BMW Venture Strategy Report

Company overview

With its origin in an aircraft engine production, the Bayerische Motoren Werke AG, or BMW, has grown to become one of the principal automotive car manufacturers of the world. The company was effectively founded in 1917, as its parent company, Rapp Motorwerke, had decided to re-shuffle its aircraft engine business following the development of innovative type III engine design in 1916, which made the company a principal aircraft parts supplier to the Imperial German Army. However, the defeat of Germany in WWI led to the ban on aircraft engine production by the Allies, so the nascent BMW appeared to face the risk of bankruptcy. After the precarious early 1920s, the company finally re-positioned itself as an automobile and motorcycle manufacturer, which was helped by the 1926 acquiring of the Dixi automobile brand, together with the important Eisenach automobile plant, and the growing interest of the general public in motorcycling sports. By the 1930s, the BMW Company managed to become Germanys leading car manufacturer, while the Nazi eras re-armament drive enabled the companys management and shareholders to make use of the new profit opportunities, primarily in the field of aero-engine production. However, the defeat of Nazi Germany led to the temporary downfall of BMW business, as the company was banned from producing both aircraft and truck car products until the early 1950s. Furthermore, in 1959, the company survived another crisis, which was caused by the decision of the management to initiate a merger with Daimler-Benz. Hence, it was not until 1970 that BMW entered a stable period of prosperity, which reached its climax in the 1980s. The period after 1994 was once again marked by the series of financial problems and controversies, pointing at the tendency of the BMW Group to experience pronounced cyclical turns.

As of January 2012, the BMW Group apparently reached the highest point in its corporate history, in spite of the adverse business climate associated with the post-Great Recession conditions. In 2011 alone, 1.67 million auto vehicles were sold by the company, with further 113,000 motorcycles being purchased by the customers. The BMW Groups total revenues for FY 2011 were estimated at the mark of 68,221 million, with profit before tax soaring by 52.1% to 7,383 million. Given the complicated global economic situation, such results would point to the masterful handling of the BMW Groups business affairs by the present top management team, headed by Chairman of the Board of Directors Norbert Reithofer.

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Product / Technology

The BMW product promotion and technology strategy is ultimately centered upon the companys legacy as one of the worlds leading automotive car manufacturers. According to Herhausen, the BMW Group may be considered a typical example of a Network Innovator company, which is characterized by such features as a low-level of dedicated proactive customer-oriented employees, a medium level of technology orientation, and high-levels of proactive customer-oriented climate. While the variables that refer to the BMWs customer relationship strategy will be examined in the context of the respective sections, the Groups technology orientation and research and development (R&D) strategy shall be the focus of the present discussion.

As noted by Herhausen, the BMW Group may be considered an Original Equipment Manufacturer, with its global brands of BMW, Rolls Royce and Mini being easily identified and usually highly valued by the premium cars customer segment. Moreover, the Group plays the role of aircraft and automotive car engine providers for the number of the other major companies in the market, e.g. Opel. Nonetheless, these segments are merely secondary in comparison with the BMWs major products oriented toward the premium car market. Broadly speaking, several major model lines have been manufactured by BMW since at least the 1970s, catering to the needs of the respective customer segments. For instance, the 7 Series perform the flagship sedan function, while X3 (E70) appears to have developed into the new type of the auto vehicle, designated under the BMW nomenclature of the SAV (Sports Activity Vehicle) and combining the features of the traditional SUV and the sports car. The introduction of X5 and M series to the North American market was marked by the offers of the superior technical specifications and lower price thresholds, leading to the boost in these models consumer purchases. Similarly, the comparison of the leading luxury car brands of Audi and BMW Group, i.e. Audi A-4 and BMW 3-Series, would lead one to conclude that both horsepower levels and interior design of the BMW 3-Series salon may be more attractive for the potential customers. These and other observations would point at the customer-oriented design approach of the BMW Groups cars, which might partially explicate the companys commercial success in the market.

Given the premium car focus of the BMW, it is no wonder that the company invests heavily in the R&D activities. For instance, according to Herhausen, more than 8,900 specialists have been enrolled into the BMWs Research and Development Network. The development of the BMW innovations in the field of automotive industry proceeds while taking account of the advances in aerospace and software research fields. Such an approach would enable the companys R&D team to utilize a multidimensional perspective toward the car engine and maintenance systems, contributing to the innovative character of the BMW technological products.

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Business strategy

According to the data presented by Maguire, the BMW Groups target market is generally limited to the affluent and educated 25 to 49 year old customers (predominantly male) that would be considered the upper middle class and above in the traditional American income-based class hierarchy The BMW emphasis on the premium cars customer segment is further summarized in the article by Park that refers the reader to the one-dimensional nature of the BMW marketing strategy. Park asserts that it is due to the aggressive focus on the one set of the customer segments that BMW Group managed to become one of the dominant players in this market. Thus, a conclusion may be derived that the BMWs automotive industry business strategy is overwhelmingly tuned toward the selected segments of the car industrys customers.

Appropriately enough, the BMW value proposition may be summarized in the companys famous slogan of the ultimate driving machine. Specifically, this means that BMW seeks to combine the high-tech specifications with the high level of comfort and luxury that would be fitting to the customers interested in the speed coupled with comfort. The M line BMW cars seem to be embodying this principle most closely but all other premium-class BMW models emphasize certain aspects of this relationship. The emotional and extrinsic identification with the car (in this case, directly connected with the notions of social rank and status) is one of the main customers needs to be addressed by a company working in this market segment, and the BMW management team appears to be highly cognizant of this fact.

The main source of BMW competitive advantage in the luxury car market is, naturally enough, its brands themselves. Due to the legacy of association between the BMW car ownership and social prestige considerations, the key customers of the company would be highly unlikely to desert its brands in favor of lower-profile mass car models. The BMW cars are usually highly customizable, just as the majority of other premium-class cars. In particular, the development of leaner production models in the 1990s and 2000s, associated with the rise of the built-to-order manufacturing patterns, has greatly contributed to the growth and development of the respective brands popularity. As noted by Baltas & Saridakis, the mass car manufacturers attempts to break into the luxury car market would usually end in failure due to the considerations outlined above. However, the sustainability of the BMWs competitive advantage may be put under question by the development of similar brands by the other luxury car manufacturers, e.g. Audi or Bentley. Hence, the main competition in this sector is between the market participants themselves.

Nevertheless, the BMW present standing in the market would appear to indicate that the company copes well with the challenges presented by the formers competitive environment. However, the growing competition on behalf of the other prominent luxury car manufacturers, with Audi being at the top of the competition, would indicate that the other factors influencing the BMW performance should be considered here.

Market overview

The BMW is oriented toward the luxury car market, both in the developed nations and globally, so this market segment may come under closer scrutiny here. The luxury car market segment appears to have weathered the economic storms brought about by the late 2000s recession, and from the 2011 on, the prospects for the premium-class car dealers appear to have been markedly improving. According to the data included in Forbes (2012), the U.S. luxury car market appears to be incredibly segmented, with various brands outpacing the others in their popularity in the selected states, and vice versa. For instance, in Texas, 7.7% of the customers surveyed on their first and second choice for a premium-class car chose BMW, while 5.8% did Audi, with Cadillac taking a close third place with 4.8%. In New York, on the other hand, situation is less ambiguous, with BMW being a visibly leading market contender. When taking the mean figures into account, the BMW appears to be the U.S. luxury car market leader, with Audi and Cadillac being its close but as of yet unsuccessful competitors. Two other major companies in the market, i.e. Mercedes-Benz and Lexus, are currently vying for the fourth place there, but within the context of this research they cannot be regarded as viable competitors for BMW Group.

According to Ashton et al., the global luxury market situation is even more one-sided, with Audi becoming the closest rival to BMW, while the other companies in the segment apparently lagging behind these two. While the BMW Group maintains its grip over the U.S. market, Audi is the top beneficiary of the explosive growth of this market segment in China. In particular, the Audis luxury car production capacity in this country is predicted to further increase by 700,000 cars by 2015. On the other hand, BMW may boast the rapid increase in its market share in India, as the latter grew from 9% to 42% in the period of 2007 and 2011. In global terms, the BMW total production reached the level of 1,668,982 cars in 2011, which may be considered the best rate ever in the companys history and represents a 14.1% increase compared to the year of 2010. On the other hand, Audi managed to increase its car sales by 16.9%, achieving the landmark sales level of 1,512,014 cars in 2011. When taking into comparative perspective, these figures indicate that while global luxury car market is not duopolistic, these two companies appear to be taking the top place therein.

In general, one may surmise that BMW production fills the market gap in the cars combining top speed and comfort and luxury. While the recent growth of Audi seems to be the main challenge to BMW in this market, the companys current sales and revenues growth would mean that the BMW management may be certain for their companys short-term supremacy.

Sustainability / Ethics

The issue of environmental protection is of utmost importance within the context of every successful automotive industry venture, and BMW Group is scarcely an exception from this rule. The company appointed its first environmental officer in 1973, and since then BMW Group has been consistently taking and environment-friendly position. For instance, one of the concerns major plants in Spartanburg (USA) is claimed to be 60% environment-friendly, as it covers this portion of its energy needs from the nearby methane deposits, using the closed cycle energy supply. Among the other companys achievement in this regard are the group-wide savings of 1.1 million MWh of energy between 2007 and 2008, as well as the carbon emissions reduction per vehicle from 0.84 tons in 2007 to 0.82 tons in 2008. Coupled with a comparable water emissions reduction, this would point at the willingness of the BMW management team to fulfill its environmental policy commitments.

On the other hand, the company may fail at other ethical issues, such as the adequate reimbursement of its Third World employees. Ashton et al. report that BMW Group runs its production facilities in 14 nations, including South Africa, China, India, Indonesia, Egypt, Malaysia, Russia and Thailand. The working and payroll conditions in these countries are understandably less beneficial than those of the BMW production centers in Austria, the USA, Germany and Italy. Given the widespread reports of the workers rights abuses in the Third World, with Indonesia and China considered to possess some of the worst records thereon, the company should take this problem into consideration, so as to guarantee labor market fairness and avoid public controversies on this point.

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Analysis and conclusion

Having reviewed the aforementioned market data, one may draw some conclusions on the future prospects of BMW Group. First, the corporation appears to have achieved the remarkable position in the market, becoming its top leader. Second, the BMW Company is marked by the clear orientation toward the needs of its chosen customer segment, greatly enhancing its market performance and efficiency. However, the challenges the company has to face are connected with the continuing economic problems that may lead to the rapid decreases in the companys customer segments purchasing power, which would in turn cause the respective business complications.

Proceeding from these considerations, the BMW Group leadership may be advised to focus on the differentiation of its car business, as well as upon the further increases in material economy, so that the possible growth in raw materials pricing may not have an adverse impact upon the groups business. Further, the maintenance of the companys competitive advantage with respect to Audis growing competition should be safeguarded by the development of more economical car brands that would still live up to the companys historical standards.

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