Competitive forces BMW - an analysis of the effects

  Competitive Forces Paper  2

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 s ystems 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.