Business Strategy for Competitive Advantage
Given the high degree of competitiveness among car producers, BMW has managed to use fundamental strategies to gain competitive advantage over competitors. The company is flexible and responds rapidly to competition and market changes. Allen, Helms, and Takeda (2007) noted that organization’s competitive advantage stems from its unique competencies, which enable it to create market leadership by developing advantages, which competitors are unable to provide now. Michael Porter suggested that there are three generic strategies, which organizations pursue: overall cost leadership, differentiation, and focus. Since companies operate in different markets, they choose different strategies or a combination to gain competitive advantage (Hill 2007). Porter's generic framework can clearly show how BMW operation strategies have helped the company remain competitive.
BMW is one of the leading providers in the premium automobile market segments. The company has been increasing its market share of the worldwide premium segment through its strong focus on research and development of new technologies and products (Vuskane 2010). It heavily relies on European market, which accounts for over 60% of company motorcycle sales. BMW has succeeded in motorcycles sales by using the focus strategy. BMW concentrates on the premium segment and is set to generate growth as well as above-average profits in the global auto car market (BMW Annual Report 2011). Since 2001, the company has launched various initiatives and has expanded its product base. Increasingly stringent requirements to reduce the consumption and emissions of motor vehicle and the increasing fuel prices has presented challenges for the company group engine and product development activities.
According to Porter Generic Framework, the cost leadership strategy is based on attaining low-cost production and this is normally associated with high-volume output. Economies of scale, experience, and learning-curve factors result in cost savings. Experience curve economies come from company-increased expertise in managing functional activities. Differentiation strategy entails differentiating firms’ products or services for them to be perceived by customers as being unique in brand, quality, or some other feature. Through this strategy, the company is usually in a position to market its products at a higher than average prices which customers are willing to pay (Prajogo 2007). BMW employs this strategy and it holds a differentiated position in the car market in terms of research and development and quality of the products. The focus strategy entails concentrating on a smaller market, geographic or product segment. The resources and efforts of the company are focussed on serving a particular customer segment and it does not compete on an industry-wide basis (Thomson & Martin 2010). BMW lies in the upper right hand of porter model, as it is profitable and successful because of its differentiated product offerings, which have allowed it to capture a high market share.
BMW employs differentiation strategy to remain competitive. It uses uniqueness of its products as a competitive strategy. Because of the stringent regulations, changing customer demands as well as demands placed on car manufacturers by diverse industrial policies in different countries, the company revised its strategy in 2011 in order to remain competitive. In 2011, the company was the top selling automobile manufacturer in the world. The company sold 1.67 million vehicles in 2011 and thus in terms of sales it was the world leading premium manufacturers. The company automobile brands-BMW, Rolls-Royce and Mini set individual sale records and 113,000 customers bought a Husqvarna or BMW motorcycle (BMW Annual Report 2011). The company core activities are closely focused on the premium segments of the worldwide automobile market (BMW Group 2012). Its financial service business also leads to positive sales development (BMW Annual Report 2011). The focus on premium segments led to a pre-tax profit of over €7.3 billion and revenues of € 68.8 in 2011, which was a high for the group. The BMW Group has a firm financial footing, which has helped it maintain its profitability. This has provided the company an extra flexibility in an unpredictable environment. It has also offered the capacity to continue making profitable investments in the future (BMW Annual Report 2011). In 2011, the company spent around € 3.7 billion in new products and expanded its worldwide production network. There is a growing demand for company vehicles and this has led to investments in new drive technologies, and industrialized electro mobility. The company research and development costs rose to over € 3.3 billion in 2011. All these efforts are driven by the need to remain competitive in the automobile sector. According to Porter (2005), distinctive competitive advantage arises from a strong business strategy. Companies need to identify their strengths objectively and discover ways of responding to the larger environment. The BMW group emphasis is on creating value through sustainable uniqueness. This uniqueness has been attained through automobile innovation, products of superior quality, and superior service, which has been sustained and leveraged through creative brand-building, advertising and strong supply chain relationships. The company successful differentiation strategy has enabled the group to be able to pay more for the uniqueness of BMW automobiles. BMW automobiles are differentiated from those of the competitors through its style and performance. For instance, the Group manufactured the first passenger car, which runs on hydrogen. Ormanidhi (2008) noted that companies, which follow one or a combination of Porters, recommended generic studies are able to outperform the competitors. The BMW group has greatly benefited from the differentiation strategy.
The BMW group also focuses on particular automobile markets. The market usually suit different persons within the specific segments. The group targets are Executive, Sports convertible, Super sports, Touring/estate and Super Executive. This ensures that the group satisfies all its customers. BMW serves a comparatively extensive range of the total market; however, its motors are differentiated in customers’ eyes and they are usually ready to pay a higher price than for the competitors. The aim of differentiation is to incorporate differentiating features into a product or service offering, which causes buyers to prefer a business product or services to the competitors’ brands. Successful differentiation for the BMW group has allowed it to command a premium price for the automobile and motorcycles, to sell more units and to gain greater customer loyalty for the brand. BMW has an extremely flexible production network which provides a competitive advantage and which enables the Group to adjust its production capacity in line with changing circumstances on its numerous and diverse sales markets. The group also has customer oriented production and sales processes which enable sales processes and capacities to be flexibly adjustable and within a shorter duration.
BMW follows various strategies, which enable it to protect its market niche, particularly from competitors. The strategies cover both the automobiles and the entire service package. The differentiation is evident in the way the company customization of the cars. BMW cars can be customized and tailored substantially. Customers buying the Rolls Royce and Aston Martin are able to choose any colour they want and there are a wide range of performance extras and interior options. Environment, safety, comfort, and economy model are stressed and featured in every model. The national BMW sales firms are wholly owned, together with strategically located parts warehouses. The independent distributors usually place direct orders into BMW central computer. There are also fleets of specially equipped cars to help BMW motorists who break down. Competitive advantage is reflected in and arises from perceived differences as well as real cost advantages, both of these relative to competitors. It is dependent on strategic positioning.
BMW is better than its competitors are and focuses on operating efficiencies to attain this. Secondly is seeks to do things or to do different things. According to porter generic framework, this concerns effectiveness and it related to strategic positioning. It is what the organization does directly and indirectly for its customers, its functional strategies-that create and build value and, in turn, advantage. Together these activities determine the strategic position that an organization enjoys as well as the competitive advantage, which comes from the strength of the position. The BMW group invests important resources in researching, developing, as well as introducing new automobiles and improving the existing ones.
BMW automobile performance also offers it a competitive advantage-it separates the group brand from competition. The Group remains the world-leading manufacturer of premium cars because of its fine performance. It has introduced new automobiles with better performance and improved on the existing one. For instance, in 2011, the Group introduced its new sub-brand BMW i which stands for sustainable mobility in the premium segment. The premium automobiles segment reflects the fact that they are increasingly being defined by sustainability. Extensive international marketing campaign accompanied the launch of the new BMW i sub-brand in order to reach out to the new market segments for the BMW group. The group has also introduced BMW i8 concept and BMW i3 Concept, which are the future of electro mobility (BMW Group 2012). The Group is due to launch the BMW i3 in 2013 and it will be their first all-electric automobile. The Group BMW i8 concept is the worldwide most progressive sports car. It combines an electric drive and a combustion engine and this produces a car with extremely low emission levels and fuel consumption (BMW Annual Report 2011). The Group has also continued to make constant improvements on the combustion engines using new technologies.
Operational effectiveness and strategy are both essential to superior performance (Porter 1996). BMW has outperformed its competitors by establishing a difference that it can preserve. It delivers greater value to customers, which allows it to charge higher average unit price. Porter (1996) also noted that constant improvement in operational effectiveness is important in order to achieve superior profitability. BMW has gained a competitive advantage through constantly improving its automobiles. According to Barney (1991), sustainable competitive advantage is attained through putting in place a value-creating plan, which is not used by current or potential competitors and when the other companies are not able to copy the strategy. One of the strengths of BMW is that it has a unique portfolio of innovative features, which improve comfort, significantly boost safety, and raise infotainment to new levels in BMW Group vehicles. Its use of high-tech materials in the industry has also demonstrated technological superiority in the lightweight construction field. Such strengths have ensured that the company is able to deal with the forces that shape the automobile industry: “bargaining power of suppliers, bargaining power of buyers, threat of substitute products, threat of new entrants and rivalry among existing competitors” (Porter 2008, p. 78). The strong brand image, product innovation, and research and development capacities have reduced the threat of substitutes. It is hard to find substitutes for BMW. The group operates in a very competitive environment and remains competitive through its highly experienced designers and technicians and the development of a hybrid technology. It spends a lot of money on marketing and advertisement to increase its product awareness and to attract more customers.