The automobile industry has had a turbulent ride in the past few years due to economic conditions. Fierce competition and globalization has made manufacturers strive for their market shares. Customers expectations, product innovation, differentiation strategy and high levels of Research and Development have been the major area of focus for the industry.
Bayerische Motoren Werke (BMW), which initially entered as an aircraft manufacturing company in 1917, had to end its production after World War I in 1923 due to the Versailles Armistice Treaty. BMW then made a shift to production of motorcycles in 1923. Finally, BMW started the production of cars in 1928 and today is one of the biggest automobile manufacturers across the globe.
This case highlights the birth of BMW Group in the United Kingdom (UK) along with the key issues faced by the company, its marketing strategies, core competencies, industry competition and brand positioning of BMW.
Key words: BMW, growth in the UK, brand positioning, marketing strategies, company issues.
Background:
One of the ten largest car manufacturers in the world, Bayerische Motoren Werke (BMW) has a long history of excellence. Founded in 1916, headquartered at Munich Germany, BMW started its United Kingdom (UK) operations in 1980 (www.bmweducation.co.uk). The BMW Group also provides financial and information technology services such as customer relationship and supply chain management. Through sturdy company customs, thorough engineering, and pioneering innovations BMW Group has been able to establish itself as manufacturers of one of the most elite vehicles on roads today.
UK is the third largest market in terms of sales and the second biggest in terms of production base (www.bmw.co.uk). “The BMW Group has invested over £800 million in its UK operations since 2000.” (www.bmw.co.uk).
UK is the only country where all the three of the BMW Group brands- BMW, MINI and Rolls-Royce are manufactured (www.bmw.co.uk). BMW (UK) Ltd employs 8000 employees and 11,000 people across a 158 strong dealer network. BMW Group was the first major automobile producer to get certification to the international environmental management standard ISO14001. The company markets its vehicles through company-owned showrooms, subsidiaries, independent dealers and importers.
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Since its foundation, the BMW brand has stood for one thing, “sheer driving pleasure.” Sporting and dynamic performance of its cars combined with peerless design and exclusive quality, has resulted in the unique appeal of BMW automobiles (www.bmwgroup.com). “The principal strategies are to identify potential and encourage growth, knowing what they represent, recognising where their strengths lie and making the best use of every opportunity.” (www.bmwgroup.com). The automobiles division develops, manufactures, assembles and sells passenger cars and off-road vehicles under the brands of BMW, Rolls-Royce and Mini. The exceptional success of the company during the past years can be a sketch of their strategys precision.
“The mission statement up to the year 2020 is clearly defined: the BMW Group is the worlds leading provider of premium products and premium services for individual mobility.” (www.bmweducation.co.uk)
Birth and growth of BMW in UK:
BMW (UK) Ltd expanded its operations in 1994 by taking over the British Rover Group (www.bmweducation.co.uk). This included reputed brands like Rover, Land Rover and Mini cars.
BMW Group saw enough potential in the Rover Group and decided to enter the mass car market in the UK. This strategy was also supported by the UK government as it would allow investment opportunities and help in exploring new export markets. This however, did not go as BMW Group had planned. The company incurred huge losses after the takeover and sales declined. This led BMW Group to sell the Land Rover operations to Ford. BMW (UK) Ltd and Rover split in May 2000 (www.bmweducation.co.uk). However, BMW (UK) Ltd decided to continue with the Mini brand.
BMW Group acquired Rolls-Royce from Volkswagen in 1998 and attempted to expand the luxury segment. This turned out as a direct competition to Mercedes Maybach and was successful in biting into its market. The turnover of BMW (UK) Ltd was £ 3.3 billion in 2008.
The production of BMW (UK) Ltd Mini has never been able to live up to the demand all over the world. This led BMW (UK) Ltd to re-evaluate its manufacturing process along with technology. The new strategy was derived in 2006 to handle this and is called ‘production triangle (www.mini-production-triangle.com). The final assembly of cars and body shell are done at the plant at Oxford. The Hams Hall plant is used for outsourcing engines. Swindon plant handles the fabrications and major pressings. Therefore, the advantage gained at one plant is transferred to other to enhance the process. Heavy presence of KUKA robots along with a strong integration of the ‘production triangle the production of Mini has been highly increased (Mortimer, 2008). Therefore, this production triangle of the three BMW (UK) Ltd plants can be highlighted as a major core competency because it has resulted in a growth in the production and an increase in the sale of Mini all over the world.
BMW (UK) Ltd spends a huge amount of money in terms of R & D on its cars. This is the reason why BMW (UK) Ltd, as their core competency has innovated engines like Hydrogen combustion engine, hydrogen H2R and straight six petrol engine.
Positioning and Branding of BMW:
“The positioning concept indicates how the management wants buyers to perceive the companys brand” (Cravens and Piercy, 2009). “A clear positioning strategy can insure that the elements of the marketing program are consistent and supportive.” (Cravens and Piercy, 2009). In this regard BMW has positioned the brand as the lone automobile that offers both luxury and performance. Its German legacy and reliance on designs, along with a clever marketing strategy, BMW has been able to achieve (1) a point of difference on performance and a point of parity on luxury with respect to luxury cars and (2) a point of difference on luxury and a point of parity on performance with respect to performance cars. The clever slogan, “The Ultimate Driving Machine,” effectively captured the newly created umbrella category-luxury performance cars.
“The positioning strategy is the combination of marketing program (mix) strategies used to portray the positioning desired by management to the targeted buyers.” (Cravens and Piercy, 2009).
BMW (UK) Ltd has led its marketing programmes in various ways. The successful marketing of BMW through media and film industry adds to its advantage and creates an appeal for its customers. “Colour press for example: Tatler, Vogue, lifestyle magazines, motoring publications, broadsheet newspapers and tabloid newspaper weekend colour supplements. BMW has strongly influenced customers through media and film industry” (Source: BMW education programme). BMW cars have made their presence in Bond movies like Octopussy, Golden Eye, Tomorrow Never Dies and The World Is Not Enough (www.bmweducation.co.uk).
“Global publicity, communicated in partly subliminal means and partly by overt ones, is positive and important, because it reaches a wide section of the public quiet often on a world-wide scale” (www.bmweducation.co.uk).
BMW (UK) Ltd has managed to market the products in a differentiated way. The concept of BMW Art Car was started in 1975 (www.bmweducation.co.uk). BMW Art Cars are displayed in museums and art galleries across the world, like The Royal Academy of Arts in London (www.bmweducation.co.uk). In the last 20 years 15 BMW Art Cars were created by artists like Andy Warhol, Michael Jagamara Nelson and Matazo Kayama (www.bmweducation.co.uk).
BMW Group is a Tier One Partner and the lone automobile manufacturer to sponsor the London Olympics 2012. The company will give out 4000 vehicles to help transportation of athletes, media officials, technical officials and Sports Federations members (www.independent.co.uk). During the games the company has promised to provide vehicles which will deliver ‘low carbon and ‘healthy living.
Reacting to the environmental pressures BMW (UK) Ltd has promised to meet the Euro 6 emission norms and also outdo the maximum average of 120gCO2/km established by LOCOG (The London Organising Committee of the Olympic Games and Paralympic Games). (www.london2012.com)
Facing the market competition- A real challenge:
“Porters five forces of competition include three sources of “horizontal” competition: competition from substitutes, competition from entrants, and competition from established rivals; and two sources of “vertical” competition: the power of suppliers and power of buyers” (Grant 2010).
Entry into the automobile industry requires a substantial amount of investment. High costs of set up, infrastructure, plant and machinery, distribution network and research and development make it tough for any new competitor to enter the market. BMW (UK) Ltd already enjoys huge economies of scale and this can only be achieved in the long term. The brand image of BMW is very high and thus to surpass this, a huge amount of spending would be required.
BMW (UK) Ltd has outsourced the assembly and production of some parts to make its operations stronger. This also reduces the risk of a new entrant as it will be an additional cost for them. By outsourcing an organization may gain strategic advantage by focusing on its core competencies, while outsourcing other necessary business functions to independent partners (Cravens and Piercy, 2009). BMW (UK) Ltd decided to outsource its engineering and production for the X3 compact SUV to Magna Steyr in Austria. This increased their production efficiency remarkably. BMW (UK) Ltd has also outsourced its operations to low wage countries like Indonesia, Thailand and India.
Outsourcing to a third party always involves risks despite its advantages. Outsourcing may be attractive in terms of reducing production costs and therefore allows laying more focus on marketing, product innovation and Research and Development (R & D). However, the third party may arise as a risk since it can share information with rivals, making it difficult to replace them.
The partnership between BMW (UK) Ltd and Fiat (mutual use of parts of Mini and Alpha Romeo), is described as a competitive advantage. Since Fiat is in a contract, it cannot bind itself into a partnership with any other automobile manufacturer. Not too many automobile manufacturers are able to create such partnerships to their advantage. This framework is very tough to replicate as well. Collaboration with a partner with equal amount of knowledge of the market and in terms of operations can be rarely found. These kinds of frameworks are also very costly in nature and therefore, make it difficult for any competitor to get into.
“For most industries, the major determinant of the overall state of competition and general level of profitability is competition among the firms within the industry” (Grant 2010). Majority of the manufacturers lay great emphasis on developing their products and design and bringing in new innovations.
The direct competitors of BMW in UK are as follows:
1 series: Mercedes A class, Audi A3, Volkswagen Golf and Ford Focus.
3 Series: Audi A4, Jaguar X-Type, Mercedes C-Class, Lexus IS200
5 Series: Audi A6, Mercedes E-Class, Saab9-5, Jaguar S-Type, Volvo S80
6 Series: Jaguar XK, Mercedes SL, Porsche 911 and Lexus SC340.
7 Series: Audi A8 and S8, Jaguar XJ series, Lexus LS400, Mercedes S-Class.
X3: Land Rover Freelander, Nissan X-Trail, Jeep Cherokee and Honda CR-V.
X5: Range Rover, Mercedes M-Class, Volvo XC90, Porsche Cayenne, VW Touareg.
Z4: Porsche Boxster, Mercedes SLK, Honda S2000, Nissan 350Z and Audi TT.
M Range: M3 Coupe- Mercedes C55 and Audi RS4, Mercedes E5 AMG, Audi RS6, Jaguar S-Type and Porsche Cayenne Turbo, M6- Ferrari F340 and Aston Martin DB9.
MINI: Renault Clio. Peugeot 206, Toyota Yaris, Vauxhall Corsa, VW Polo, Nissan Micra.
The Rolls-Royce Phantom: Mercedes Maybach 57, Bentley Flying Spur, Maserati Quattroporte and Mercedes S65 AMG Limousine.
(Source: BMW Education Programme)
Choo and Mokhtarian (2004) argue that luxury segment customers in which BMW has placed itself have higher level of disposable income hence they dont look for generic substitution of products that compete on disposable income. But purchase of other luxury products like expensive watch, jewels, shirts, bags, and house may acts as a trade-off for purchase of luxury cars.
Suppliers and manufactures work together to deliver excellence. This creates high dependency between buyers and sellers. Suppliers are an integral part of BMWs manufacturing process. Most of them have been termed as partners of their business and influence their process to a great extent. Since, the number of suppliers is increasing worldwide it increases their bargaining power too. BMW has a strong brand image and an extensive base; this puts the suppliers on a high platform working with BMW. Therefore, their bargaining power remains medium. The prices of raw materials are highly volatile in nature, which again lowers the bargaining power of suppliers.
The brand legacy is a hindrance which reduces the shifting of customers amongst various options available in that segment. BMW being a strong brand reduces this mobility. However, buyers in this segment spend a great deal of time finding information about the products. This increases their negotiating powers.
According to BMW they place all their cars in the premium segment (www.bmwgroup.com). Therefore, it becomes necessary to be prominent when compared to others. Differentiation strategy has a huge role to play in this regard. Branding is the prime area of focus for BMW. Once the branding is done in the correct manner, the brand becomes noticeable and creates an appeal to the customers, as they like to see it.
Due to the recession in the past few years, the main focus of the corporation has been to arrange liquidity. BMW has been able to achieve the same by starting their own in-house financing and lease financing to its customers. The major threat faced by the company during lack of liquidity is that of a takeover, and BMW has been able to avoid that. They also face major issues when it comes to oil prices and raw material prices. These are highly volatile in nature and thus, less predictable. However, this again has been taken care of by their in-house finance department through risk hedging activities.
When it comes to competition BMW has not been able to keep up with the volume in ways of cost. There are high volume producers who are a direct competition to BMW. The strategy is to use the excess resources of one area to the rest of the business areas. Manufacturers of bigger volumes will lead in a cost leadership strategy. They will enjoy higher economies of scale and therefore, cost advantage. BMW however, uses a differentiation strategy. They do not produce volume cars but maintain the image of their premium cars. This allows them to gain by charging a premium price on their cars. However, BMW has cut down their costs in other areas.
It wouldnt be wrong to say that branding is still the key factor for BMW as a major success factor.
The VRIO (Value, Rarity, Imitation, and Organization) framework helps in analysing the internal resources of an organisation. The framework is structured around some questions, which have to be answered with yes in order for the resource to qualify as a potential sustainable competitive advantage.
In case of a VRIO framework, one resource is compared on the four factors and this helps in understanding the difference between competitive parity and sustainable competitive advantage.
RESOURCE
VALUE
RARITY
IMITATION POSSIBLE
EXPLOITED BY ORGANIZATION
COMPETITIVE
INFERENCE
Munich, Headquarters
Yes
No
Yes
Yes
Competitive parity
Portfolio of Brands
Yes
Yes
Yes
Yes
Competitive advantage
Fiat as suppliers
Yes
Yes
No
Yes/ no
Competitive advantage
Financing- In-house
Yes
No
Yes
Yes
Competitive parity
Supplier relationship
Yes
Yes
Yes
Yes
Competitive parity
The main resource of BMW (UK) Ltd is its brand portfolio. Its very rare that a manufacturer has a portfolio where they can charge a premium across all their brands. BMW has been successful in doing so. This is a huge threat to the competitors and a challenge since they cannot imitate this.
Innovation has always been BMWs focus. No compromise on innovation helps them to grow constantly. BMW has been able to stitch their branding and innovation very creatively. Their outstanding R & D has been able to achieve solutions which help their brand grow in the market. Since, BMW is capable of doing so, it makes them stronger in the future perspective as well.
It is both valuable and rare to rank at the top, when university students are asked about their preference for future employment (BMW AR, 2009).
Question 1: Conduct and analyse the situation analysis of BMW.
SWOT analysis will be applied to conduct the situation analysis of BMW (UK) Ltd. Using SWOT the strengths, weakness, opportunities and threats of the company will be identified. “Strengths and weakness relate to the internal resources and capabilities of the organization, as perceived by the customers” (Piercy, 2002); and “Opportunities and threats are externally oriented issues that can potentially influence the performance of an organization” (Baines et al, 2009: 188).
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BMW (UK) Ltd due to its German legacy is perceived as trustworthy and high quality of engineering. This has highly helped BMW to build its brand image. The successful marketing of BMW through media and film industry adds to its advantage and creates an appeal for its customers. Colour press for example: Tatler, Vogue, lifestyle magazines, motoring publications, broadsheet newspapers and tabloid newspaper weekend colour supplements. BMW has strongly influenced customers through media and film industry (Source: BMW education programme).
The recent CO2 emission norms and legislations regarding End Life of Vehicles (ELV) have been a major threat to BMW (UK) Ltd. However, the company has been successful in turning this into strength. Innovation of ‘hybrid cars and ‘smarter engines has given BMW an edge. Increasing demand for ‘greener cars also allows them to explore new markets. BMW (UK) Ltd has reacted on ELV directive and is now manufacturing cars, which are at least 85% recyclable and at least up to 95% recoverable (Group Management report 2008, p.32).
Prices of the raw materials used have been unpredictable for BMW (UK) Ltd due to its volatile nature. BMW (UK) Ltd has handled this with their in-house finance division.
BMW (UK) Ltd due to its large exports of Mini faces major currency risks. This again has been taken care of by their expert in-house finance department through financial hedging.
BMW (UK) Ltd faces a major weakness when it comes to the brand Mini. Since its only produced in the UK, BMW (UK) Ltd is forced to incur high costs on shipping to other countries. As a strategic decision this could also be produced in other countries.
BMW (UK) Ltd due to its valuable brand perception enjoys the opportunity of charging an extra premium on its cars.
China being the largest market for cars can be seen as an opportunity for BMW (UK) Ltd. They can get into an agreement with the Chinese and produce Mini in their country.
BMW (UK) Ltd has been able to diversify its operations by providing leasing finance to its customers. This allows its customers to make the cars easily available to them.
The company should look into emerging markets for growth since, US and Europe account for its major sales and have been affected due to economic recession.
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Appendix-1
BMW Group Deliveries of automobiles by region and market
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