BMW 5 Series Marketing Report
Bayerische Motoren Werke (BMW) is a German-founded company that specializes in the manufacture and sale of high-end vehicles. The company was founded in 1916, and is based in Munich, Germany. It has been a major player since then in the automobile industry. The company consists of three segments namely; automotive, motorcycle and financial. The automotive segment deals with manufacturing cars and spare parts under the brands of BMW, Mini and Rolls-Royce. The motorcycle segment involves itself with manufacturing and marketing motorcycles of the brands Husqvarna and BMW. The financial part of the company deals with financing dealers and car leasing (BMW 2; WSJ Par.1).
The current CEO for the company is Norbert Reithofer. Forbes magazine lists BMW as the 16th most valuable global brand. The company has a reputation for manufacturing and selling high-end luxury cars. Despite the challenge from other high-end manufactures such as Mercedes Benz, and low-priced substitutes, BMW has always shown strong financial results and maintained its market share (Larsson and Falkemark 5). Among the brand’s most successful products in the automotive sector is the BMW 5 series. In fact, it is its second most successful product after the BMW 3 series globally (BMW 25; Larsson and Falkemark 26). Figure 2 shows the sale by volume of the different series by BMW. The 5 series has different models including Sedan, Touring, Gran Turismo and Active Hybrid. The BMW 5 series brand was established in 1972, and the current models are the sixth generation of the brand. It is the BMW 5 series that this marketing report will focus on.
Figure 1: Sales percentage of different models in 2012 (Source: BMW 2013)
The car industry has intensive competition. The competition is two-fold. One, there is the competition based on exclusivity and emotions. And secondly, there is competition based on quantity and function. Car brands such as Toyota, Ford and Opel fall in the second group, while car brands such as Jaguar, Porsche, Mercedes and Audi fall in the first group. It is the direct competitor of BMW that the competitive environment will be analyzed against. The competitive environment is not only limited to other vehicles, but also other indirect aspects such as laws, stability, economies and social factors.
Direct market environment
In the automotive industry, it is common to find the same company using the same components for different models to save on production costs. Forbes mentions that some companies use this platform sharing in many of their models. Platform sharing is different from badge engineering. While platform sharing imply that cars share similar skeletal structure, badge engineering means modifying minor details in an existing vehicle. An example of badge engineering in automotive industry is Aston Martin Cygnet, which is similar in many features to a cheaper Toyota version. Both the vehicles are made by Toyota Company. Other companies that are famous for platform sharing and badge engineering are Volkswagen and General Motors. This practice is not common for BMW 5 series, or any other BMW. Therefore, the brand has some advantage over the other companies that allow for sharing of design.
Audi is launching new models at a very high rate. In fact, the brand had planned to increase available models of their vehicle from 32 in 2010 to 42 by the end of 2015. Few car manufacturers are producing many models in a segment of the industry that is characterized by short product life cycle. Having many models enhances the customer’s choice. Audi is also blending technologies from different sources. For instance, it bought the shares for the Italian premium car manufacturer Lamborghini in 1998, and in 2005, it launched Audi S8 that used the powerful engine of Lamborghini Gallado. In addition, its entertainment system was adopted from a well-known Danish Stereo manufacturer Bang and Olufsen. Very few premium car manufactures have such strategic alliances that allow the company to have a competitive advantage.
BMW 5 series competes with Audi brand models A6, A7 and A8, and Mercedes E class in its market segment. In Australia, the Mercedes E class had the highest volume of sales for the vehicle in 2014 with 1570 sales. BMW 5 series was second with 968, while Audi A6 & A7 had sales of 736 (Gratton par.19). However, it should be considered that Audi has many models on similar market segment. All the three vehicles are stylish, have powerful engines and sophisticated technologies. BMW 5 series is more competitive than the rest in the market segment because its engine is less noisy, and it has a camera that aids while reversing the vehicle. A comparison in the America market on the month of February 2013 (see figure 2) shows the brand just tailing the Lexus ES. When the global market is considered, the brand has higher volume sales compared to its competitors.
Figure 2: Car sales in the month of February in USA (source: GoodcarBadcar)
External market environment
An effective way to track the environment of which a company is working on is by using the PESTLE framework. It is acronym for political, economic, social, technological, legal and environmental factors. This model is sometimes called the PEST model. The analysis enables marketers to offer recommendations on the nature of environments before marketing, or not-marketing, products. BMW is a global brand, but the PESTLE analysis described in this section will have a bias towards Germany as it is where the headquarters of the company are, although other regions will also be mentioned.
The political environment in Germany is stable. German’s antitrust legislation and overall few barriers to start business have enabled the competition of industries in the country to flourish. Many products, including motor vehicles, have some international standards (Weihrich 6). Many countries in European Union are adopting end of life vehicle (EVL) recycling that will affect BMW. Additionally countries, especially in the developed world, are adapting new legislations on carbon dioxide emissions. These legislations will only benefit the BMW 5 series as its technological innovation is leading with reduced carbon emissions from the vehicle.
An economic factor that affects the BMW competitive environment is the purchasing power of individuals. Since it is a premium brand, BMW 5 series has more sales in the developed world as compared to developing world. Within the developed world, the competitiveness of the brand is influenced by economic variables such as recession, and change in oil prices. According to Weihrich, the cost of production is also an economic variable. The high cost of labor in Germany has caused BMW to move its production to other areas such as America, South Africa and Asia; where production costs are relatively cheaper (16).
Social factors in Germany that have made BMW 5 series to be competitive includes a market that demands quality and a highly educated workforce. A home market that demands quality translates into quality products being exported to other regions of the world (Weihrich 5). The BMW 5 series also changes its design according to the social needs of its market such as family size, and ageing populations. Technological advancements in engine production and safety features enable the company to compete. Many of the technological incentives are geared towards development of green vehicles, driverless cars and vehicles that make more use of internet technology.
The legal environment that affects BMW involves patents and copyrights. The company spends significant amount of resources in research and design, and it is logical for it to protect its design. The BMW 5 series has many original technologies in its engine and safety features. The importance of patents is underpinned by the fact that the company does not badge engineer or share platform across its models. While Germany has firm intellectual property laws, other countries, such as China (Weihrich 17), in which the company operates, do not. When dealing with such countries, the company has to find some legal means to protect the innovations it has invested in, as those found in BMW 5 series. The environmental aspects considered by the BMW 5 series include the commitment to produce energy efficient vehicles with low carbon dioxide emissions, and attempting to use recyclable materials. The company is also committed to corporate social responsibility. While all models in the 5 series are committed to environmental sustainability, the ActiveHybrid 5 model takes it to another level. It has futuristic features such as intelligent energy management, and an Eco-Pro mode that reduces the resource consumption in the car at an average of 20%.
According to Jain, marketing in today’s world does not dwell on selling the product per se. The most important aspect of marketers is on how to sell satisfaction to customers from using a product (77). To do this, a marketer must know the customer needs, and the functions needed to satisfy these needs. Marketing mix refers to coordinated functions by a firm to satisfy the customer needs. It includes product mix, place mix, price mix and promotion mix.
The BMW 5 series, like many BMW series targets the high-end market segment. Since it is a consumer good product, good design is a very important feature (Jain 80). Good design increase sales, enhance advertising, and even allows for higher pricing. The most important design features for all BMW cars are elegance and driving satisfaction. Additionally, the brand has exquisite physical features that make it attractive to consumers.
The engines of BMW 5 series have high torque, exceptional performance and vibrant power. The customers can choose if they want diesel or petrol engines. The BMW EfficientDynamics is a standard feature of the 5 series and most other BMWs. It is a strategy that the company employs to reduce fuel use and carbon dioxide emissions. Additionally, the engines are made with BMW TwinPower Turbo technology that works on efficient fuel injection systems and turbocharger technologies. Specifically, the technologies make the car to release carbon dioxide at the rates of 120 g/km. This is significantly lower because the average motor vehicles emit carbon dioxide of between 300-400 g/km. Only a few vehicles have rates of less than 200g/km, and can only reach these rates when moving at speeds of greater than 100 km/h (Ristovski et al. 93), which is hardly attainable in urban areas traffic.
This product design has made BMW brand, and in particular the 5 series, a preferred brand by many customers. This is because luxury car manufacturers, and users, have been accused of being major players in causing climate change and carbon emissions. Young et al. claim that consumers are increasingly being conscious about the products that they use in their day to day lives (21). Driving a luxury brand that emits less carbon dioxide makes many customers not to feel guilty when enjoying their elegant rides. The ultimate result of this is increased sales of the brand series.
Additional technological advancement that differentiates BMW 5 series from other vehicles in its segment is the iDrive feature (see figure 3). It controls the navigation, entertainment and communication features of the vehicle. The feature enhances the driver control of the vehicle by easy manipulation of all the functions in a vehicle without losing concentration on the road. The technology adapted the latest biometric principles. Because of this, it can be controlled with relative ease by one hand without the driver needing to see what he/she is doing. Some BMWs have an iDrive function that is controlled by voice for an even easier control.
Figure 3: The iDrive feature for more control (Source: BMW)
Safety is also an important consideration in the design of the BMW 5 series. Along with the standard airbags available in many vehicles, the series has side curtain airbags and a head restrainer. The braking systems received a superior rating from Insurance Institute of Highway Safety (IIHS) because of its brakes, optional camera and radar vision. This is because at 60 mph, the series comes to complete halt after 100-114 feet upon applying brakes. Moreover, the brake lights illuminate with different intensity after applying the brakes. This means that the brake lights shine brighter when more force is applied on the brakes to warn the vehicle behind the BMW 5 series.
Various product lines are available from the BMW 5 series brand. They include Sedan, Touring, Gran Turismo and ActiveHybrid. While the feature for each line has common characteristics as the ones described in the product design section, some features are different amongst the product lines. It is difficult to discuss the packaging strategy of the car. After all, cars are not exactly packaged like shoes in a box. However, the design of the car can qualify to be termed as a packaging strategy. A distinctive feature of the BMW 5 series is the front grille that is unique in the 5 series brand.
Being a renowned luxury brand, the BMW 5 series bring the perceptions of emotional quality. Other aspects that underpin the quality of this product are its fuel use, safety measures and warranty. Compared to other sedans in its segment, the BMW 5 series are more fuel efficient. Additionally, the car meticulous detail to safety measures adds to the quality aspect of the product. In most dealerships, the brand new 5 series comes with a warranty. Having a comprehensive warranty enhances the perception of quality of the brand. It is assumed that companies that have extensive warranties on their products believe in the quality of the products. Another aspect that guarantees product quality in BMW is the fact that all the parts of the vehicle are assembled by the company. In cases where a company source some parts of the vehicle from different companies, the quality of the end-product is not completely assured.
The branding strategy of BMW 5 series has made it a world leader in its market segment in 2014 (BMW Group). The simple naming of BMW brand has made it recognizable and preferred by customers. For instance, a brand with the name BMW 528 implies that the vehicle is in the 5 series, and with an engine capacity of 2.8 liters in size. The brand has maintained a simple memorable logo that sticks in the memory of potential customers (see figure 4). The implication of the brand to the market strategy is ensuring that the brand is always in initial and growth stage of the product cycle, and not in the mature or declining stage. The company does this by constantly removing brands in the market, and replacing them with new models with enhanced features. This makes the brand to always appeal in the market.
Figure 4: BMW Logo, simple and memorable (Source: BMW Group)
BMW aims at making profit like any other company. Price is the value of a product expressed in terms of money. A product can only be bought after the buyer and seller agree on the price. The price of a product is the major source of revenue for many companies. Among the concepts in the pricing mix include the pricing policy and strategy, and terms of credit. The pricing by the brand aims at the premium market, and not everybody could afford the vehicles as the price for brand new models in the series range from US$ 40000 to an excess of US$ 70000.
The price strategy by the brand is competition-based pricing. This type of pricing is also known as strategic pricing. It basically involves comparing the prices of the competition and ‘fixing’ your price plus or minus a few units. It usually works well in a saturated market. For instance, the price of BMW 5 series averages at US$ 53000, while Audi’s A6 average is US$ 42000 and Mercedes E class is US$ 51000. This is according to a U.S.-News car website. Another website, Carconnection website, cites the average cost of 5 series to be US$ 49500, A6 to be US$ 44000 and E class to be US$ 51500. While the price is a factor of production, it is unlikely that the selling price of 5 series is less than the cost of production, even if the price is set by comparing it with the competition. The luxury car segment is justified in charging high prices for their products because a lot of resources go into researching and designing the unique elegant features of the brands, such as BMW 5 series.
Since the price of the model is premium, options of financing the BMW 5 series are available. To increase sales, and at least maintain its market share, credit facilities are available from the dealership and the manufacturer. Apart from the credit facilities, the company also offers car hire services. However, its more innovative credit facility is the ‘BMW select finance’. In this credit facility, a customer pays fixed monthly amount for a period of time. After which, the customer can change models without having to worry about depreciation. This credit facility is variable among different countries. In the UK, for instance, a new BMW 520d sport salon costs £35000 on cash sale. However, using BMW select finance, a customer will pay a deposit of £5800, and pay monthly installments of only £330 for 48 months. After the period, the customer can return the vehicle, continue using the vehicle, or switch to a different model under different terms. The financing is particularly important because the product life cycle of the luxury cars reaches maturity quickly. The financial option makes it possible for people interested in trends to experience the latest models of BMW luxury cars.
Promotion mix is the communication mix. It is the way in which the manufacturer attempts to get attention of the customer (Jain 81). In general, the promotional mix can be personal or impersonal. Personal promotion occurs when the seller is on face-to-face contact with the buyer as it is the case with personal selling. Impersonal selling includes promotional strategies where the contact is not physical; such as television advertisements and websites. BMW 5 series applies both impersonal and personal selling strategies.
The company advertisements for the 5 series in print, online or television advertisements emphasize on the core values of BMW that include technology, value, performance and exclusivity. The common tagline for its adverts is ‘ultimate driving machine’. BMW has been innovative in undertaking its advertisements. This is illustrated by its ingenious approach of advertisement in 2001 by launching BMW films. This high-cost advertisement approach combined entertainment with advertisement. It made use of film celebrities by creating short films featuring BMW. The impacts were instant; in 2001, the car sales of BMW increased by 12.5% surpassing the 200,000 mark for the first time in its history.
The company took advantage of the then new online technology. Although the internet BMW film stopped production in 2003, the company has continued to exploit the online opportunities for promotion. It has an interactive website that enables customers to view available brands, modify them and even book for a test drive. The customers can also create their own customized vehicles on their website. It is estimated that over 80% of BMW 5 series buyers first review the features of their preferred vehicles on the internet before the actual purchase.
While internet marketing has been revolutionary, it does not replace the traditional personal selling. It is difficult, even for the rich, to fork out US$50000 plus on the new BMW 5 series just seen because it looks good on the internet. The personal selling strategy exists in most dealerships and sales agents. It involves activities such as assessing the vehicles, and test driving. The product has a high value, and the market is concentrated, hence personal selling is an appropriate promotional strategy for BMW.
According to Jain, the place mix refers to the distribution channels of a company. It is concerned with the flow of the products from the producer to the consumer (83). BMW 5 series uses both direct and indirect channels to distribute its models. Direct marketing is where the company uses its sales division to sell its products. In this kind of channel, it is likely that only the BMW brand will be sold. Indirect channels involve dealers who along with BMW S series will sell cars of different models and manufactures. In the United States, for instance, the company has 339 BMW outlets where one can get the BMW 5 series. Additionally, thousands of car sellers such as CarMax, and other car dealers sell the series.
The company is global with 29 production and assembly plants, and over forty sales locations (BMW 180). The company has markets in many regions all over the world (see figure 5). The 29 plants are in four continents and fourteen countries. More specifically, BMW 5 series is assembled in at least seven locations in Germany, Egypt, Mexico, Thailand, Russia, Malaysia and India. The geographical reach of the brand is thus global, and this reduces the costs of shipping the product line to its markets.
Figure 5: Market for BMW products 2012 (Source BMW, 2013)
It is apparent that the company is focusing on selling its brand in markets that are affluent. Apart from China, all the major markets for the brand are developed countries. In as much as China is not a developed country, it is still the second-largest economy in the world after USA. The most common channel the 5 series is distributed is by use of local dealers. The company delivers the brand to the local dealers who then sell them to the customers. It is proving to work as the 5 series is the second most successful BMW model, and the market leader in its segment.
The luxury car market segment is a highly competitive one. Various car manufacturing companies attempt to outdo each other in the market by designing sophisticated features in their brands. The competitive environment is also complicated by indirect external threats such as political, social and legal issues that brands have little control over. BMW 5 series has managed to be a leader in this market segment despite the challenges the segment faces. It has been able to achieve this by maintaining the philosophies of the company over the years. While some companies attempt to be cost-effective by changing their traditions, BMW 5 series has not budged to the pressure. Instead, it has explored on even better ways of enhancing the quality of their products, especially in the aspects of technology and safety. Because of its proven success, other companies can emulate the BMW 5 series style of undertaking marketing in efforts to increase their market share, and more importantly, consumer satisfaction.
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