1. MNGT 220 Week 8 Tutorial Questions

2. Overview What do we want you to demonstrate: What do we want you to demonstrate: Practising the competitive analysis of an industry. Assessing the strategic capability of a company. Practising the segmentation of a market. Relating the factors that are key to the success in a market to the resources and competences that a player must possess. Identifying positioning options. Evaluating the importance of brand management to successful differentiation. Choosing directions and methods for the strategic development.

3. Question 1 1. What main trends are identifiable in the business environment in general and in the automobile market in particular in 2004 that might affect BMW strategy? (20%)

4. Question 1 Industry was in the mature phase. Fiercely competitive, mostly on price, except for companies that managed to differentiate their products. Consolidation was driven by the need to generate economies of scale. Quality was no longer a differentiator. Branding was a major competitive tool.

5. Question 2 2. Using Porters five-forces framework, attempt an analysis of the competition in the automobile industry in 2004; adopt the BMW perspective. Consider the time horizon of strategic planning, and attempt to identify what future changes are likely for that period in the light of the factors at play in the macro- environment. (30%) 2. Using Porters five-forces framework, attempt an analysis of the competition in the automobile industry in 2004; adopt the BMW perspective. Consider the time horizon of strategic planning, and attempt to identify what future changes are likely for that period in the light of the factors at play in the macro- environment. (30%)

6. Question 2 Start by identifying some of the segments in which BMW competes (e.g. sports cars and high performance saloon cars).

7. Question 2 Potential entrants. Significant threat. Segments were already crowded. Premium price of products attracted many players (e.g. Audi, Volvo, Jaguar). Ford (Volvo & Jaguar) entered the market with a low cost strategy.

8. Question 2 Substitute Products. Also a significant threat. Other vehicles (e.g. motorbikes, boats). Leisure products (e.g. cruises). Properties (e.g. holiday homes).

9. Question 2 Power of Buyers. Power of individual buyers was very limited. Little bargaining power: not a threat. However, fleet managers and car rental companies were powerful in some segments.

10. Question 2 Power of suppliers. Suppliers had little power. Their products were custom-made, thus unsuitable for most other buyers. Carmakers were capable of backwards integration.

11. Question 2 Competitive rivalry. Fierce competition. Mature industry, no growth, little room for differentiation. Quality and more recently design becoming a requirement not an option. Difficult to exit. Asset intensive and political. Competition increasingly on price.

12. Question 2 Future changes. Intensification of the identified trends. Further consolidation of the industry. More mergers and acquisitions. Intense search for unexplored niches. Cooperative links. Increase importance of IT.

13. Question 3 3. What were the critical success factors in the market segments in which BMW competed? How do BMWs competences compare to these? Was BMW able to acquire and maintain a sustainable competitive advantage? (20%)

14. Question 3 Supply chain management. Vertical integration. Cooperation links. BMW controls most of the activities in the supply chain to ensure quality. Effective distribution network. BMW high quality control on distribution increased the brand value.

15. Question 3 Size: Economies of Scale. BMW was large enough. Economies of scale were achieved and cost was reduced. However, the group was still family controlled. What does that tell the market? Strong Brand. Associated with status, prestige and quality.

16. Question 4 4. Discuss BMWs sources of competitive advantage. What route(s) does it appear to pursue on the strategy clock? (10%) 4. Discuss BMWs sources of competitive advantage. What route(s) does it appear to pursue on the strategy clock? (10%)

17. Question 4 Differentiation. Through design expertise, R&D, solid engineering and craftsmanship. Through Marketing. Effective communication of the brands and differences of each brand. Through effective exploitation of core competences such as R&D, engineering and especially brand management.

18. Question 4 BMW was successful in its pursue of a differentiation strategy. Core competences and benefits that the product would bring to buyers were effectively communicated to customers.

19. Question 5 5. What directions and methods of strategic development does BMW appear to follow? Evaluate their effectiveness in light of your understanding of the market segments in which the group competes. (20%) 5. What directions and methods of strategic development does BMW appear to follow? Evaluate their effectiveness in light of your understanding of the market segments in which the group competes. (20%)

20. Question 5 BMW was following simultaneously a strategy of product development and market development. Continuous development of new models in new segments and entry into new markets (e.g. China, Eastern Europe and India).

21. Question 5 Strategies appeared to be very effective. However, a question mark on the wisdom of the strategy in relation to its long term effects on the power of the brand is appropriate.