A Case Study On Bmw Marketing Essay

Published Date: 23 Mar 2015

This report is an examination script and must not be reproduced in whole or in part without the written permission of the Head of School

September 2012

Abstract

Since the global crisis and euro crisis occurred, the biggest problem facing the consumer marketplace is not the weak state of house hold finances. The problem is the uncertainty weighing on people's minds about the engagement with brand. Therefore, building a strong brand leads to survive and to be successful for the business.

On this paper, a branding perspective will be reviewed to develop a brand. The case studies on BMW will be provided in further research.

Branding is the developing concept of marketing that consists of an important interaction between buyer and seller in marketing transactions in the way of determining consumer behaviors. Brand equity is core value of branding. It includes indispensable assets that are mainly brand knowledge and brand effect, brand loyalty, brand extendibility and various associations and characteristics attached to the brand.

¬Global branding is one of the strategies that leads to have more profitability. However it must consider the differences across countries and culture to success. The differences includes consumer needs, wants and response to marketing mix element etc. Moreover, as competitive increases in globalization, place branding strategies become more and more important to increase the investment and customer communication.

Contents

I. Introduction

1.1. Definition of the brand

1.2. Importance of the brands

1.2.1 Importance of the brand to customer

1.2.2 Importance of the brand to company

1.3 Aim of the project

1.4 Objective of the project

1.5 Methodology of the project

II. Literature Review

2.1 Brand equity

2.2. Brand knowledge

2.2.1 Brand awareness

2.2.2 Brand image

2.3. Brand resonance

2.4. Branding strategies

2.4.1 Manufacturer branding

2.4.2 Own-label / Private-label branding

2.4.3 Price branding

2.4.4 Generic branding

2.5. Global branding

2.6. Place branding

2.7. Business environment analysis

2.7.1 Porter's five force analysis

2.7.2 PESTLE analysis

2.7.3 SWOT analysis

III. COMPANY DESCRIPTION

3.1 General overview

3.2 Brief history

3.3 Brand width

3.3.1 BMW

3.3.2 BMW Motorcycles

3.3.3 MINI

3.3.4 Rolls-Royce

3.4 Sales profile

3.5 Summary

IV. COMPANY ANALYSIS

4.1 Power of brand

4.2 Business environmental analysis

4.2.1 External analysis using Porter's five forces

4.2.2 PESTLE analysis

4.2.4 Internal and External analysis using SWOT

4.3 Summary

5. References

6. Bibliography

CHAPTER I

INTRODUCTION

1.1. Definition of Brand

The definition of brand in English dictionary is defined as "trademark or distinctive name identifying a product or a manufacturer." However, as the business and marketing view, it has more meaning, for example, according to American Marketing Association, brand is defined as "a name, term, sign, symbol, or design, or a combination of them intended to identify the goods and services of one seller or group of sellers and to differentiate from the competition". In other hand, brand is defined as the needs and wants of a target market using the marketing mix of product, price, place and promotion (Wood, 2000). Moreover, brand is also defined as a whole of values that enables a promise to be made about a unique and welcomed experience (Chernatony, 2009). Therefore, brand is a complex multi faced phenomenon which includes evaluation, image, identity, values equity and consistency.

1.2. Importance of the Brands

Brands are important for both to consumers and to the company because it gives benefits and advantages such as;

To customer

To company

Identification of the product

Ease in comparison

Self-expression through brand personality

Legal protection

Ease in segmentation

Loyalty

Brand Equity

1.2.1 Importance of the brand to customer

Brand benefits to the customers by telling how good or bad the product is. This is based on customer's past experience, advertisement and rumors. These will help the customer to filter out the countless items. Therefore, brand gives customers the reason to buy and also wastes less time for customers to choose.

Moreover, brand might be used as a symbolic device. For example, a high quality product with highly price could be bought by successful people.

1.2.2 Importance of the brand to company

Brand benefits to the company, most importantly, that is ability to build purchase confidence and improve customer loyalty. The primary loyalty builders are the quality, reliability and performance. The role of the brand is also to protect innovations, to "create a mental patent" and to identify the firm's technical know-how (Michael, King and Reast, 2001)

The benefits of having a strong brand are; (Hoeffler and Keller, 2003).

Having improved product perception,

Enhancing customer loyalty,

Strong marketing position in the competitive environment

Great trade

Increasing rates of margins

1.3 Aim of the project

In this dissertation, BMW is chosen as a case study considering its strong and famous brand in the automotive industry. It manages to survive and to be surviving the recession period, and even increase the sales of product nowadays. To analyse the factors and strategy enhancing the brand equity of BMW which further leads to the success of the brand will be the main aim of this dissertation. Their brand strategy concepts such as brand image, brand elements selection, and brand identity will be analysed and discussed.

1.4 Objective of the project

In order to achieve the aim of the dissertation, the following objectives are needed to be determined:

To analyse the branding strategy of BMW such as the choosing of brand elements, brand identity, brand image, brand positioning , and brand equity.

To analyse the factors and strategy that contributed significantly to the success of the brand.

To analyse the internal and external business environmental of BMW to design the future strategy of BMW.

To present the possible future branding strategic recommendation for BMW.

1.5 Methodology of the project

The material will be mainly generated by secondary data. The secondary data that will be used are published articles, blog and news that are related to branding, and also information from the official BMW website will be used. Moreover, text books and few articles from the internet will be used to generate the foundation theory of branding and some examples related to the topic.

CHAPTER II

LITERATURE REVIEW

2.1 The Brand equity

Brand equity is one of the most important marketing concepts to increase the profitability. This is because it is unique ability to contribute directly without adding features or lowering price. Strong brand equity is able to; (Quarles, 2007)

Command premium prices

Capture and maintain market share

Support new line extensions

Attract investors

Fend off new competitors

Brand equity is defined in many ways. However, it can be classified as 3 main perspectives which are financial, brand extensions and customer based. Financial perspective is the incremental discounted future cash flows that would result from a product having its brand name in comparison to that would accrue if the same product did not have that brand name. Brand extensions perspective is the benefits that a successful brand can be used as a platform to launch related products. The benefits are the customer awareness of the brand which further will reduce the advertising cost and the risk. Customer based perspective is the differential effect that customer knowledge about a brand that has on consumer response to marketing activities and programs (Kotler and Keller, 2009). Therefore, brand equity can be generally defined as a set of assets connected to the name and symbols of the brand that adds to the value of the product or service to a company and/or company's customers (Aaker, 1990). Brand equity is mainly considered on 5 types of assets which are;

Brand name awareness

Brand loyalty

Perceived quality

Brand associations

Intellectual rights

These measures allow assessing effectively the value of the brand as a firm asset, and the examination of brand value at regular intervals. Aaker (1999) suggests that these measures can effectively be applied across a variety of products and markets.

2.2 Brand knowledge

The brand knowledge is a key to create brand equity and defined as awareness and image.

2.2.1 Brand awareness

Brand awareness is when consumer is aware of a brand within a purchase category and is a prerequisite for purchase and for the formation of brand attitude. It consists of brand recall and brand recognition (Keller, 2003). According to Aaker (1999), brand awareness can add value to the brands in many ways, such as;

Placing a brand in customer mind

Become a barrier of new-entry product

Ensuring the customer about the commitment of the company of maintaining the quality

Providing leverage in distribution's channel

2.2.2 Brand image

Brand image is the impression in the consumers' mind of a brand's total personality. It consists of consumers' preconception and of association for the brand (Keller, 2003). This is developed over time through advertising, campaigns and consumers' direct experience. The components of the brand image can be classified into three groups which are;

The image of company: The image of company that the brand belongs to.

The image of the consumer: Consumers' ideas and feelings about the brand.

The image of the product/service itself: The image of the brand such as cheap, and innovative.

2.3 Brand resonance

Brand resonances are characterized by a strong relationship between the consumer and the brand. The strong brand resonance has benefits to increase customer loyalty and to reduce the risks by competitive advantage. Building brand resonance involves a series of steps, as seen in Figure 2.1

Figure 2.1 Brand Resonance Pyramid

(Source: Keller, 2009)

The first stage is "Identify". It is based on customers' needs and perception.

The second stage is "Meaning". It is based on customers' understanding points of difference and points of parity such as performance and reliability.

The third stage is "Response". It is based on the responses and judgements of customers about the brand.

The final stage is "Relationships". It is based on consumer loyalty with the brand. At this stage, customers feel a connection or sense of community with the brand (Keller, 2009)

2.4 Branding strategies

Branding strategy generally aims influencing the perception of customers about products and services to lead to purchase or to use. Moreover, it affects the customer to purchase the products at higher prices and maintain the customer loyalty in the competitive market (Gelder, 2002). There are many forms of branding; however, primarily there are manufacturer, private-label, price, and generic brands.

2.4.1 Manufacturer branding

This strategy used by the manufacturers to brand the product. It helps identify the producer of a brand at the point of purchase. Therefore, this strategy requires the assistance of channel intermediaries for wide distribution, and the promotional drive stems from the manufacturer in an attempt to persuade end users to adopt the brand, which in turn stimulates channel members to stock and distribute the brand. (Chris, 1999)

2.4.2 Own-label / Private-label branding

Own-label branding means that brand is owned not by a manufacturer or producer, it is owned by a retailer or suppler who gets its goods made by a contract manufacturer under its own label. This is also called private brand. This strategy offers many advantages to both the manufacturer and retailer. The advantage on manufacturer is that can use excess capacity, and on retailers is that can earn a higher margin than they can with manufacturer branded goods and at the same time develop organizational images.

2.4.3 Price branding

Price branding are produced by manufacturers in attempt to compete with private brands. The product is low-priced and is further characterized by an absence of any promotional support. The effect on the other brands in the manufacturer's portfolio may be to stimulate promotional support to prevent the less loyal buyers trading over to the low-priced offering. (Fill, 1999)

2.4.4 Generic branding

This strategy avoids any promotional materials and the packaging only displays information required by law, so that, brand is not widely recognized. However, this strategy uses the less expensive than branded products and sometimes; it is 40% below the price of normal brands. Generic branding is largely used in area of fungible products such as aluminum foil, recording media, hand tools, paper products etc.

2.5 Global branding

The global branding is very important to brands. Especially China is 'must win' market for global brands. There are several reasons that the business contributes to the growing interest in global marketing, which are;

Perception of slow growth and increased competition in domestic markets

Belief in enhanced overseas growth and profit opportunities

Desire to reduce costs from economies of scale

Need to diversify risk

Recognition of global mobility of customers

However, it is very difficult to build brand equity all over the world due to fundamental differences across countries and cultures. Critics claim that designing one marketing program for all possible markets often results in unimaginative and in effective strategies geared to the "lowest common denominator". Possible differences across countries come in a variety of forms as follows; (Keller, 2003)

Differences in consumer needs, wants, and usage patterns for products

Differences in consumer response to marketing mix elements

Differences in brand and product development and the competitive environment

Differences in marketing institutions

Differences in administrative procedures

A global brand must be consider four key areas. Firstly, it must be decided which markets to enter. This decision could be similar to the factors affecting the decision to enter any new markets. The attractiveness of the market and possible competitive advantages must be evaluated. The second decision in developing a global marketing is to decide how to enter the market. There are mainly three alternative ways to enter a new global market which are; (Barwise and Robertson, 1992).

By exporting existing brands of the firm into the new market

By acquiring existing brands already sold in the new market but not owned by the firm

By creating some form of brand alliance with another firm

The third decision is to decide on the actual nature of the program such as the controversy over standardization versus customization strategies. Finally, it must be decide on the most appropriate organizational structure for managing global brands. After, these four decisions are considered the developing a global branding strategy must be made.

2.6 Place branding

Place branding is a new umbrella term encompassing nation branding, region branding and city branding. It is defined as a network of associations in the consumers' mind based on the visual, verbal, and behavioral expression of a place (Zenker and Braun, 2010). Place branding aims especially to increase the attractiveness of a place. The successful branded place, such as London, brings an attraction to new investment and creates a positive success to firms and organizations. Therefore, it is more and more important to create branding strategies in branded place. The good example could be Apple. Apple started to have retail stores aiming branded place over the world. The result was the one on factor that bring to have more profits in global crisis by increasing of investment and customer communications.

2.7 Business environment analysis

2.7.1 Porter's five force analysis

Porter's five forces analysis is a tool to analyse the competitive strength and also to determine position of brand in the immediate competitive environment. With clear understanding, the company can take the advantage of strength, improve a weakness, and avoid taking wrong decisions. The five forces are described as follows;

five force.png

Figure 2.2 Porter's Five Forces Analysis

Competitive rivalry

For most industries, the intensity of competitive rivalry is the major determinant of the competitiveness of the industry. It helps to determine the extent to which the value created by an industry will be dissipated through head to head competition. The intense rivalry occurs when there are numerous competitors under the slow growth market condition and high exit barriers. (Needle, 2004)

Bargaining power of suppliers

The power of suppliers influences several factors to the firm. For example, if the suppliers are powerful, it can influence on the producing industry such as selling material at high price. According to Needle (2004) supplier power is stronger when there are few suppliers and raw materials are highly specified.

Bargaining power of customer

The power of customer is the impact that customers have on the company. For example, if the power of customer is stronger, many suppliers with a buyer, the buyer sets the price of product. In reality, only few exist. However, according to Needle (2004), the buyer power will increase when there are numerous competitors who offers similar or substitute products, hence the customer might switch from a brand to another brand.

The threat of new entrants

The new entrants to the market will affect the environment. For example, if it costs little in time or money to enter your market, the new competitors can quickly enter your market and weaken your position. According to Needle (2004), the treat of new entrants relates to how easy for a company to establish or develop a business under the same product market. The barriers of entry are considered to protect the high profit level of firms in the market and inhibit additional rivals from entering market. Barriers could be the capital requirement of entering, customer loyalty in the market, and operating experience which is competitive advantage by existing firms.

The threat of substitution

The threat of substitution is the availability of a product that the consumer can purchase instead of the industry' product. For example, tap water might be considered a substitute for Coke whereas Pepsi is a competitor's similar product. Therefore, it depends on the relative price to performance ratios of the different types of products or services to which customers can turn to satisfy the same basic need.

2.6.2 PESTEL analysis

PESTEL analysis is used to analyse the macro-environmental factors that will affect the decisions of the any organisation. It is a strong framework to set stages to develop specific tactics to mitigate the risks involved in executing vision in unfamiliar environment. PESTEL stands for Political, Economic, Social, Technology, Environment, and Legal.

Political

Political aspects is related to government intervention which influence some of the regulatory in the business environment of the company. For example, tax policy and labour law.

Economic

Economic refers to the major impacts on how the business operation and decision. According to Omar (1999), the economical condition affects the development of business cycle of the business and the cost to the business. For example, rental cost, labor cost, cost of inventory and cost of maintaining and developing the market based on economic growth and interest rates.

Social

Sociological aspects refers how to operate the strategy based on the characteristic and behavior of the people, and also the movement of the people (Omar, 1999). For example, population growth rate and age distribution

Technology

Technology enable the company to remain competitive in domestic or foreign market, and even have a competitive advantage in the business environment (Omar, 1999). It also enable the company to reduce cost, innovate the products and improve the quality of product. For example, research development activity and automation.

Environment

Environment aspects is to determine how to operate relate to the surrounding environment and create benefits to business activity. This aspect covers the weather and climate change. For example, tourism, farming and insurance.

Legal

Legal aspect refers to government legislation in the environment of the company operate. For example, employment law and safety law

2.6.3 SWOT analysis

SWOT analysis is a useful technique to identify internal and external factors of business. It stands for Strength, Weakness, Opportunities, and Threat. The internal factors are classified as strength and weakness, while the external factors are classified as threat and opportunity (Omar, 1999). The description and example of SWOT analysis are shown in Figure 2.3;

Strength

Characteristic of the business that gives an advantage over others. For example, reputation, quality of products and services, experience, etc

Weakness

Characteristic of business that gives a disadvantage relative to others. For example, high product cost, lack of distribution channel, lack of expertise, etc

Opportunity

External chances to improve the performance in the environment. For example, emerging market, technological development, new distribution channels etc.

Threat

External elements in the environment that could cause trouble for the business. For example, new competitor, trade barrier, increasing in cost etc

Figure 2.3 The Example of SWOT Analysis

By good understanding and analysing the SWOT analysis, it helps in matching the firm's resource and capabilities to the competitive environment in which it operates, in other hands, it helps to gain the competitive advantage based on the surrounding business environment.

CHAPTER III

COMPANY DESCRIPTION

3.1 General Overview

Bavarian Motor Works (BMW) is a German automobile, motorcycle and engine manufacturing company. It is headquartered in Munich, Bavaria, and Germany. It also owns and produces the Mini marque, and is the parent company of Rolls-Royce Motor Cars. BMW produces motorcycles under BMW Motorrad and Husqvarna brands.

The BMW is present in the world markets with 25 production and assembly plants, 43 sales subsidiaries and a research and development network. The BMW rose sales by 14.2% to reach a total of 1,668,982 vehicles in 2011.

The brand value of BMW has been increasing by 10% in 2011 through negative economic turbulence. BMW now has $24,623,000,000 of brand value, the highest brand value in automotive industry. brand value 1.pngbrand value 2.png

Figure 3.1 Most valuable brands in 2012 (Left)

Figure 3.2 Most valuable brands in automotive industry, 2012 (Top)

(Source: Milwardbrown,com, 2012)

3.2 Brief History

BMW was founded in 1917 with 'Rapp Motorenwerk' which is aircraft engine manufacturing firm. However, it was forced to cease after First World War in 1918. Therefore, the company shifted to motorcycle production in 1923 and also automobile production in 1928~1929.

In 1920s, the first car, which successfully launched, was produced called 'Dixi'. It was based on Austin 7 and licensed from the Austin Motor Company in Birmingham. Furthermore, in 1930s, BMW came up with the amazing 328 Roadster which was a legend in the racing history. However, by the year 1959, the company had financial crisis, so that, it had had to be decided either to sell the company or to find a way of carry on. It was decided to carry on and to try to cash in on inexpensive small and medium size cars such as BMW 700. This plan was successful and helped the company get back on its feet.

In 1966, the company bought the crisis-ridden Hans Glas GmbH with its factories in Dingolfing and Landshut. Both plants are restructured, and over the coming decades the world's largest BMW plants takes shape in Dingolfing.

In 1994, BMW bought the British Rover Group (which at the time consisted of the Rover, Land Rover, and MG brands as well as the rights to defunct brands including Austin and Morris). However, by 2000, MG and Rover brands were sold due to incurring huge losses. Meanwhile, BMW retained to build the new Mini, which was launched in 2001.

In 1998, with long negotiations, the company obtained the brand and naming rights for Rolls-Royce Motor Cars from Rolls-Royce plc. It was held entirely by Volkswagen until the end of 2002. When BMW Group took over full responsibility of Rolls-Royce Motor Cars, the new Rolls-Royce plant and headquarters were built in Goodwood, in southern England, and was scheduled to manufacture newly developed Roll-Royce models, new Phantome, in 2003.

In 2007, BMW Motorrad took over Husqvarna Motorcycles, a Swedish company. As it is a leading supplier of sporty off-road motorbikes, the firm widens the product range of BMW Group with a host of lightweight machines. Furthermore, BMW Group adopts the Strategy Number ONE with its four pillars, "Growth", "Shaping the future", "Profitability", and Access to technology and customers". It aligns the BMW Group with two targets, 'to be profitable', and 'to enhance long-term value in times of change'. The mission statement up to the year 2020 is clearly defined as the world's leading provider of premium products and premium service for individual mobility. (BMW Group, 2012)

In June of 2012, BMW becomes most reputable company in the world based upon on people's willingness to buy, recommend, work for, products and invest in a company. Kasper Ulf Nielsen, a managing partner at Reputation Institute, is said

" BMW has earned the trust and respect of consumers all around the world though its consistent focus on delivering high quality in all of its actions" (Jacquelyn, 2007)

3.3 Brand width

3.3.1 BMWBMW logo.png

BMW brand has stood for one thing since its inception, 'Sheering driving pleasure'. Sporting and dynamic performance combine with peerless design and exclusive quality result in the unique appeal of BMW automobiles.

3.3.2 BMW Motorcyclesbmw moto logo.png

Premium is the key word for BMW Group which influenced motorcycles as well. To develop and build the best motorcycles regarding to technology, environmental protection, safety, and provide outstanding customer service, has great success to the company.

3.3.3 MINI

MINI is a British automotive marque owned by BMW, which specialises in small cars. Over the years, it has changed from the origin ideal. However, the foundation of small car, its character traits, have remained unchanged from its inception in the 1950s until today. The current MINI range includes the Mini logo.png

Hardtop/Hatch/Convertible, Clubman, Countryman, and Coupe/Roadster.

3.3.4 Roll-RoyceRoll logo.png

Roll-Royce Moter Cars has been part of BMW Group since January, 2003. It is well-known brands in the world with the most fascinating and luxury motor car par excellence. For over 100 years, the Roll-Royce brand have stood for truly outstanding engineering, quality and reliability.

3.4 Sales Profile

Based on BMW Group financial annual report 2011, the overall sales volume increased compared to year 2009 and year 2010. The figure 3.3 shows the highlight of sales volume of BMW products and also the figure 3.4 shows the net profits of BMW Group.

Figure 3.3 Total BMW Group net sales in 2007-2011

BMW group achieved best results with sales volume in 2011. The sales of BMW brand cars alone rose by 12.8% to 1,380,384 units, 21.7% to 285,060 units with MINI brand, and 30.5% to 3,538units with Roll-Royce brand. Moreover, sales of BMW Motorcycles and Husqvarna brand rose by 3.1% to 113,572.

Figure 3.4 Total BMW Group net profit in 2007-2011

BMW Group also achieved best results with net profit in 2011. The net profit significantly improved in 2010 compared to 2009 through the negative economic turbulence. This could be due to strong BMW brand as premium vehicles, which caused strong demand in Asia and in USA in 2010. The net profit in 2011 increased by 51.3 % to € 4,907 million compared to € 3,243 million in 2010.

Figure 3.5 Key automobile market for BMW group

(Source: BMW Group annual report, 2009-2011)

The figure 3.5 shows the key automobile markets. It shows that the sales performance in Asia dynamically increased since 2009 with BMW, MINI and Roll-Royce Motor Cars brand vehicles. The main contributor to this automotive segment significant increased was the Chinese market, with sales up to 233,630 units, nearly double of year 2009.

3.5 Summary

Bavarian Motor Works (BMW) is a German company that is one of the most successful car and motorcycle manufacturers in the world. It owns three of the strongest premium brands in the automobile industry and also strong position in the motorcycles market with the BMW and Husqvarna brands.

The company has grown with corporate strategy with prime objectives as striving for ecological and social sustainability along the entire value-added chain, taking full responsibility for products and giving an unequivocal commitment to preserving resources. For these reasons, the BMW now has top-of-mind brand awareness in car category with around $24.6 billion of brand value.

The brand identity of BMW is the ultimate driving machine. The brand slogan is associated as 'THE ULTIMATE DRIVING MACHIN' in USA, Australia and UK and 'SHEER DRIVING PLEASURE' in international official website and many other counties. Moreover, the consumer brand association for BMW might be 'heritage', 'stylish', luxurious', powerful', 'elegant', performance' and fuel efficiency' to extent. In addition, BMW brand strategy consists of innovation, dynamism, exclusivity and aesthetics which helps to boosts the development of brand identity.

CHAPTER IV

COMPANY ANALYSIS

4.1 Power of Brand

The BMW name, one of the oldest company in car market, is an important source of brand equity as well as it's the German car. According customer based brand equity pyramid (Figure 4.1), the BMW is equally strong on the left and right sides, and also from bottom to top.

pynamid.png

Figure 4.1 Customer Based Brand Equity Pyramid

The premium quality of its products in term of design, safety, services and performance enables a premium price among its competitors. Furthermore, the strong brand equity offers the competitive advantage by supporting new market extension, and reducing the marketing costs due to high brand awareness and loyalty. Without the strong brand equity, BMW could not dynamically increase the sales in Chinese market since 2009 which resulted a great profitability in 2011.

The key success factors to build strong brand equity for BMW are as follows;

BMW implemented a different marketing strategy in different socio-economic segments to build strong premium brand. BMW achieved optimising between the purchasing behavior of consumers and the marketing mix to maximize sales to premium segments. For example, BMW only concentrate on giving drivers pleasure whereas Mercedes-Benz, competitive rivalry, also concentrates on the transportation like vans and trucks. In addition, BMW has shifted its position as 'Ultimate driving machine' and 'sheer driving pleasure' by the emphasis on automobile performance and taking emotional factors into serious consideration. Advertising is the communicative approach relevant to the motives of the targeted customers (Young, 2011). It appeals the emotional factors to customer, which may directly affect customers purchasing behaviors. For example, in 1996, a sporty new Z8 convertible was featured in James Bond movie called 'Golden Eye'. It had strong impression of BMW automobiles, which was rare and bold, captivating the luxurious image of the vehicle. This led BMW to be strengthened the customer loyalty and helped prospective buyers to congruently lean toward its cars. Moreover, in recent time, BMW was one of the biggest corporate supporters of the 2012 London Olympics. BMW supplied about 4,000 vehicles to advertise the 'green' automobiles like electric MINIs, hybrid 5-Series etc. As the results, traffic on BMW's American Web site was up 26% between Olympics period, with more than half of the total number being unique visitors (InAutoNew, 2012). Another example would be the first luxury brand store in Paris. It aims three objectives which are, first, to increase the number of possible contact points with customers and prospects, second, to increase the services and benefits offered in its retail channels, and third, to enhance the retail experience at all touch points (Steve, 2012). Overall, BMW combines the premium marketing and emotional marketing, for global marketing strategy, to be compensated with superior economic performance and a strong leadership position in the automobile industry.

Innovation is also a key word to build strong premium brand in automobile industry. In a trend, the 'green' automobile is getting popular due to increasing price of crude oil and global warming. BMW spends largest amount of money on R&D to develop the technology like 'green' products. The BMW X6, the world first SUV coupe, is an excellent example of BMW innovation at work. It combines the attributes of an SUV, four-wheel-drive, with the on-road performance of a sports car and also the stance of a coupe. It was released for sale in the second quarter of 2008 for the 2009 model year, since then, it has upgraded using highest technology. The hybrid power train is one of the technologies used for development of X6. It offers the driver to benefit from the combination of both electric power and power of combustion engine. Therefore, it is able to be driven completely free of CO2 in the electric mode, speed up to 40mgh. In recent time, BMW supplied high technology automobiles to 2012 London Olympics that set an emissions standard of 120 grams CO2 per kilometer where as the U.K new car emissions average is 138 grams CO2 per kilometer. (AutoBlog, 2012)

In order to keep high technology, BMW has excellence training for employees and great promotion of young talent. According to BMW AR (2011), the BMW Group continued to be highly attractive employer in 2011 based on numerous studies and rankings table. Furthermore, BMW improves the expenditure on basic and further training to meet future vehicle development requirements. This leads to conclusion that BMW has high skilled workers for the development of new technologies. The BMW Group also allies with other companies to improve the technology. For example, BMW and Toyota recently agreed to extend their cooperation to develop next-generation lithium-ion cells for the batteries used in hybrid and electric cars. From this alliance, BMW will benefit further developing the 'green' automobiles, because Toyota has been a leader in hybrids and also is leading an industry push to develop hydrogen-powered cars (John and Chris, 2012). Meanwhile, BMW can help Toyota to reduce the weight of cars. The German company has taken a leading role in carbon fiber, a lightweight, super strong and expensive material that so far mainly can be found in high end sports cars (Christiaan, 2012). The alliance between companies reduces the cost spending on developing technologies and help to have similar technology standards with competitive rivalry.

Therefore, in conclusion, BMW creates value, competitive advantage and innovation through various marketing efforts heavily committed in the premium segments to build strong brand equity

4.2 Business Environmental Analysis

BMW is in specific sector of automobile industry that is luxury and exclusive. The pleasant or desirable features beyond the necessary need has to be provided in this market. The additional cost can be reflected in the equipment, performance , comfort, design, status and prestige that the product supplies. More business environment of BMW will be analysed using Porter's five forces, PESTEL and SWOT analysis as follows;

4.2.1 External factors using Porter's five forces

The Porter's five forces is common tool for describing the competitive environment of company. The model of Porter's five forces is seen as Figure 4.2 and is described as follows;

five force model.png

Figure 4.2 Porter's Five Force Analysis for BMW

Competitive rivalry

The industry rivalry is considered to be very high in automobile industries. The one of reason could be the competition of price in global market. However, the companies in the premium automobile industries like BMW do not compete on price. The premium automobile industries are competing with the high quality of products, in terms of design, safety, features and reliability, as well as strong brands. Although BMW is in premium automobile industry, the industry rivalry is still considered to be very high. According to Kolter (2007), automobile market has very low customer loyalty in general, even when satisfaction with a brand is high, because people like changing cars. Furthermore, the rival is expected to increase more in the future based on possibility of new entrance to the market. For example, Toyota and Honda are pinching BMW with their luxury segments (Lexus & Acura) in terms of quality product and reliability. For these reasons, the premium automobile industry has very competitive environment. The BMW major industry rival would be Mercedes Benz and Audi.

Bargaining power of suppliers

The major suppliers of BMW would be producer of components such as aluminum, plastic and steel. These types of suppliers are various in the global market under near perfect competition, many suppliers and many buyer. In general, BMW is expected to have the positive bargaining power of supplier by production network. The extensive production network, that BMW possesses, has advantages in transfer pricing and moving expenditures to countries. Moreover, BMW has won several awards for their production network and their relations to suppliers. Therefore, BMW has good position when negotiating prices with suppliers. However, it can be very difficult for BMW to maintain full control of suppliers as the increased cooperation between BMW and its suppliers.

Bargaining power of customer

The power of customers in automobile industry is considered to be high due to low customer loyalty and various automobile companies in the market. However, the premium automobile industry like BMW seems to have higher customer loyalty based on product and services. Customers often have high expectations when they buy a premium car, so that, if the customers are not satisfied with a product, they will either not come back the next time or they will spread a rumor via internet or friend-to-friend. Both scenarios are costly for premium producer and also damage the brand image. Therefore, the brand contributes to customers are important to increase the customers loyalty which will decrease the bargaining power of customers.

The threat of new entrants

In order to enter the premium automotive market requires huge amount of capital investment and financial resources due to pursue the business along with high technology to manufacture or product automobiles that would compete strongly with existing brands. Moreover, as customers are willing to pay a price premium for the image of premium brands, a lot of capital is required on branding that the consumers see the products as being of equal quality and technological standard. However, there is a growing export potential in the developing countries such as China. This export potential can lead to a significant threat to BMW, for example, if a Chinese competitor enters in the premium automotive industry with a product as good as BMW's.

The threat of substitution

The threat of substitute products in automotive industry are facing very high due to the existence of various transportations like buses, trains, bicycle or even walking. Moreover, the automobile industry is continually moving towards more and more sustainable products like hybrid cars as technology develops. However, BMW products are more than just a mean of transportation. If a customer considers buying a car, the customer might be looking for cheapest alternative which is not BMW products. Furthermore, BMW is already manageable and investing in future threat of different types of fuel cell cars. Therefore, all in all, the threat of substituting products is considered to be low in short-period and medium in the long-run, since new technologies influence the automobile industry.

4.3.2 External factors using PESTLE analysis

Political factors

The political factors, that BMW concerns, are mostly the emission of CO2. The current standard of carbon emission in Europe, which is the largest market for BMW, prescribes car manufactures to ensure that their new car fleet does not emit more than an average of 130 grams of CO2 per kilometre (g CO2/Km) by 2015 and 95g by 2020 (European Union Environment, 2012). Moreover, BMW's second and third largest market, the US and China, are enforcing emission regulations in certain areas. The emission restrictions increase costs in the areas of development, testing and manufacturing for BMW. Therefore, BMW has invested 'green' technologies as well as providing new technological advances. For example, BMW has manufactured the hydrogen car in order to promote 'green' brand image which is heightened in U.K with new technology, called 'Efficient Dynamics', and the new campaign, 'Less emission and more driving pleasure'.

Economical factors

The economical factors are very important because it affects the customer purchase behavior and also consumer's ability to gain credit. BMW is in a premium price market which may cause higher risks related to both the customer purchase behavior and consumer's ability to gain credit. For example, BMW made very low profitability in negative economic turbulence, year 2008 and 2009. The global economic seems to recover since the second half of 2009. However, the sovereign debt crisis plagues the Euro zone since summer 2011. According to World Bank (2012), the world GDP growth rate grew 4.3% in 2010 and 2.7% in 2011. In addition, the major markets for BMW have the GDP growth rate of 1.6% for Europe, 1.7% for U.S and 9.1% for China in 2011. This leads the BMW Group to focus in Chinese market to increase the profitability rater then Euro zone.

Another factor regarding the economic climate is the currency. As BMW is continuously globalisation, currency risk is an important topic for BMW Group in the future. For example, BMW lost 517 million Euros due to adverse currency fluctuations and increasing raw material prices in 2007 when the dollar fell against the Euro. To reduce the currency risk, BMW has increased production facilities in its major markets, especially China. This means that BMW is able to spend the revenue in the same currency. However, BMW will not be able to perfectly match its revenue with its costs because not every car model is produced everywhere. The main currency takes place between both Euro and US Dollar, and Euro and Renminbi, since BMW has large revenue from US and China operations, but not correspondingly high costs. The current weak Euro makes the exchange rates to a major concern for BMW.

The price of crude oil and raw material is also major determinant for the economic outlook of the BMW Group. It is both reflected in the price of manufacturing and in the demand for products. The demand for products is changing to fuel-efficient vehicles in order to offset the rise in fuel prices and higher road tax. The price of both crude oil and raw material is expected to rise in the future due to the increasing demand from emerging market.

Social factors

BMW has diversified in many different markets and countries dealing with different cultures, expectations, values and incomes. Therefore, a winning formula in one country is not necessarily working in another, However, the environment, 'green' product, is concerned more and more important role especially consumers in the US and Europe. BMW reacts to their customers with increasing focus on hybrid cars, dual fuel engines and in general more fuel efficient cars. Furthermore, in the long run BMW is expected to provide innovative solutions to environmental points.

The demographic is another social factor that is yielding new opportunities to BMW. For example, the middle-class in China is growing estimated more than 300 million and hence new big target segments evolve (CNNMoney, 2012).

Technologies factors

The technology is a key point for automobile industry because the demand of products in automobile industry is safe, innovative, high performances and environmental. Therefore, many companies have spent lots of money on their research and development. According to Korzeniewski (2012), BMW and Honda spend largest amount at 5.5% of their total revenue on R&D and followed by VW at 5.4%. This leads to conclusion that technology is an area where it is difficult to gain competitive advantages. As BMW's R&D has large amount of their total revenue, BMW has managed to get an advantage in the production of engine, resulted winning several 'engine of the year awards' (BMW AR, 2011). Moreover, BMW is at good position on environmental products by researching dual fuel engines, hybrid electric cars and hydrogen driven cars. Their latest technological advances are showcased by Formula 1 car, which has the very latest technology concerning engines, safety and performance.

Environmental factors

In 2011, BMW achieved to remain the automotive sector leader for the seventh consecutive year in the Dow Jones Sustainability Index, which rates environmental friendly companies. BMW reduced both consumption of resources and emissions per vehicle produced by an average of 8 percentage points. In terms of resource efficiency, the average improvement since 2006 has been 32% (BMW AR, 2011). In addition, BMW clearly understands that the demand for alternatively powered vehicles using electric or hybrid technology is growing and also the premium brands of the future are being increasingly defined by their degree of sustainability. Therefore, BMW spends lots of times and money to develop the less-polluting cars as well as the developing environmental friendly fuels for the future, example, electric power, and hybrid power and hydrogen engine.

Legal factors

Compliance with the law is one of the basic prerequisites for success. BMW needs to consider current law for wide range of activities around the world. The growing in globalisation for BMW Group increases the large number of complex legal regulation to expose the risk of laws being broken. For example, the BMW Group is exposed to the risk of warranty claims, product liability claims and other legal disputes which are typical for the sector or which arise as a consequence of realigning our product or purchasing strategy to suit changed market conditions (BMW AR, 2011). Therefore, the Compliance Organisation for BMW Group ensures that its managers and its staff acts in a lawful manner. Moreover, the BMW group has adequate provisions to cover any such claims. The high quality of product also helps to reduce the risk of laws. At the momemt, the BMW group is not currently involved in any court or arbitration proceedings which could have a significant impact on its financial condition (BMW AR, 2011)

4.2.3 Internal and external factors using SWOT analysis

The SWOT analysis analyses the both external and internal factors of BMW. It is used to manipulate the strategic findings in order to identify which areas are particular interests for BMW. The table 4.1 shows the sum up of SWOT analysis and is described as area to develop in the long-period (Threats/Strengths & Weaknesses/Opportunities), exploitable opportunity (Opportunities/Strengths) and Serious threats (Threats/Weaknesses)

Strength

Strong brand equity

Strong marketing communication

Skilled labour force

Strong R&D due to huge percentage of its revenues, which is the highest in the industry

High performing products

Powerful distribution network and relation with supplier

Weakness

R&D costs due to different economies of scale to volume producers

Shipping cost of two brands, Mini and Rolls-Royce, from Britain to emerging market

Opportunities

New technology in automobile

Innovation and alliances (Hybrid cars)

Entering new markets where the country is developing

New products and segments

Threats

Extremely high competition for customers and resources

New legislation

Volatility in price of raw material

Currency

Copyright infringement

Table 4.1 SWOT analysis of BMW

Areas to develop in the long-period (Threats/Strengths &

Weaknesses/Opportunities)

The external threats are able to be reinforced by strengths of company. Moreover, weaknesses are able to be improved by future opportunities to create more favorable situation. Both combinations will be described for BMW but either of them should not be major priority to work in short-period, rather BMW should keep these combinations in mind for the future.

New legislations, for example, increased emissions standards or taxes for emission, are a threat to company's profitability in the automobile industry. However, BMW is able to easily turn this into advantages against competitors due to the strong R&D within the area of 'green' driving.

The volatility in price of raw material is non-predictable for the company. However, as the BMW is strong relationship with suppliers, the negotiation can be made on reasonable price.

The currency is major concern for such a globalised company like BMW. However, BMW brings down the currency risk through, for example, natural and financial preparation as the BMW has strong R&D and financial department.

BMW has the great opportunity to enter emerging markets where growth prospects are good, i.e. BMW made great profit on Chinese market in 2011 and it is still growing on profitability. However, the two of its brands, Mini and Rolls-Royce has weaknesses on the product network to emerging markets. Mini and Rolls-Royce is manufactured in Britain which may cause the high cost of both shipping and inventories. Therefore, MINI and Rolls-Royce has to develop into a close market contact to reduce the cost of both shipping and inventories.

BMW has the great opportunity that for charging premium prices though its valuable brands. It will increase a higher margin to the company. However, the automobile industry is extremely competitive environment, so that, it might increase threats as well. Moreover, BMW is only involved in the premium segment of automobile industry which is different economies of scale as volume producers. This causes the high costs on R&D and therefore, has weakness of relatively higher cost associated with each of their cars.

Exploitable opportunity (Opportunities/Strengths)

The combination of strengths and opportunities yields the immediate exploitable opportunities for the company.

The Chinese market is now the biggest single market for automobile industry. Therefore, the utilization of strong brand image and strategic alliances with Chinese partners, BMW should be able to benefit from the opportunity, example of increasing market share. Moreover, the demographically changes in emerging markets lead to a growing middle class which is a core market segment for BMW. This opportunity can be explored by drawing on strong brand image and market knowledge of the company.

The demand of either fuel efficient or 'green' fuel cell automobile is increasing due to the increases of oil price. This environment may be posing an especially big opportunity to BMW since they have strong R&D and skilled labours to lead ahead both fuel efficient and 'green' fuel cell automobile in the industry.

Serious threats (Threats/Weaknesses)

The combination of threats and weaknesses should be the major area to concern for BMW. It will damage the company's profitability and the brand image sooner or later, so that, BMW has to be dealing immediately to protect from serious threats.

The copyright infringements become a big threat for BMW, since their growth in emerging economies. There is no obvious way to solve the problem but it can be reduced by laws against copyright infringements.

Euro Crisis is another big threat to the company. BMW said" "higher personnel costs, increased expenditure on development and new technologies, intense market competition and the higher baseline of the previous year's record second-quarter earnings all contributed to the lower earnings figures in 2012" (RTE new, 2012). Moreover, Euro Crisis may affect the China in the future although the earning is, nowadays, supported by increasing in Chinese market.

The politic aspect in emerging economies is a threat to the company's operations. However, BMW cannot leave out the chance to grow in emerging economies, since the earning is supported by emerging markets.

4.3 Summary

The BMW is one of the oldest and German automaker being successes to build strong brand equity. Their premium and emotional marketing leads the BMW Group to interplay synergy effects between BMW products and services that successfully communicate with target customers. Moreover, developing technologies under customer demands also leads them to a strong position in automobile industry.

The business environmental is analysed using Porter's five forces, PESTEL and SWOT analysis. In general, BMW is not assessed to be under threats. However, the currency becomes biggest threats to BMW. Therefore, BMW could increase the inventories to keep same currency of incomes and outcomes to reduce the risk. Moreover, customer's demand is changing to 'green' fuel cell automobiles. BMW spends large amount of money on R&D and also allies with competitive rivalry to develop the technology to meet customer's demand.

The economic seems to be recovering from the financial crisis. However, Euro zone is still struggling with debts. Therefore, BMW should consider increasing the profitability in the emerging markets, especially in China. The Chinese market is rapidly growing; GDP has grown 9.1% in 2011, as well as the middle class consumers.

The emission regulation of Co2 is reducing against laws. The new car should emit no more than an average of 130g/km by 2015 and 95g/km by 2020 in Europe. The U.S and China are also enforcing emission regulations in certain areas. Therefore, BMW should invest 'green' fuel cell in the area of production and products. The BMW automobiles supplied to 2012 London Olympics are good example of fuel-efficiency and 'green' automobiles.

CHAPTER V

CONCLUSIONS AND FUTURE RECOMMENDATION

5.1 Conclusions

5.2 Future recommendation