Bmw Competitve Forces

Table of Content

Introduction Page 3

Overview Page 3

Competitive Forces Page 3

Company Description Page 3

Analysis Page 4

General Page 4

Intensity of Competitors Page 4

Power of Suppliers Page 6

Power of Customers Page 6

Threat of new Entrants Page 7

Threat of Substitutes Page 8

Most significant Force: Power of Customers Page 8

Competitive Forces Paper 3

Introduction

Overview

This paper will analyze the five competitive forces in the automobile industry. More

particularly, it will be analyzed how the forces have an effect on the car manufacturer BMW.

Based on this analysis, the force with the most impact on the company will be identified. Based

on that, it will be described how BMW uses information systems to offset the force.

Competitive Forces

The five competitive forces model was developed in 1980 by Michael E. Porter. Porter's

five forces model suggests that competition in an industry is rooted in its underlying economic

structure and goes beyond the behavior of current competitors (Porter, 1980). The stage of

competition depends upon five basic competitive forces, which determine the degree of

competition and the profit potential in an industry. The five forces are (a) intensity of

competitors, (b) power of suppliers, (c) power of customers, (d) threat of new entrants and (e)

threat of substitute products (Porter, 1980).

Company Description

BMW, which stands for Bayerische Motoren Werke, has made a well-known name as a

luxury car manufacturer (Bernhardt & Kinnear, 1994). The headquarters of the BMW group is in

Munich, Germany, but the company is present all over the world. The company built a high

brand equity over the years through continuous branding efforts and high quality products. BMW

is arguably the most admired carmaker in the world and BMW products inspire near- fanatical

loyalty (Kiley, 2004).

Competitive Forces Paper 4

Analysis

General

BMW is a manufacturer of luxury cars. Within this category, it is distinguished between

traditional and functional luxury cars. Traditional luxury cars are mainly produced by U.S.

manufacturers like Cadillac and focus on customers that want to enjoy a soft, comfortable and

living room style appearance (Bernhardt & Kinnear, 1994). Functional luxury cars are

represented primarily by European manufacturers like BMW and focus on customers that want

the communication with the road via steering and suspension systems (Bernhardt & Kinnear,

1994). They enjoy a pin-point steering and precision suspension system that put the driver in

touch with this surrounding and inform the driver of the immediate environment (BMW

Corporation, 2004). Following, the impact of each of the five forces on the functional car

manufacturer BMW will be analyzed.

Intensity of Competitors

The automobile market is at the maturity stage of the life cycle, locally and globally, due

to an increased number of competitors from domestic and foreign markets. The automobile

market is characterized by a low potential for market growth, but high sales and profit potential

(Murtagh, 2004). The following figure demonstrates the positioning of auto manufacturers

within a global context.

Competitive Forces Paper 5

Figure 1

Strategic Groups Within the World Automobile Industry

The overall market can be organized in geographic as well as product segments as shown

in previous figure 1. Competitive forces are high in each segment of the overall market. BMW

belongs, as mentioned before, in the functional luxury car segment. This segment, or also called

strategic group, is categorized through low product diversification but a relatively high

geographical scope (Murtagh, 2003).

The market structure of the luxury car manufacturer segment is a differentiated oligopoly.

An oligopoly consists of a few companies with an unspecified number of buyers. The actions of

each company in this oligopoly affects the other manufacturers in the market. The key issue is

the reaction of manufacturers to one another. The objective of companies in an oligopoly is to

maximize the present value of profit (Bernhardt & Kinnear, 1994).

Direct competitors for BMW are mostly luxury car manufacturers from the U.S.,

Japanese and other West European countries. Globally, the biggest U.S. competitors of BMW

are Cadillac, Lincoln, Buick and Chrysler. Locally and globally, BMW is directly competing

with Mercedes Benz,