Abstract:

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. Customer’s 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.

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
strategy’s precision.

“The mission statement up to the year 2020 is clearly defined: the BMW Group is the
world’s 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 company’s 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:

“Porter’s 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 don’t 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 wouldn’t 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 EXPLOITED BY COMPETITIVE

POSSIBLE ORGANIZATION INFERENCE

Munich, Yes No Yes Yes Competitive

Headquarters parity

Portfolio of Yes Yes Yes Yes Competitive

Brands advantage
Fiat as Yes Yes No Yes/ no Competitive
suppliers advantage

Financing- Yes No Yes Yes Competitive

In-house parity

Supplier Yes Yes Yes Yes Competitive

relationship parity

The main resource of BMW (UK) Ltd is its brand portfolio. It’s 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).

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 it’s
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

Appendix-2

BMW Group deliveries of automobiles* by region and market (in 1,000 units)
2004 2005 2006 2007 2008 2009
Germany 283.6 295.9 287.7 280.9 280.9 267.5
Rest of Europe 299.7 350.8 375.0 443.6 432.2 357.3
Northern America 315.9 329.0 337.4 364.0 331.8 271.0
United Kingdom 145.3 156.2 154.1 173.8 151.5 137.1
Asia 106.4 125.7 142.1 159.5 165.7 183.1
Other Markets 57.9 70.4 77.7 78.9 73.8 70.3