The Automobile Industry Is A Highly Cyclical One Marketing Essay

Introduction

This Marketing Plan is on a line extension by Bayersiche Motoren Werke (BMW) into the minivan market. this idea was mooted by Helmut Panke, then chief executive of BMW, on the eve of the 2005 Geneva motor show when he declared “we have decided that the BMW brand will enter the [market] segment” for spacious cars that can carry six or more passengers. “It’s not a question of `if,’ but of `what.’ “(Wall Street Journal, 2005)

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Following the departure of Helmut Panke, BMW has grappled the need for the company to enter the minivan market. Among the many reasons has been the global recession, the possible adulteration of the BMW brand, cannibalisation of the existing brands etc. However in recent times the emergence of automotive demand in Brazil, China, India and South Africa (BRIC) nations, with China spearheading the lot has increased the case for the entry into the minivan market. On ‘Connect the World’ with CNN’s Becky Anderson (26th April 2010) it emerged China was the leading global car market in the year 2009 overtaking the United States. Global car companies’ earned a large part of their profits, in 2009 from China, with minivans enjoying a larger part of this growth. A minivan is a car designed as a cross-over between a sedan and a van with a capacity to carry six or more passengers.

Automobile Industry Overview

The automobile industry is a highly cyclical one, i.e. an economic boom is generally accompanied by high sales in the automobile industry, while sales usually suffer during economic downturns (let alone recessions). The correlation between sales of the industry and GDP is extremely high. The strength of the economy is, by far, the major determinant of auto company sales and profits. Sales are similarly tied to the level of consumer confidence and to people’s spending power. This is due to the usually high investment involved with the purchase of a new vehicle. During a prosperous time with high incomes, many families and individuals have the means to buy a car, whereas they try to save their money when times are not so rosy and avoid such a large expense. It is believed the increasing wealth of the Chinese consumer, a consumer base expected to have 625 million people in the middle class by 2025, will continue to drive growth in the car market.

Company Description

Brilliance China is one of the leading automotive manufacturers in China through its subsidiaries, associated companies and joint ventures in the PRC. The Group’s operating segments are divided primarily into the manufacture and sale of (i) minibuses and automotive components, and (ii) sedans. Its commercial vehicle brands include “JinBei” and “Granse” minibuses and its sedan brand includes “Zhonghua”. The Group is also engaged in the manufacture of gasoline engines for use in minibuses, sedans, SUV and light trucks and automotive components, including but not limited to window moldings, strips, axles, stamped parts, etc.The Group sold 73,863 minibuses and 91,356 “Zhonghua” sedans in 2008. With approximately 12,250 employees, the Group achieved revenue of approximately RMB11.2 billion for the year ended 31st December, 2008.

The Alliance

BMW Brilliance Automotive Ltd is a joint venture between BMW AG and Brilliance China Automotive Holdings in 2003. The company has been involved in the production, sales and after sales service of the BMW 3 and 5 Series sedans since its inception.

In 2008 the BMW Brilliance joint venture made sales of 35,068 units, an increase of 7% over the previous year.(source: www.brillianceauto.com 30th April 2010)

Marketing Plan

To fully analyse the benefits of BMW Brilliance venture into the minivan market a systematic marketing plan is set out through a series of stages. Stage one is the Situational Analysis followed by stage two which is to set Marketing Objectives then a third stage-a description of the Target Market. Stage four has to do with Marketing Tactics then stage five where Marketing Controls are introduced.

4.1 Situational Analysis

This situational analysis seeks to provide background data on the BMW Brilliance joint venture’s products, the target markets, the distribution network, their competitors, and financial analysis and a look at other external forces.

Current products

Below is a comprehensive chronology of product development from 2003 for the 3 and 5 series models available on www.bmw-brilliance.cn .

2003: Entering the market from a vantage point

October 2003, the first variant of BMW 325i was launched, beginning the history of BMW cars made in China. This model was equipped with BMW’s renowned 2.5L straight six gasoline engine, and was the model of a premium sports sedan. November 2003, the fifth generation of the BMW 5 Series was launched simultaneously worldwide. The first variant of BMW 530i was equipped with a 3.0L engine and was the most advanced locally produced car in China.

2004: Expanding the range

April 2004, the second variant of the BMW 3 Series, the BMW 318i, was launched equipped with a 2.0L four cylinder gasoline engine. May 2004, the BMW 520i and BMW 525i of the fifth generation were launched with 2.2L and 2.5L straight six engines respectively.

2005: The new generation of the BMW 3 Series, introduction of Active Steering in the BMW 5 Series

September 2005, the new generation BMW 3 Series was launched in the fifth generation of BMW 320i and BMW 325i, with displacements of 2.0L and 2.5L respectively. December 2005, the all-new BMW 3 Series was expanded, and more variants were launched of the BMW 320i and BMW 325i. March 2005, the BMW 530i became the first locally produced car in China to be equipped with the innovative safety feature Active Steering.

2006: The BMW 5 Series enhanced, the BMW 5 Series Long Wheelbase Launched

From the beginning of 2006, three all-new magnesium aluminium alloy engines were introduced into the full range of BMW 5 Series cars, including the BMW 530i, BMW 525i and BMW 523i. The BMW 523i was updated with two variants. October 2006, the BMW 5 Series Long Wheelbase which was specially tailored and designed for the Chinese market and customers was launched, marking a milestone in the localization of BMW Brilliance. The new models included: the BMW 523Li, the BMW 525Li, and the BMW 530Li .

2008: The Lifecycle Impetus of the fifth generation of the BMW 3 Series

December 2008, according to the lifecycle plan of the BMW Group, the fifth generation of the BMW 3 Series was comprehensively upgraded in design and equipment. The new BMW 3 Series became even sportier than its predecessor.

2009: More personality, more environmentally friendly, more variants

June 2009, two highly efficient and environmental variants, the new BMW 520Li Vantage and BMW 318i Progress were launched. As the latest variants of the BMW 3 and 5 Series, these models brought BMW closer to customers, enhancing market competitiveness, and expanding customer range. Mid 2009, the BMW 320i i-Music and BMW 325i i-Sport limited editions were launched. August 2009, a total of 9 variants of the 2010 BMW 5 Series were launched. The BMW 520Li Luxury was a new variant, while the others were upgraded on the basis of the 09 model.

4.2 Target Market

BMW Brilliance’s current target market is that of the young affluent professional. BMW’s tagline, “the ultimate driving machine,” is designed for this group.

BMW Brilliance also targets the emergency services, security services and the diplomatic service for the provision of custom made vehicles. BMW also has a corporate sales program where corporate bodies are offered vehicles on preferential terms subject to a number of conditions. (source: bmw-brilliance.com.cn)

4.3 Current Distribution Network

The BMW Brilliance alliance has a substantial distribution network of 150 authorized dealership networks nationwide, three large-scale distribution centers in Beijing, Shanghai and Foshan, two BMW training centers in Beijing and Shanghai and four training bases in Shenyang, Guangzhou, Nanjing and Chengdu. (source: bmw-brilliance.com.cn)

4.3 Current Competitors

There are over two hundred licensed companies in China, though not all of them produce cars. All Big Three American car manufacturers, General Motors, Ford and Chrysler have a presence with most of have having an alliance or joint venture or some other form of collaboration with local car companies.

The luxury end of the market is led however by Volkswagen AG, who are in an alliance with First Automobile Works (FAW), Daimler AG, Toyota, Honda, Nissan etc have all established themselves in China and compete head on with BMW Brilliance.

5.0 Analysis of External Forces

5.1 Political/Legal

Fuel emission standards, is set by the State Environmental Protection Administration. Current standards are based on EU standards and does not pose that a great challenge to western companies, however Chinese authorities have signalled the intent to set dramatically higher standards with car manufacturers expected to cut emissions further by 20% by the year 2012 or risk further tax penalties on sales.

5.2 Economic

The Chinese government over $500 billion stimulus package has sustained demand in the local economy as exports fell due to declining demand in western markets. The Chinese economy currently growing at 8% is among the world’s fastest when most economies in the west are just about emerging from the recession.

5.3 Social

Population demographics in China point to a substantial increase in millionaires. Rupert Hoogewerf, founder and publisher of the Hurun Report, in his 2010 Hurun report, identified 875,000 mainland Chinese with an estimated wealth over $1.47million. “There is a great deal of hidden wealth in the Chinese economy, with a significant number of low-key billionaires keeping their heads below the parapet” said Rupert Hoogewerf. The report identified the average age of China’s wealthy is 39 years of age. On average, they are 15 years younger than their counterparts outside of China, and their wealth is growing more rapidly. The male to female ratio is 7:3. They made their money primarily from the service, property and manufacturing sectors, and they are super-confident about China’s economic outlook. They enjoy collecting watches and Chinese classical art, and on average they own three cars and 4.4 luxury watches. Travel, golf and swimming are their leisure activities of choice, and they take an average of 16 days holiday a year. One third don’t drink and almost one half don’t smoke.

5.4 Technological

Beijing’s directives to car manufacturers to cut fuel emissions by a further 20% poses further technological challenges, options available include the production of electric cars. However with the price of lithium ion batteries at between $10,000-$15,000, production will not be profitable unless manufacturers are able to command some significant economies of scale.

6.0 Audit of Brand Strategy

In the 2010 top 100 brands report by Brandz, BMW’s brand was adjudged as the most valuable beating Japanese car maker Toyota. BMW studies the behavioural instincts of their customers carefully and markets the brand to fit the peculiarities of the customers. They have high brand image based on how they target their audience and their pricing. In China the brand is associated with prestige and quality and owning one is reflect to one’s status. The brand is thus marketed to validate the status of the ‘nouveau riche’. Since, it is priced at premium rates, they market their product in such a way that the customers can emotionally relate to the brand. They promote their car as the ultimate driving machine which in itself targets the customers emotionally. This sells the experience of owning the brand rather than any car. The emotional attachment is emphasised through the value of the car which is priced at the premium segment, this connotes the fulfilment of just reward for work (labour) effort. In the words of Helmut Panke, a former BMW CEO, “We offer our customers emotional products, which, through the strengths of the brand and the substance of the product, fulfil the customer’s wish for individualism and differentiation. The BMW Group will never build boring products.” (Valeriano Lencioni, Middlesex University Business School)

7.0 SWOT ANALYSIS

Strength

BMW has a strong brand image as explained earlier. The tagline ‘the ultimate driving machine,’ relates to every driving device, which the company can fully exploit.

BMW has highly skilled capabilities in the design and development of new models.

Weaknesses

The presence of many automakers in the market and low barriers to entry in this market could lead to loss of market share.

Opportunities

BMW’s launch of a new product is very important, as it is an opportunity to create an entirely new market while still staying with its strategy of quality and performance. If the new offering does well, this is a great opportunity to expand on BMW’s already popular line of sedans and SUVs.

Threats

Threat of acceptance by Brilliance China Automotive due to the fear of the new minivans cannibalising their existing minivans.

Perhaps the biggest fear is how BMW’s existing customers would not accept the new model.

8.0 Setting Marketing Objectives

The marketing objectives will be set using the Specific, Measurable, Achievable, Realistic, Time bound (SMART) criteria.

8.1 Specific

BMW Brilliance’s specific marketing objective is to be the market leader in the premium minivan market, using China as a launch pad.

8.3 Measurement

The objective will be measured by BMW Brilliance ability to obtain at least 40% share of the market as the current market leader Daimler Chrysler holds 39%.

8.4 Achievable

Is the objective achievable? It is as BMW is currently the global leader in the premium sedan market, BMW also holds the title of the world’s most valuable automotive brand and has core competences and capabilities to achieve the objective.

8.5 Realistic

BMW’s objective is a realistic one as the joint venture partner, Brilliance Group is a prominent industrial enterprise in China and its principal business is the manufacture and sale of minibuses and sedans in China through its 51% subsidiary, Shenyang Brilliance JinBei Automobile Co., Limited (“Shenyang Automotive”). Shenyang Automotive is the leading manufacturer and distributor of minibuses in China and is also the only minibus manufacturer in China with access to Toyota technology. 

BMW also intends to construct a new plant which will begin in 2010. The new plant will adopt internationally advanced equipment, and include a BMW engine plant. It will become the most advanced and environmentally friendly auto plant in China, marking a new milestone BMW’s localization process. (source: www.bmw-brilliance.cn/cn).

8.6 Time

A model of the new BMW minivan would be launched at the Beijing International Automotive Exhibition in May 2011. Development of the prototype should be undertaken in 2010.

9.0 The Target Market

The segment for the minivan, should be the premium end of the market. This would help maintain the BMW brand and also enhance the reputation of BMW as being innovative to meet customer demands. This would also be acceptable to Brilliance Automotive as it would not be seen as competing head-on with their products.

The segmentation would be based on the following parameters:

Needs based:- where customers are grouped based on similar needs and benefits sought. The BMW minivan customer in China is an affluent, successful young professional (man or woman) who needs this van to validate the position of new found wealth for the individual and his family.

Segment profitability: this would determine whether the proposed niche meets the required return on investment.

BMW Brilliance has to target the individuals within the need based segment. To do this BMW has to adopt Bowman’s Strategic Clock to determine its position in the market.

BMW has to adopt a focused differentiation strategy as this buttresses the point of perceived value to the premium customers. Customers in this segment are high earners who would wish to have a vehicle tailored to their peculiar needs. Customer concerns and detail may be incorporated in the design of models by having an interactive session with customers to design their own vehicles.

BMW currently uses 3D technology to let potential customers have a feel of existing models. This idea may be channelled to the minivan prototype.

BMW should also diffuse the image of the BMW brand as a male vehicle. Within the segments identified, successful females could comprise a sizeable proportion and targeting the female gender through media like Vogue, Cosmopolitan etc would appeal to this segment.

10.0 Marketing Tactics

The tactics for marketing the minivan will be done using the 4Ps (Product, Price, Place and Promotion)

10.1 Product

The minivan itself, that is the ‘Product’, of the marketing mix, should be differentiated through their unique brand and high performance engineering. Similar products to what is currently available does not invoke the emotional urge of owning a BMW. Products should be developed to meet the new environmental regulations outlined by Beijing. Potential customers should be given the choice of customising their product according to their satisfaction. According to the company motto, is that, BMW designs the cars thinking from the driver’s perspective. It is for providing the driver the ultimate driving experience.

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10.2 Price

The pricing strategy should be on of market skimming. This is the ultimate car and BMW should be seen to communicate the minivan as the must have one. However equal attention has to be given to the presence of competing Chinese and American brands and the fact that the company is entering the market anew. Since the automotive market is highly price sensitive in recent times, BMW should use customisation to fit individual budgets or produce different ‘series’ of the minivan as was done for the 1 series in the Chinese market, where the target was as demographically younger and less affluent age.

10.3 Promotion

For the market to accept this new minivan promotion would play an extremely important role.BMW has used this tool effectively to hold their market while they made strategic changes in their product and pricing. BMW has to adopt the usage of a public relations stunt to communicate the emergence of this vehicle. Since the 2005 statement by Helmut Panke and subsequent statements from other BMW executives, the market and the academic community has being waiting on tenterhooks to see if do indeed enter this market. The advantage here is that the excitement created by the arrival would lead to a ripple effect in global media which the BMW Brilliance may actually be paying for a classic example is how Apple uses this medium to communicate its new products. Further promotions may be done via auto shows, magazines, digital media and celebrity endorsement like using Chinese superstar Jet Li to adopt the minivan.

10.4 Place

BMW Brilliance should continue to sell through existing distributors in China. A potential buyer seeing this new range could define it as a continuum whereby to buy a 3 or 5 series means adding the minivan for the household. Modern technology also suggests that a high street presence may not be critical to success as advertising and selling may be conducted with relative ease over the internet.

11.0 Budget

The pro-forma budget for the marketing plan is attached as an appendix to this report. It is recommended that the budgeted expenditure on marketing activities per unit of minivan sold should not exceed the industry average by more than 10%.

12.0 Advertisement

The advertisement will be a newspaper and television advertisement. The concept of the advert should be based on the tagline, “the ultimate driving machine.”

12.1 Awareness

The advert begins with three days of the BMW logo branded on blank pages of both print and electronic media, with customers told to watch out in the coming days. The idea is to engender an awareness that BMW Brilliance is coming out with a revolutionary new product.

12.2 Interest

This will be followed by pictures and commentary of the engineering details, features, entertainment and communication facilities. It is recommended that BMW chooses a particular portion of the vehicle, per day, over another three day period. This is to whip up the excitement and create a level of suspense. On the final day, that is Day Six, the portions come together to show the world the new car.

12.3 Desire

Day Seven is for the television advert alone and it will have Jet Li and Kelly Hu, provide celebrity endorsement. The technological features of the vehicle will be demonstrated, all new innovations that do not exist in the market have to be shown in the advert. Jet Li, clad in his signature all black suit, shirt and tie, will appear to be the first person to own the BMW minivan and be seen to drive it with pleasure. Kelly Hu would provide the sexist angle to the car by being seen to provide Jet Li a challenge as to who is the first to own and master the usage of the minivan. This should be done by showing the Jet Li and Kelly Hu, engage in a high-speed chase in a mountainous region of China, meandering curves to show how easy it is to drive the BMW minivan, Kelly’s hair would be blowing against the wind to show the gender sensitivity of the vehicle. The advert comes to an end at the edge of a cliff, where both cars come to a screeching end.

The thrill provided at this end would drive the consumer to take the action of acquiring the vehicle.

12.4 Action

The customers should be informed of where to buy the vehicle, the finance options available and the added features in making a purchase. This should all be provided in small print in both the print and electronic media.

13.0 Critical Reflection

BMW has successfully branded the BMW as the ultimate driving machine. The company has studied the behaviour of consumers to provide for their self actualisation needs. The customer, moving along Maslow’s hierarchy of needs, reaches the maximum, self actualisation and BMW provides the appropriate vehicle to validate that.

BMW has also through efficient scale economies, design, research and development etc produced the ‘perfect car’ in the eyes of the customer. BMW is the first auto company to pilot the theory of the ‘cableless car’ that use Bluetooth technology to transmit commands within the various parts of the vehicle. It is these intrinsic values in the brand that makes it the most valuable auto brand which customers value.

Marketing Management is a unique social science that seeks to do the most of impossible things. The whole idea of marketing which to identify human needs to satisfy and satisfy profitably, suggests a business process that seeks to predict or influence human behaviour in a particular manner.

The most interesting of topics in my opinion was the motivation theories, the AIDA model, the customer loyalty ladder, Michael Porter’s and Ansoff theories etc. At the beginning of the course my main difficulty and thrill to study marketing was how to get a customer to make a purchase decision. I used to wonder what makes me buy an item. Do I make my purchase decisions based on need, peer influence, motivational reasons or the sheer ability to do so?

Personally I have always had some difficulties with some of these marketing tactics like the study of motivational theories like Maslow’s Hierarchy of Needs, the difficulties with these theories is that it suggests all human beings do go through all these stages and that marketing can be such an exact science for marketers to target products to each stage. If indeed this were so there would be no product failures. However I have really come to appreciate the customer loyalty ladder and the customer life cycle concept. In Ghana, my home country, I work full time for Ghana Cocoa Board (COCOBOD) and as a private business I run a property management company called Galif Enterprise. This is a small scale owner managed block of twenty two shops and eight office spaces. The target market for this company is the upper class segment of the property market. Before I began this course the main focus was how to maintain the current customer base and do without the recalcitrant customers (ie those who do not keep up to monthly rent). Marketing management has made me appreciate the value of the customer, who my customers are, the service quality I have to offer my clients, how to use the Customer Life Cycle concept in my business, branding etc. My main objective was how to maintain and sustain competitive advantage for my business.

In my full time job at Ghana Cocoa Board, the main product being cocoa, is sold on the commodity market and it is not really a product that is actively marketed by COCOBOD. Marketing is not a highly valued activity in COCOBOD though there is a whole division responsible for marketing. My difficulty with my employers however is that in Cocoa Marketing Company (a subsidiary of COCOBOD), employment opportunities are not available for marketing graduates. In my opinion this has been part of the reason why the customer base of COCOBOD is static as there is little to no marketing activity.

In my opinion however all these marketing models are based on hypothetical assumptions, which rarely do happen in real life. I believe these models inform our thought processes in working life but still the individual instinct and gut feel would forever remain a distinct part of man’s endeavours and perhaps processes may be designed to capture these unique qualities that is held by the exceptional marketing manager.

14.0 Appendix