Main trends are identifiable in the business environment
Despite the information provided being limited, there is a clear indication that the industry is mature and competition is fierce. This is more especially in relation to price save for companies which have managed to achieve product differentiation. BMW’s industry is one characterised with technology and market driven global convergence. There is high market consolidation by a few corporations which feed most of the market. Interestingly, most automobile suppliers undergo similar processes. Vital market trends design differentiation through customisation. Additionally, considering market maturity, quality is not considered a differential factor. Branding is the leading tool.
Porter’s five-force framework
Potential entrants
Threat of new entrants is high in BMW’s premium car industry. The fact that BMW could sustain itself despite charging a premium price for its products attracted Jaguar, Ford with Volvo as well as VW with Audi models to the segment. The entry of Ford into the segment posed a lot of threat to BMW since its strategy was that of low cost/high quality strategy.
Product substitutes
Threat of substitute is very high in the premium car industry. Despite BMW having created a brand image to reckon with in this industry, there has been an escalating growth in products and properties of greater brand image than BMW. These products fiercely compete with BMW robbing it off part of its market share. Such product includes other luxurious products like monocycles and boats, properties like time share holiday homes as well as cruises which are considered leisure products as compared to BMW.
Power of buyers
The bargaining power of buyers is however medium in this industry. The existence of other major exclusive automobile products like Jaguar, and Ford with Volvo has increased the bargaining powers of buyers especially among the fleet managers and car rental companies. This existence gives this line of buyers an upper hand in deciding what product to buy based on the price range of the products. The environmental factors associated with the industry also give customers the last say in deciding what product to buy.
Power of suppliers
On the other hand, the bargaining of suppliers is low in the industry. This is so because of the nature of the products they supply in the industry. The products are custom -made and only suit a particular manufacturer. This limits the power of suppliers in differentiating their products to suit other segments of the industry. BMW also has the ability to integrate backwards further limiting the bargaining powers of suppliers.
Competitive rivalry
In each industry, there exists a fierce and high competition among the industry players. The premium automobile industry is no exception; the major rivals of BMW such as Mercedes Benz, VW and Jaguar are making a bad situation worse for the company. Some of these companies have adopted the use of the same platform in their production making these cars look more or less the same. Audi, for instance, installs stereo devices in their models as a premium service making the quality of the car look almost the same. In this state, the price tag of the product has become the only basis on which competition is based therefore depressing the profitability of BMW.
Future changes
The envisaged changes to occur in the near future will focus on intensified attempts at consolidating and increasing the market share. In summary, the following are prospective future changes:
- Increased market consolidation including acquisition of smaller manufacturers
- Increased search for new and emerging markets
- Enhanced cooperative links in new and emerging markets
- Increased IT importance as a strategic decision making tool in knowledge management
Critical success factors in market segments in which BMW competed
The underlying strength of a company lies in the way it relates with its suppliers. BMW has created a reciprocated relationship with its suppliers that make it very distinctive from its competitors. This kind of relationship enables the company to source custom made materials from its suppliers thereby reducing the bargaining powers of its suppliers. BMW majorly employs the use of automated computer system to aid its production process. The company uses industrial automated computer systems in controlling the manufacturing process which improves flexibility in the control process.
In distributing process, BMW independently source for government institutions contracts through bidding as well employ the use of its subsidiaries in the distribution of its products. In marketing its products in the UK, the company uses different kind of media in order to reach its target audience. For instance, the internet and television ad are the major marketing tools employed by BMW.
BMW has extended its joy campaign from “sheer driving pleasure” to after sales services by providing premium post sales services to its customers. Such services include a special hotline that customers use in case of accidents, e-workshop that allows customers get service information on their cars
BMW’s sources of competitive advantage
Today’s car industry is characterised by fierce competition and overcapacity. This calls for manufacturers to develop very distinctive competencies and resources if they are to remain relevant. Resource/Competence framework helps in the analysis of the competencies and resources capabilities that enable companies gain a competitive edge. Some of such competencies and resource capabilities can be imitated while others cannot.
BMW has over the years dominated this premium car industry by offering substantial number of cars in different segments. BMW launches new models both in existing series and in new segments. A good example is its 2008’s SUV Called X6. The homogeneity of the company’s model in terms of after sales service and performance has made BMW the most credible company in the industry.
The company’s strong brand has however proved difficult to imitate giving it a competitive edge over its competitors. The presence of this strong brand has enabled the company to appeal to its customers despite attaching a very high price tag to its products. For instance, BMW 3-series has experienced high sales especially among the middle class despite the premium price tag attached to the car.
Even though BMW has dominated other players like Mercedes Benz in terms of sales, the presence of Audi in the market is mounting a lot of pressure on the company. The sales volume of Audi has been increasing to its pick in almost all markets. The company has caught BMW unaware with its launch of unimaginable luxurious car models than ever witnessed in the car industry.
Directions and methods of strategic development followed by BMW
BMW’s operations were based on dual strategies including product and market development. New model’s continuous development was characterised with new markets entry in the emerging economies, particularly China, Eastern Europe as well as India. The strategies showed increased effectiveness as demonstrated by the market response. A major question however was about the long-term effects associated with brand power and its appropriateness.
Corporate strategy issues relevant to BMW as a group
On the strategy aspect, BMW has been very successful in implementation of differentiation (route 4) strategy. BMW Company has sustained such strategy through marketing approaches such as ensuring its customers clearly understood the difference between its models, BMW, Rolls-Royce, and Mini were clearly understood.
Another approach is the use of competence- based approach. The effective exploitation of R&D, design capabilities and sound engineering strategies interrelationship works in favor of the strategy. BMW mainly produces its products at its headquarters in Munich, Germany thereby allowing for close and strict supervision by its competent engineers. This enables the company to build a brand perceived to be strong by its customers.