the company’s decision to invest on new technology is one step ahead in terms of enabling BMW, MINI, and Rolls Royce sustain its brand equity as one of the best luxury automobile brands available in the world market. Specifically the company’s effort to cut down its operational and cost of materials could make BMW Group’s investment on new technology and business expansion in Germany and China feasible. Because of the company’s strong brand equity and good market performance, BMW Group can easily avail bank loans based on the company’s agreed terms with its chosen bank. This strategy will support the financial cost of BMW Group’s future strategies. The target buyers of BMW, MINI, and Rolls Royce are expecting BMW Group to design and manufacture better performing luxury cars as compared to what the company is already selling in the market. For this reason, there is a very strong possibility that the company’s target buyers and stakeholders would readily accept and support the current strategies used by the BMW Group (Jeffs 2008, pp. 105 – 106). Conclusion and Recommendations BMW Group’s current strategies are effective not only in terms of enabling the company maintains its market position as one of the best luxury car manufacturer but also enables the company sustain the challenges that may arise out of market competition within the next 10 years. Specifically the company’s decision to cut down its operational cost and cost of materials by implementing a strong collaboration with its accredited suppliers and business partners is one of the best strategies that will enable the company financially support its future business expansion and investment on new technology. By doing so, the company will be able to preserve its brand identity in the global market. To enable BMW Group preserve its brand equity, it is highly recommended that the company should continuously preserve its loyal customers by providing them with the best quality service possible. Aside from constantly upgrading the machine technology of its existing cars, the company should also consider the type of automobile design its target customers would prefer. For example: It would be a good idea for BMW, MINI, and Rolls Royce to design a mini-van which can be marketed to its target buyers with big family size in other countries. In line with this, the company can conduct a market research study with regards to the specific needs and wants of its target buyers. This strategy will narrow down the line between what specific type of automobile should BMW, MINI, and Rolls Royce manufacture and the preferences of its target market. *** End *** Appendix I – Summary of BMW Group’s Sales as of November 2010 Source: BMW Group PressClub Global 2010 Appendix II – BMW Group’s Long Term Strategy References Ailawadi, K., Donald, R. and Neslin, S., 2003. Revenue Premium as an Outcome Measure of Brand Equity. Journal of Marketing , 67(4), pp. 1-17. Anselmsson, J., Johansson, U. and Persson, N., 2007. Understanding price premium for grocery products: a conceptual model of customer-based brand equity. Journal of Product & Brand Management , 16(6), pp. 401-414. Bennett, R. and Rundel-Thiele, S., 2005. The brand loyalty life cycle: Implications for marketers. Journal of Brand Management , 12, pp. 250–263. BMW, 2010. 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Competitive advantage: creating and sustaining superior performance. New York, NY: The Free Press. Rolls Royce, 2010. Official Website. [online] Available at: [Accessed 8 December 2010]. Yoo, B., Donthu, N. and Lee, S., 2000. An examination of Selected Marketing Mix Elements and Brand Equity. Journal of Academy of Marketing Science , 28, pp. 195-211. Read More