The luxury cars industry in the United Kingdom has been resilient over the recent years despite the global recession. In particular, the United Kingdom luxury car makers continue to make increasing sales to other booming markets such as Russia and China. This research paper seeks to conduct a competitive analysis of the whole luxury car industry in the United Kingdom in a bid to examine the market situation of the individual car makers. This paper shall look into some of the significant brands of luxury car makers such as Rolls Royce, Land rover, BMW, Tesla, and Chrysler in this endeavor. To this end, this research paper shall conduct a Porter’s five forces model and the PETSLE of PEST analysis as strategic evaluation tools to evaluate the market of the industry. In conclusion, the paper shall examine the market outlook for the industry.
Industry overview
History
The rise of the luxury automotive industry can be traced back to the 1700s during the invention of the wheel. This evolution to the current luxury cars which are popular with persons with high disposable income has been influenced and shaped by several and varied innovations in fuels, manufacturing practices, components of vehicles as well as market changes and changes in suppliers. It is believed among most historians that the starting point of cars and indeed luxury cars was initiated with the development of the engine. The engine was developed as a result of the discovery of new mediums of carrying energy such as steam and fuels such as gas and gasoline. The first motor vehicle was developed following the invention of a four stroke internal combustion engine in the year 1876. This period was also marked by the establishment of the first automotive firms in America and Europe which indeed laid the groundwork for the innumerable brands of cars we have today. The development of the industry which made it possible and easier for vehicles to be used occurred in the 1890s and 1900s upon the invention or development of other technologies such as the floor mounted accelerator and the steering wheel.
After the world wars in the 1950s and 1960s, there emerged more innovations in terms of technology which included fiber glass bodies and higher compression ration fuels thus giving more leverage to the car makers to make cars that were appealing to the consumer. It can well be said that this marked the onset of luxury cars. This technology made it possible for manufacturers to make cars that were in the consumer’s interest and which matched the consumer’s feel, look, and comfort. The emerging safety and environmental imperatives at the time also had a significant influence on the design of cars that were being made. It then became a norm and agreed standard to ensure that cars had speed limits, heating, and ventilation equipment. The decade of the 1980s saw an influx of cars from Japanese automakers that made better quality, efficient and fuel efficient cars compared to the U.S and the U.K. It this fierce competition that prompted these countries to start working towards quality of the vehicle, therefore, going further in the path to luxurious cars. The current decade has witnessed an unprecedented sophistication of cars coupled with significant opportunity on the part of the consumer. As a consequence, consumers usually demand the kind of car which matches their comfort and look. This has led to the emergence of luxury car brands such as Audi, BMW, Mercedes Benz and Rolls Royce among others. Of the various brands of luxury cars and car makers, the BMW stands out as one of the largest car manufacturers that is worth looking into. As such, this research paper will majorly focus on the BMW as a representative of the luxury car industry in this competitive analysis.
Bayerische Moren Werke (BMW) is one of the largest car manufacturers not only in the United Kingdom but also in the whole world. The company was founded in the year 1916 in Munich Germany and started its operations in the UK in the year 1980. Indeed, the United Kingdom stands out as the only country where all the three brands of the BMW are manufactured; these car brands of the BMW Group include the BMW, Mini and the Rolls Royce. The company boasts of over 8,000 employees and a total of 11,000 sound workforce across the globe. The company was also a trailblazer in obtaining a certification to the International Environmental Management Standard ISO14001. The company employs several marketing strategies such as subsidiaries, show rooms owned by the company, independent dealers as well as importers. Further, the BMW Group and brands have been known for the fact that their cars are driven for pleasure. Indeed, it this distinctive feature that makes the car manufacturer categorized into the class of luxury car manufacturer. The sporting design and the dynamic performance of its car brands have added to the appeal that BMW products imbues. According to the company website, it states that its significant strategy is identifying potential and thereby encouraging growth while knowing well what the company represents. In this way, the company is able to recognize where the strengths lie and consequently make the best of each opportunity. It may well be said that the phenomenal growth and success of the company is attributable to the strategies employed by the firm.
A peek into the mission statement for the company which is in operation until the year 2020 gives a quick projection and information about it. The mission statement is defined to the effect that the company is the world’s leading provider of premium of products and premium services for individual mobility.
Growth and strategies of the BMW in the United Kingdom
The BMW (UK) Ltd began its operations in the year 1994 upon taking over from the British Rover Group. The takeover involved the taking of brands of repute such as River, Land Rover and Minis which are also considered as luxury cars. Whilst doing this, the BMW Group must have seen enormous potential in the Rover Group before launching the takeover. It is also essential to note that the same competitive strategy was supported by the government in the knowledge that the same would give room for investment opportunities and enable the exploration of new markets. Nonetheless, the company did not accrue the anticipated benefits as it incurred huge losses following the takeover coupled with a decline in sales. It consequently sold the operations of the Land Rover to Ford and remained with the production of the Mini brand.
The BMW Group also acquired Rolls Royce from Volkswagen in the year 1998 in a bid to expand on its luxury cars segment. This posed a direct competition to its competitors of the luxury car maker Mercedes May Bach. The company was able to break even through this way and registered a turnover of 3.3 billion pounds in the year 2008. Despite its successes on particular segment of its operations, the company has been unable to meet the demand of its Mini brand. As a result, BMW (UK) Ltd has embarked on a reevaluation of the manufacturing process coupled with technology. As a consequence and in response to this shortfall, the company devised a new strategy in the year 2006 which is known as the production triangle. Currently, the production of Mini brand in terms of final assembling and body shell of the car takes place at a plant in Oxford while the outsourcing of engines is done at the Hams Hall plant. On the other hand, fabrications and significant pressings of the cars are done at the Swindon plant. This enables the company to benefit from the transfer of the product from one plant to another. The sound integration of this production triangle exemplified by the three plants as well as a heavy presence of KUKA robots in the area has contributed to an increase in production of the Mini brand so as to meet the market demands.
Company’s strengths
A clear positioning strategy by a company enables it to be felt in the market and gives a hint as to how the company wishes the public to perceive it. In this respect, the company has positioned itself as the only leading brand that offers both luxury and performance among its car brands. BMW has been able to achieve a distinction in terms of performance and parity in terms of luxury as far as luxury cars are concerned. The smart marketing strategy of the firm placed a lot of reliance on its designs as well as its Goldman legacy. The slogan,” the Ultimate Driving Machine” had the effect of capturing the market of luxury –performance cars. A positioning strategy refers to a combination of marketing mix or strategies so as to give an indication of the positioning that the management wishes to be shown to the buyers.
BMW has employed several marketing strategies and programmes such as marketing through the media and the film industry. The company has strongly influenced customers by way of placing advertisements in the media and the firm industry. Some of the avenues that the company has used to advertise include lifestyle magazines, broadsheet newspapers, and motoring publications. In the film industry, the company’s products have found their way in movies by James Bond such as “Golden Eye, Octopussy, The World is not enough and Tomorrow Never Dies. Further, BMW Art Cars have been displayed in museums and other art galleries such as the Royal Academy of Arts in London. More so, the company sponsored the London Olympics 2012 in which it gave approximately 4000 vehicles to aid in the transport of athlete’s technical official and the media. Again, in reaction to the environmental imperatives and pressures calling for environmental protection, the company committed to meeting the Euro 6 Emission norms besides overstepping the maximum average limit of 120gCO2 per km as established by the organizing committee of the London Olympics 2012.
Porter’s Five Forces Model
The five forces model as propounded by Michael Porter of the Harvard Business School is an elaborate strategic tool for evaluating the competitive position of a company. Porter identified five forces, three of which are external sources of competition that influence success in a given industry. It is the intention of this research paper to examine the company BMW in light of this five forces model so as to evaluate the competitiveness of the luxury car industry in the United Kingdom. These forces include the degree of rivalry, barriers to entry, threats of substitutes, buyer power and supplier power. In a similar fashion to other industries that operate in a capitalistic free market, an exploration of the luxury car industry with respect to BMW through the lens of the five Porter forces model will be helpful.
Entry into the car industry involves a high initial investment wrought by high costs of set up and infrastructure, plant and machinery, distribution network, research, and development. These encumbrances work against the entry of any competitor into the market. As such, high costs as a factor alone present a barrier to entry which is one of the five forces laid out by Porter. It is the case that BMW does enjoy economies of scale owing to its large scale production of cars and the entry of a competitor can only be achieved in the long term. In the same vein, owing to the very high brand already created by the BMW Group means that a competitor must expend a lot of money if it is to torpedo the company from its pole position.
It must also be noted that BMW has outsourced some plants for the purpose of assembly and production as discussed above in this paper. This development considerably reduces the chances of a new entrant into the market since such entry will mean additional costs to such a competitor. Through outsourcing some of its functions, BMW gained a strategic advantage as it is able to focus on its significant competencies while outsourcing other essential functions to other departments that are well suited to deal with them. For instance, the company outsourced its engineering and production for the X3 Compact SUV to Magna Steyr in the nation of Austria. The net effect of this has been an increased efficiency. It is also instructive that the company has outsourced its services in countries that pay considerably lower wages such as Indonesia, India and Thailand thus reducing the costs of operation.
BMW has entered into a partnership with Fiati for the mutual use of Mini and Alpha Romeo parts, a feat that had provided the company with a competitive edge. This is because Fiat cannot bind itself with another car maker since it has signed a contract with BMW. The partnership is of a rare kind as it is usually very difficult to find a partner who has enormous amount of knowledge in terms of market and operations. Such a partnership framework is normally difficult to penetrate thereby making the entry of a new competitor even the more onerous.
Competitors
It is severally stated that the significant determinant of the overall state of competition and the general level of profitability is the level of competition within an industry. As a luxury car maker, competitors of a luxury brand will surely be another luxury brand and in some cases other automobiles. The direct competitors of the BMW brands in the United Kingdom are several and include Mercedes A class, Audi A3, Volkswagen Golf, Jaguar, Lexus, Land rover Freelander, Porsche, Range Rover, and Bentley. It is also the case that luxury segment customers are mainly consumers of BMW products who have higher level of disposable income. Therefore, with respect to the Porter force model, there is little or no threat of substitutes. These consumers do not look for generic products for substitution purposes which are at the same par with disposable income. However, though this may be the case, some of people at times may purchase other luxury products such as expensive watches, shirts, and bags instead.
There is a high dependency between sellers and buyers since manufacturers depend on suppliers to supply materials to enable production or construction to take off. As such, suppliers are an integral part of the manufacturing process with most of them being considered as partners in the business. The strong brand image and base of the company BMW places its suppliers on a high platform. Nonetheless, the volatility of the prices of raw materials has the effect of lowering the bargaining power of suppliers. As already set put at the start of this research paper, luxury car makers in the United Kingdom have been able to remain in market and record impressive results owing to a booming market in the East. The company BMW has fought recent cases of recession in the global market by having an in-house financing and lease financing to its customers. When the company is faced with this kind of threat of a cash crunch during recession, it is susceptible to a takeover.
PESTLE or PEST analysis
The acronym PEST analysis refers to Political, Economic, Social and Technologic analysis which lays down a framework of macro-environmental factors used in strategic management. It describes an essential business tool that is used for understanding the big picture of the environment in which one is operating in and the opportunities and threats that lie within it. A good understanding of the environment in which a company operates enables a company to take advantage of the opportunities as well as minimize threats. It is useful in the sense that it gives an insight into risks that are associated with market growth or decline and thereby point to the direction and potential for an organization or company. In PESTLE analysis, the Legal and Environmental factors have been added and they have informed the issues of green business.
The Political factor is concerned with the level in which the government intervenes in the economy. As set out in this paper, the United Kingdom government has been supportive of the measures by the company albeit not through interference with the affairs of the company. The market has continued as a capitalistic free market. The Economic factors refer to issues of interest rates, exchange rates and inflation. These factors influence the direction of a firm as changes in say, interest rates affect the firm’s cost of capital thereby determining the level of growth of the firm. The Social factors include health consciousness, career attitudes and safety measures. BMW has produced cars that take care of the comfort and safety of the consumer and as such has met this parameter. Technological factors denote aspects of technology such as R&D activity and automation. These aspects may have or act as barriers to entry and influence outsourcing decisions which are prevalent in the firm. BMW employs the use of current technology in the discharge of its affairs and in this way cuts on costs of production. While expanding on the PEST to PESTEL analysis, the legal and ecological factors set in. Legal factors concern themselves with legal issues such as discrimination, competition, and health and safety law. On other hand, environmental factors include matters such as the weather, climate which may have an effect on the industry. In the case of BMW, the company is committed to reducing emissions from its cars in a bid to ensure a green business.
Conclusion
In conclusion, it is evident that the market outlook for the firm looks bright. This is because the market for luxury cars outside the United Kingdom continues to soar even when the economy of the United Kingdom is doing badly. The improvement of the economy can only mean more sales from which the firm has employed various competitive strategies to keep abreast.
References
Baines, P., Fill, C., & Page, K. (2009). Marketing. Indian Edition. Oxford: Oxford University Press.
Cravens, D., & Piercy, N. (2009). Strategic Marketing. Washington DC: McGraw Hill.
Grant, R. (2010). Contemporary Strategic Analysis. New York: A John Wiley Sons Ltd.
