BMW was founded in Munich, Germany in 1916 as the ‘Bayerische Flugzeugwerke AG’ (BFW). In 1917, the Bayerishe Motoren Werke GmbH (or in English the Bavarian Motor Works) was created.
BMW, as the company is now known, initially concentrated on the development and production of aircraft engines during World War I, building a reputation for reliability and excellence.
In 1923 BMW built its first motorcycle and in 1928 the company’s success story as an automobile manufacturer began with the acquisition of the Eisenach vehicle factory. BMW’s first motorcar was a version of the Austin Seven built under license.
With the three brands, BMW, MINI and Rolls-Royce Motor Cars, the BMW Group has its sights set firmly on the premium sector of the international automobile market. To achieve its aims, the company knows how to deploy its strengths with an efficiency that is unmatched in the automotive industry. The strategic objective is clearly defined: The BMW Group is the leading provider of premium products and premium services for individual mobility.
BMW AG Company defines its corporate mission as following:
The purpose, mission and future of BMW is to provide quality sales, service and transportation needs for our customers. This is and will be accomplished through a dedicated team of employees whose primary goal is customer satisfaction along with a management team whose responsibility is to ensure employee satisfaction and customer enthusiasm. The final result will be an organization within our community that will represent its manufacturers with pride, integrity, and world class results.
And the vision of the company is as following:
“To become most successful premium manufacturer in the car industry”
As you see the mission is a little bit more concrete, it reflects the vision of what the firm seeks to do and become. To speak even more about the firm’s goals, in the short run, we should observe its corporate goals. They represent converting the mission of the company to performance targets. The main financial objective normally for BMW and for every other company is to provide shareholders a secure investment with a superior return. And we can see that the company is succeeding in this objective – although the net profit is much smaller in comparison with the previous year, we can observe a quickly increasing tendency for the balance sheet total.
Now let’s take a look at the strategic objectives of BMW.
At the end of September 2007, BMW Group took on a new strategic direction. Up to the year 2020, BMW Group intends to strengthen its position within the global motor vehicle market by increasing sales to more than two million automobiles per year.
In addition to striving to grow its existing business, the BMW Group will develop new and profitable areas of activity. At the same time, the BMW Group will invest in future technologies, new vehicle concepts and pioneering drive systems.
The new strategy stands for making the best use of new opportunities and becoming more efficient in order to ensure BMW Group’s lead over competitors and to actively shape the company’s future.
Marketing Environment Analysis
The marketing environment surrounds and impacts upon the organization. There are two key perspectives on the marketing environment, namely the ‘macro-environment’ and the ‘micro-environment’. For BMW it can be told that these factors define the overall performance on the premium car market, as also is said in the mentioned before mission of the firm.
Organizations like BMW need to scan the macro environment in which they exist, as these factors will have an impact and influence upon their industry. The macro environment is broken up into six main categories forming the PESTLE analysis as it is in Appendix A. Automobile manufacturers must identify and select the issues which are most important to their industry in order to conduct a valid external analysis.
Trade barriers and restrictions, import tariffs and tax policies are critical factors to consider especially for global manufacturers as they can influence the pricing levels of their products in each market and affect the profitability of a company.
The overall economic health of the car industry will have a great effect on each of the industry players. Interest rates, exchange rates and the level of unemployment can also depress demand. Most importantly the level of consumers’ disposable income is a critical issue particularly for such big manufacturers, who compete in the luxury car market, as an economic downturn can seriously damage sales and revenues.
This is an important factor to consider especially with regard to the luxury car market such as BMW. The particular lifestyles of consumers determine which strategy the organization should pursue in order to capture the needs of its market effectively. Levels of education also affect the industry, as a highly skilled labour force is required in order to produce high performance and excellently engineered cars.
With many organizations competing with one another innovation and technological developments can help differentiate the company’s product. Years ago the level of technology that was available, limited and restricted the models and designs car manufacturers could produce. Nowadays, technology has significantly moved on and companies can deliver more and more to their customers resulting in fierce competition amongst industry players to stay ahead of the market and be the best. By incorporating the latest technology advancements, car producers can lead the market in this field and achieve a competitive advantage.
Global companies deal with different laws in each country and must follow safety requirements and other legal statutes such as pollution laws, which control the level of car emissions.
In 1996 a voluntary commitment was undertaken by the ACEA, and pledged to the European Commission, to reduce CO2 emissions from new cars by 25% by the end of 2008. In early 2007, the Commission decided that this commitment would not be achieved and proposed new legislation to ensure that CO2 emissions meet an acceptable level.
Although not a major driving force, manufacturers must be aware of the advantages in producing ‘cleaner cars’ as there is now greater emphasis on protecting the environment. BMW have taken this into consideration and launched their ‘Hybrid’ model.
The micro environment, which affects the activity of the company, can be explained in the best way using the Michael Porter’s Five Forces Model.
Threat of New Entrants – Very Low
In order to enter the automotive market a huge amount of capital is required. In addition, an entering firm would need to have a tremendous amount of tacit and explicit knowledge to design and manufacture products.
Threat of Substitutes – Medium
Available substitutes include public transportation such as buses, trains, boats, and aircraft. In addition, consumers can use other conventional means of transportation such as bicycling or walking.
Power of Suppliers – Medium
Some suppliers are smaller and as such do not have that much power over the pricing and distribution of their products. However, there are not that many small parts manufacturers in this market and therefore, the majority of suppliers to major automotive makers are medium to large businesses. As a result they have some flex in determining product pricing, delivery, and distribution.
Power of Buyers – Medium
While buyers are individuals and are not grouped together, they still have an immense amount of information available to them regarding the pricing and cost to manufacture a BMW. As a result, buyers do have some leverage in being able to negotiate a purchasing price from BMW.
Competitive Rivalry – Extremely High
Any competitor in this market is generally a global company with billions of dollars in assets and can compete on any level that BMW can. Furthermore, there is intense competition on all fronts in the car market in general, not to mention the luxury car market. Major manufacturers such as Mercedes are pinching BMW with their luxury segments (S-class, C-class) in terms of quality product and reliability.
The segmentation of the markets the selection of target markets and the assessment of their potential is a part of the marketing strategy and is a very important condition when taking managerial decisions. Practically, if you want to make gains, you should be oriented to “someone”, rather than to “everyone”.
BMW regularly undertakes research into its customers’ profiles looking at demographic criteria, such as age and sex, lifestyle, their views on motoring and the way in which they use their cars. The information is used across all areas of the business, from the design and development of the cars themselves, to the way BMW advertises its brands.
One thing all BMW customers have in common is their appreciation of driving fun and sporty, yet elegantly designed cars.
Within the BMW product range, we see various differences in our customers’ profiles. For example, our female customers tend to prefer open driving, reflected in a preference for the BMW 3 Series Convertible and BMW Z4.
The spaciousness and interior versatility of the BMW X Models, X3 and X5, attract modern families with children in their households (50%-60% having at least one child).
Customers of our 3 Series and 5 Series Touring models are characterized by an active lifestyle, with an exceptionally high interest in outdoor activities, such as water sports, cycling and skiing.
Together with the Z4, the BMW 1 series shows the highest share of urban customers aged 39 years or younger (40%). This truly makes the BMW 1 series, not only in terms of its launch date, a young model in the BMW portfolio.
About the psychographic characteristics of the BMW customers, we can consider the VALS system for segmentation (see Appendix B) and can say that BMW has developed products for almost all categories – very luxurious cars, for people like experiencers, young people, who want to express themselves most of all; very useful and practical cars for people like makers.
And finally BMW can segment their market by the product-usage characteristics. We all know that the usage rate of the brand BMW is very high – one of the highest in the automotive industry. And whatever we talk BMW, not forgetting all its advantages and merits, is an expensive car and the usage rate responds proportionally to the income of the customers, i.e. the more wealthy the country for example, the more bought are the products of BMW.
After the market has been separated into its segments, the marketer will select a segment or series of segments and ‘target’ it/them. The market segment to which the company markets a certain product is called ‘target market’
When we talk about BMW and Porsche we can consider the so called ‘multi-segment approach’, where there a variety of models of the brand to several segments; instead of single product to a single segment or a single product to all segments.
Target Market 1
As you can see on the graph above, the products of BMW are mainly targeted to be sold in markets in the most developed counties. That means that we can describe their main customers as having big purchasing possibilities – high income and inhabiting countries with high living standards.
If we look further at the markets, the company targets its products, we can say that the customers are most of all innovators, who exhibit all three primary motivations – self-expression, ideals and achievement and have abundant resources. But we can also consider in the target market some of the people, who are motivated by self-expression and ideals – experiencers, makers, thinkers and believers, a fact, which expands the scope of the market of BMW.
That feature of the people – the need for luxurious vehicles, combined together with the safety, which the automobiles of BMW provide and the tradition of manufacturing such automobiles, explains why the company’s products are so widely recognized and liked all over the world. These three characteristics justify the selection of this target market by BMW.
From this point of view, not all car manufacturers can occupy the same target market. Companies like Porsche, Mercedes-Benz, Ford and others can consider themselves as direct competitors of BMW, but such as Volvo, Seat, Fiat and so on are not so close to this market.
Target Market 2
Everyone who works in the emergency services has one thing in common: their work requires outstanding performance in high-pressure situations. And they demand the same of their vehicle.
When lives are in the balance, every second counts. But increasing traffic volumes and inattentive drivers increase the dangers for the emergency services as they try to reach the scene. Those who are prepared to risk their own lives for others must be able to trust their vehicle completely. And with BMW, they can do just that. The incorporation of active and passive safety technologies minimizes the risk to the emergency services in any circumstances, so they can focus on getting the job done.
And this gives an idea about the second target market, which can be considered – the so called ‘authority vehicles’ – again one of the priorities of the company is not only to create good quality cars for the customer, but also to provide safety and confidence for those, who would have need of such things, when doing their job.
BMW is the only car company to offer Authority Vehicles with a manufacturer’s warranty that covers all the special equipment for official use. To ensure the same high levels of safety as with its standard models, BMW subjects its Authority Vehicles to a punishing series of tests once all the modifications have been incorporated. This program goes far beyond statutory minimum requirements, with impact, roll and extreme temperature tests to ensure the vehicles can fulfill their intended function in any conditions. The CBS system and the availability of Original BMW Parts for all official-use special equipment minimize downtime while maximizing performance and cost-effectiveness for all BMW Authority Vehicles.
For over three decades, BMW built its brand to be synonymous with performance and the driving experience. The brand character and tone (serious, focused, and engaged) remained unwavering for the most part, while drivers enjoyed innovative, high-performance-yet-accessible vehicles that connect them with the road, rather than isolating them from it.
BMW created a highly coveted brand franchise by successfully cultivating an extremely loyal following of luxury-performance automobile consumers, especially in the face of stiff competition from Germany and Japan. Looking across the global automotive industry landscape, the premium automobile manufacturer from Munich has the most to lose, should the integrity of its brand begin to falter. Yet recent changes in BMW’s product development and marketing strategy leave us wondering whether the Bavarians are deliberately veering from their familiar route, or if they will in fact be caught off-guard as this otherwise finely-tuned machine drifts into another lane.
We should first have a look at the first target market, described above, the so called “Security Vehicles”, or in other words, automobiles to be used without a specific purpose, which requires additional features to be installed. These remain in the customer a sense of both luxury and safety, only the name of the brand BMW makes respect in the potential owner of such car. And that is combined with a not so high for these features price.
The “Authority Vehicles” should be positioned towards the whole society, not towards their primary owners. As they are used by paramedics, firefighters, uniformed and undercover police, etc., they need to be fast, secure, well-equipped and, of course, to have good appearance. The later is the main image they leave in society’s eyes – the best way to make a positioning. For this appearance, we can outline several items:
* Flashing mirrors
* Roof bar
* Front flashers
This is the positioning – the way the producer creates and maintains an image or identity of his product in the minds of the target market.
Marketing decisions generally fall into the following four controllable categories (the four “P”-s or the four “C”-s, according to the different authors):
* Product (Commodity)
* Price (Cost)
* Place (Channel)
* Promotion (Communication)
So, we will consider the marketing policy of BMW AG from these four aspects, as marketing mix 1 is to meet the needs of target market 1 and MM 2 is for target market 2.
Marketing Mix 1
* Product strategies
‘We don’t aspire to meet the highest standards. We aspire to exceed them.’ This is the main principle that the car manufacturer is led from. BMW creates its products in such way that it is not only recognized by the customers as a luxury car, but also as a secure one.
All in all 2010 will be just as busy as 2009 for BMW. We can also exclusively say that while the above information is believed to be accurate there is a key area that is overlooked: some vehicles will also leave the market unexpectedly. Several sources say that BMW will be dropping some vehicles from the markets, some to be replaced at a later date.
Since we are going to be asked, “What happened to the Z2”, I will let the cat out of the bag and say that we will not see it debut as a concept until after the new 1 Series has been shown. It is a platform extender much like the MINI Roadster and Coupe. While it exists on paper, it does not yet exist as a car (like we were lead to believe), it remains a design exercise. It appears to have been confused by sources as the MINI “twins”.
* Distribution strategies (Place, Channel)
Part of BMW’s success comes from the unique way in which it gets cars from the factory to the consumer. Whereas the Big Three automakers mass produce new-model vehicles and ship them to local dealerships where they sit until a buyer comes along, BMW’s unique ordering system reverses the process, allowing the customer to order a vehicle before it even exists.
Car shoppers visit BMW showrooms to custom order vehicles, selecting from a broad range of customizable features. Once an order is placed, BMW’s special Spartanburg, S.C. manufacturing facility goes to work to manufacture that vehicle. While it would be reasonable to suppose that BMW’s process significantly slows vehicle production and delivery time, the company has streamlined its logistical processes, enabling its factory to churn out customer-specified vehicles within a mere 10 days of receiving an order.
* Communication strategies
The German manufacturer launched a communication campaign based on the concept of combining pleasure with reason and considering five economic reasons for choosing the ultimate driving machine. We can consider three of the main reasons, due to which this brand is with strong promotion strategy, even as some sources say, to be “the ultimate drive”.
* More power, less pollution
Any effort made in view of protecting the environment through innovation is of interest. Nevertheless, solutions of this kind only concern a few models in the ranges of those manufacturers. BMW, on the other hand, takes a broader approach based on gradual progress. The Efficient Dynamic programme, consisting of an ensemble of measures ranging from new generation direct injection technology to reduced friction tyres to re-cycling energy produced in breaking, is informed by a desire to achieve greater power while at the same time substantially reducing energy consumption.
After the environment comes the notion of trust. Trust in the services developed by BMW and its network of dealerships dedicated to the company car market. And trust in terms of maintenance costs.
No one thinks that BMWs cost, or even should cost, the same as French cars. However, the price of their vehicles does not pose a problem for BMW; the company is aware that, in the end, running costs are highly competitive. As well as its commitments on maintenance costs, BMW is able to rely on the high residual value of its vehicles.
The last notion highlighted in BMW’s communication strategy is safety. In this field, the German manufacturer enjoys the luxury of being able to preach to the converted.
* Pricing strategies
BMW offers the so called ‘premium pricing’ – the products of the company are sold for high prices, but offer really good quality in exchange.
BMW bases its pricing strategies on several key trends that continuously shape the global marketplace of automotives. One particular trend is labeled as “premium-tization” (1981). This phenomenon causes the polarization of different markets. This would then trigger the consumers to demand and pay much higher prices for perceived quality. However, discounting in prices is also simultaneously taking place, therefore squeezing out the middle range. More often than not, automotive companies undergo internationalization which leads to a tighter squeeze for shelf space. This will in turn leave BMW as a winner. It is for this reason why BMW values the “premise sector” so such because this would allow consumers to try their brands at low risk and price.
Marketing Mix 2
* Product strategies
BMW offers an array of Authority Vehicles, including the BMW 3 Series, BMW 5 Series, BMW X3, BMW X5 and a number of BMW motorcycles. The designs have been developed and perfected over 50 years of working together with authorities around the world, so that they represent the state of the art in safety, cost-effectiveness and technology. And it is not only the design that matters – BMW Authority Vehicles are equipped with some additional, special devices and systems – like signalization, video system, iDrive, roof bar and so on.
* Distribution Strategies
BMW has almost the same strategy for distributing its Authorities, as it was for the previous target market.
The company has earned its reputation for producing the highest quality car with the highest level of customer service. However, without its unique strategy for managing the supply chain at its production facilities, the company would not be able to deliver its esteemed luxury and safe Authority models to consumers at a reasonable time or cost.
* Communication strategies
The key factor for the promotion and implementation of these products could be the need of some authorities to have a secure and reliable partner in an emergency case. They can find these qualities in the automobiles of BMW.
* Pricing Strategies
As the models offered for common and for special use are very similar, it is normal that the pricing strategies are also similar. There are, though, because of the German legislation some tax reliefs for these cars, which make them cheaper than the average BMW.
The marketing organization is a very important part of the overall business activity. Organizing the business contributes for the leadership of the company. And here we will show what BMW does to improve its business.
Taking into consideration the external factors for the BMW Company, we can say that the managers of the firm should revise them in order to organize all the processes, done in the enterprise in such a way, to achieve the maximal possible benefits for the customers, the shareholders and all others, who are interested in the activity of the company.
The company is organized to produce luxurious, safe and quality cars intended for a wide range of customers – not only rich ones – as a big part of its competitors (Porsche, Lexus, Mercedes, not to talk about Lamborghini, Maserati, Bentley and so on) do. This is done due to the almost hundred-year tradition combined with the penetration of the new technologies
The company should think of itself as a provider of movement, rather than provider of automobiles, so that it can achieve wider product differentiation and thus – a greater customer satisfaction.
The managers, the so called ‘decision-making authorities (DMAs)’ of BMW plan the overall development of the company, taking data from a previously made analysis. Being a very big and developing company, BMW focuses its activity most of all on expanding its market shares, takes into account the consumer opinion of its products and servicing, rather than trying to maximize the profit. Combining their efforts with these of the frontline employees, they strive for the best improvement of the business.
Porsche Automobil Holding SE, usually shortened Porsche SE, is a German automotive manufacturer of luxury high performance automobiles, which is a majority-owned by Piï¿½ch and Porsche families. Porsche SE is headquartered in Zuffenhausen, a city district of Stuttgart, Baden-Wurtemberg.
Porsche SE is holding company which has two main subsidiaries – Dr. Ing. h. c. F. Porsche AG often shortened to Porsche AG, and Volkswagen AG. Porsche AG is the subsidiary of Porsche SE which is responsible for the actual production and manufacture of the Porsche automobile line, and Volkswagen AG is the parent company of the Volkswagen Group, which includes (but is not limited to) the automotive brands Audi, Bentley Motors, Bugatti and Lamborghini.
The Dr. Ing. h.c. F. Porsche AG is a German manufacturer of sports cars in the luxury segment with his domicile in Stuttgart – Zuffenhausen, Germany. Porsche was founded as an engineering office in 1931. Ferdinand Porsche gathered experience in the development of military vehicles during the First World War and worked for a number of companies as a constructing engineer (e.g. management board member and supervisor in the engineering office of the Daimler-Motor-Association).
On December 1st, 1930 he opened his first engineering office, which transformed into “Dr. Ing. h.c. F. Porsche GmbH, engineering and consultancy for engines and vehicle constructions” on April 25th, 1931. There his greatest successes were the construction of racing cars for Auto Union and his major impact on the construction of Volkswagen.
In 1937 the legal form of organization changed into private limited partnership (German: KG). Between 1944 and 1950 the company evacuated the fabrication to Austria, where Ferry Porsche constructed the first Porsche named the 356 Nr. 1 Roadster. Ferdinand Porsche’s son, Ferry Porsche, took over his father’s chairmanship in 1947, while Ferdinand was in French imprisonment. Ferry inherited half of the shares and built up the sports car company under the trademark known today.
The daughter of Ferdinand Porsche, Louise Piï¿½ch, inherited the other half of the shares. Her husband, Anton Piï¿½ch, was factory manager and director of the Volkswagen GmbH in Wolfsburg, Germany during the Nazi regime.
“We are committed to provide an impeccable service to our demanding clientele of premium cars, pay our customers with the greatest possible attention and care in all aspects of the business, to create a connection in the workplace, with shared passion for our vision and goals, to have motivated, hard working and empowered employees who maintain commitment to our corporate social responsibility”
Porsche’s objective is to strengthen its presence across various markets. It intends to capitalize on its manufacturing and retailing infrastructure and significant national, cross-border and international flows of raw materials, finished products and services.
Back in 1997, Porsche formalised its internal environment protection measures, set up environmental management systems and incorporated them into its research and development activities. The company monitors and assesses environment-related performance at all locations and coordinates the planning and implementation of further measures.Its objectives are ambitious:
* To produce vehicles featuring the highest levels of environmental and safety technology.
* To continually anticipate and assess the environmental impact of products and production methods.
* To keep the environmental impact of all activitiesto a minimum.
* To make careful, economical use of resources.
* To foster a responsible approach among employees,service providers, suppliers and customers.
Naturally, Porsche also voluntarily allow its efforts to be appraised. Since 1996, the environmental impact of activities at company’s Stuttgart-Zuffenhausen site has been regularly monitored in accordance with the EU Eco-Management and Audit Scheme (EMAS) and the international ISO 14001 standard. Company’s facilities in Weissach and Leipzig are likewise ISO 14001 certified. The effectiveness of its environmental management systems was last tested and approved in the ‘Best in Class’ category in June 2006.
Marketing Environment Analysis
The PESTEL analysis categorizes environmental influences in six parts: Political, economic, social, technological, ecological, legal. There are various macro-environmental factors influencing the automobile industry. These global factors have an impact on all organizations working in the automobile sector and an analysis helps to identify the structural tendencies.
First – and most important – of all, the crisis in the gulf region, the unstoppable increase of oil prices and the decrease of global oil reserves show the industry’s limits. New technologies will be needed in the near future to substitute the oil energy. Toyota, DaimlerChrysler and VW are craving for renewable energy sources to make the automobile ecologically competitive with other means of transportation.
The laws on exhaust fumes get tightened around the world to diminish the emission of carbon dioxide because of the increasing pollution. The legislative situation includes a lot of treaties and regulations by which manufacturers have to abide. Documents like the Kyoto protocol have worldwide impacts, e.g. on new engine-developments.
Politically, in Germany for example, the Ecological Taxation System augments the gasoline prices which forces the consumers’ demand for renewable energy sources. High investments need to be made in Research and Development in order to find an effective and practical technology. The Hybrid Technology tends to become the futures’ solution to the problem and the first company that makes the technology applicable earns the profits of innovation. Socio-demographically, automobiles developed into lifestyle-products and status symbols, transferring an image and families owning two or more cars are no rarity.
* Power of Suppliers | medium
The supplier industry of car manufacturers has experienced a concentration process during the last decades. High standards in quality have led to a situation where only the most profitable, high quality providers could survive. The result of this concentration process is that the surviving suppliers have large ordering volumes and therefore notable bargaining power. Switching costs can be considerable and have an effect on the product quality. There is also a trend towards outsourcing large parts of the production cycle in order to reduce operational risk.
* Power of buyers | medium
Single clients in the automotive industry have a medium bargaining power, there are substitute products as trains, buses and motorcycles, but the car itself is an integer part of European culture and a status symbol. There are relatively small transfer-costs imposed on the client and the development of leasing as a means of financing for the private market lead to consumers being more flexible in their decision to switch cars. Buying a car is often not a huge investment anymore, but the financing costs are part of a monthly budget. The over-supply of cars on the market leads to customers demanding good after-sales service, reliability and quality.
* Threat of substitutes | small
As a means of transportation, the car is not subject to substitute threats, but the technology used is in permanent question. Therefore the industry is put under permanent pressure on innovation and research and development expenses are high.
* Threat of new entrants | small
There are substantial commercial (distribution network and brand reputation) as well as competence barriers (advanced technology and experience) to enter the car market. The industry is capital intensive and economies of scale are important. Japanese companies faced large barriers when entering the European and American markets and only by applying a low price strategy was it possible for them. The development of a new brand is very difficult. The luxury sector has even greater entry barriers and except for some exceptions (e.g. Toyota with the introduction of Lexus) the attempt of entering the luxury sector often ends in failure (e.g. Renault-Peugeot’s failure to launch premium models under their existing brands). The strategy used by automobile companies to penetrate the luxury market has so far been to buy already existing brands (e.g. Jaguar by Ford, Bentley by Volkswagen and Rolls-Royce by BMW).
* Competitive rivalry | very high
The car industry is very concentrated, fix costs are high, transfer costs are low and the market is considered to be mature. These factors attribute to a very high competitive rivalry among international carmakers.
* Impact of the state | medium
The state has a considerable regulatory power and provides the infrastructure used by car-drivers. In addition, automotive companies are important employers in their countries and the state has an interest in maintaining them. Petrol prices are heavily dependant on the level of taxation. Another example of state involvement in the car industry is the so called “VW-Gesetz”, a special law that prohibits any single shareholder to gain more than 20 % of the VW-voting rights independent of the amount of shares in his ownership. As the German State of Lower Saxony holds a 20.8 % share in the company, the law is designed to protect VW from a foreign takeover bid. At the moment, the 46 year-old law gets arraigned at the European Court of Justice, decisions will not be made before June 2007.
Customers of the company are independent businessmen, owners mid-size and small companies, successful managers, a lot of CEO’s and people like architects, consultants, lawyers. Most of company’s customers don’t own a Porsche as the only car; they own an average of three cars, and this is more or less the same in Europe and North America. One of those three cars, especially in the U.S., is a SUV. The report indicated that the typical owner is a 40-year male college graduate earning over $200,000 per year.
The core of Porsche markets is Europe and the US. The US market is its biggest market by far. Currently the company sells roughly 40% of its cars North America, and roughly 22% in Germany. The Chinese market is the third biggest one. Around the globe, the entire automotive industry suffered the full impact of financial and economic crisis in Porsche’s fiscal year 2008/2009. Severe slumps are above all seen in North America and Eastern Europe, Western Europe also saw losses. The only markets which remained stable are the Chinese and Brazilian ones. Given these conditions, Porsche was unable to repeat its strong performance of recent years. The automobile manufacturer based in Stuttgart delivered a total of 73, 492 vehicles to customers, and 26% fewer than the prior fiscal year.
Psychographic Profile of the Porsche Buyer
The report further categorized owners into five personality types as follows:
* Top Guns
Top Guns represent 27 percent of owners. These individuals are driven and ambitious. Of primary importance to them are the matters of power and control as well as a strong desire to be noticed.
Elitists represent 24 percent of owners. These individuals are old-money blue bloods. To them, a car is just a car, no matter how expensive it happens to be. They do not feel that the car is an extension of the owner’s personality.
* Proud Patrons
Proud Patrons represent 23 percent of owners. To this group, ownership is an end in itself. Their car is a trophy earned for hard work.
* Bon Vivants
Bon Vivants represent 17 percent of owners. These individuals are worldly jet-setters and thrill seekers. To them, the car is a means of heightening the excitement in their busy lives.
Fantasists represent 9 percent of owners. To these individuals, their car is an escape. Feeling a little guilty about having a Porsche, they avoid impressing others with the fact that they own one.
Porsche was specialized in production of sports cars from the foundation of the company. The most important characteristics of Porsche automobiles are high level luxury, exotic design and high performance of an engine. Consumers have no price and gasoline consumption sensitivity. The average age of Porsche Boxster is 42; people who buy the Cayenne SUV have an average age of 45, while 911 buyers are on average 49. The average income of Boxster buyer is $175, 000 per year, the 911 buyer is averaging $200, 000 a year. Porsche, because of its price tag and emphasis on performance, had always appealed to an older, monied male market. That changed somewhat with the introduction of the Boxster, but the target driver, aged 34 to 54, still had an annual income of at least $150,000.
And about 80 percent of Boxster buyers were men. The interim campaigns did little to change these sales numbers, but the marketing brought the brand to a wider audience and made it more appealing to them. For the campaign that directly promoted the Cayenne launch, the target market was 42- to 47-year-olds, and because the price range was $52,000 to $75,000, the income of the target market was again high, at least $225,000 a year. Because the SUV was more utilitarian than a two-seat sports car, it was expected to appeal to more women, who could accept it as a family vehicle. Nevertheless Porsche expected that about 70 percent of Cayenne owners would be men.
These are the competitors for every model of Porsche:
Competition significant from other brands in the 30-50k price range: BMW Z4, Nissan 350Z, Mazda RX8, Audi TT, Mercedes SLK and others – lowest margins among Porsche product (only 10% of overall profits despite 40% of sales) and declining sales
Moderate competition from sports cars in 70-150k price range: Corvette, BMW Z8, Mercedes SL, Dodge Viper, Ferrari 360 Spider – highest margin model accounting for 51% of profits
Carefully positioned in high-power segment, but faces competition from Mercedes ML, BMW X5, Lexus RX
* Super sport car (Carrera GT)
Strong competition from Mercedes SLR, Ferrari Enzo, Lamborghini Murcielago
Competition from Maserati Quattroporte, Mercedes-Benz s 63 AMG, Audi S8, Aston Martin Rapide.
Porsche initially positioned itself as a sports car known for its German engineering. However, this positioning was not well communicated to its audience. Instead, some of its communication messages had tongue-in-cheek sexual innuendos featuring scantily-clad models. With the engineering message not well entrenched in customers’ minds and confusion with the mischievous sexy image, people began to create their own opinion of what Porsche stood for. The positioning of Porsche began to take a life of its own. Some people mentally envisioned Porsche as a fast sports car; others viewed it as a car for playboys and picking up girls; and yet others saw it as a car for the wealthy to flaunt. The result is a mixed-up impression of what the essence of Porsche is. It took Porsche a long time to re-position itself as a well-engineered sports car and away from the playboy image that it once evoked.
The Porsche business model is based on a precisely defined, long-term invested product and brand strategy, which is called focalization on the luxury segment. In its center it focuses on performance, sportiness and emotion. Porsche builds automobiles, which are “the most beautiful combination between two points, the curve” – according to the Porsche advertisers. Porsche held on to its principles since its foundation.
Today Porsche’s product portfolio consists of 4 main models, all designed for the sports car luxury segment and marketed under the same brand: 911, Boxster, Cayenne and Cayman. This shows that Porsche is following a niche strategy in the automobile industry. Porsche has diversified its portfolio but stayed within its niche.
Product diversification with strictly calculated risk
The Porsche product strategy is programmed to generate increase. A main element in the strategy of growth is the perfect balance between product variations and an “economic” expansion of the car model variety. The best example for this game of variation is the most typical Porsche product of all: the 911. The sport car was extended to a whole model lining with twelve independent models with two types of carriages (Coupï¿½, Cabrio), two types of engines (rear end / 4-wheel drive) and four performance variations (Carrera, Carrera S, Turbo, Turbo S). With the 911-building set Porsche draws a price range between 74.700 EUR and 152.200 EUR. By using a single basic car model economies of scale and scope were generate.
The launch of new model lines are building the second part of the product strategy. The Cayenne, planned as a community project with VW, became price realistic through the conjoint use of the car’s body shell. Porsche only had to invest 350 Million EUR in development expenses. Porsche takes care that each of its car models is highly profitable: no risk factors, no cross-subsidization, no model for image purposes only. This credo is also applicable for innovations, which are usually created by subcontractors.
Wiedeking’s strategy is focused on the control of risk: Only technologies, which are able to survive on the market, are developed. There are no high investments in racing and Formula 1, because the risk of not being number 1 would be too high and would have negative impacts on the brand. Transfer risks get minimized through entire coverage of exchange rates and the capacity risk gets transferred to Porsche’s subcontractors.
Capacity Management through outsourcing, low vertical integration
How profitable an automotive manufacturer can be mainly depends on how it can use its production facilities to full capacity – negative examples are Opel or Volkswagen, where over- production leads to small profit margins. A complete concept for capacity utilization is needed. The former Volkswagen CEO Ferdinand Piï¿½ch believed in the “breathing factory”, which is a synonym for a flexible firm (working hours vary by production capacity, etc.).
In earlier days, the production system at Porsche used to work night shifts, had an over-proportional intermediate storage and practiced over-engineering. Wiedeking follows a different course: He cooperates closely with his external production suppliers. External production suppliers abroad build major parts of the models Cayenne and Boxster. Porsche’s own part in the costs of fabrication is very low, especially compared with other automobiles in the premium segment, such as the Mercedes S Series and the 6 Series / 7 Series of BMW.
For the Boxster and its derivative the Cayman the Finnish partner Valmet is the “breathing” capacity part – if the demand decreases (e.g. caused by the life cycle of these models), Valmet bears the risk. As a result of this strategy Porsche was able to keep its high profit margins even though there was a loss in the selling rate of the Boxster in 2003 and 2004.
A similar strategy is used for the Cayenne, whose sales volume dropped on the US market in 2005 by 25 %. Porsche was still able to run high profits because the main part of the Cayenne production is outsourced in the VW factory in Bratislava, Slovakia. Parts for the Cayenne are increasingly bought in Europe’s low-wage counties, get complemented there and only the final assembly takes place at the Porsche site in Leipzig, Germany. All together there are over 30 subcontractors working on the Cayenne, who receive approximately 50 % of the employed material from their subcontractors and of course these subcontractors also have their material-distributors. If a contractor has a German name, it does not necessarily mean that he also produces in Germany.
One of Porsche’s corporate goals is to offer superior service to its demanding customers. In Germany, Austria and Switzerland Porsche dealers receive deliveries once or twice a day from the central spare parts warehouse in Ludwigsburg, Germany. In all other countries, supply is handled by import dealers. Any breakdown in this system can be felt all the way to bottom line. To ensure these process functions seamlessly, Porsche chose mySAP Supply chain Management – a solution which attributes it knows intimately: speed, flexibility and reliability. The mySAP SCM implementation enabled Porsche to optimize and restructure spare parts management company-wide.
Communication and Image – Personalization of Porsche and Wiedeking
By adapting a smart communication strategy, Wiedeking is able to diminish any possible negative effects on the brand Porsche. At his public appearances, the top manager shows rough edges, tries to complete the image of manhood in the automobile business and sticks up for the production location Germany – even if those are only words and not facts. The media star Wiedeking is without any doubt the main sympathy carrier not only for Porsche clients.
Today the Group owns twelve sales subsidiaries, several regional offices in growth markets and 600 largely exclusive dealerships in a total of 102 markets. Porsche’s sales strategy, similar to most car manufacturers, requires a network of independent dealers. Each dealer has their own commercial interests and business structure and acts as a middle man between Porsche’s German headquarters and the end-consumer. In developed markets like North America and Europe this works well.
Porsche maintains an extensive knowledge of the Buyer since information flows freely between the dealerships, buyers, and headquarters. However, in emerging Asian markets this market relationship is missing. Having a middle man seems to be an obstacle to obtaining any essential data the Buyer may provide. Currently, the dealers guard their direct relationship with the Buyer, holding it as their own strategic business advantage. They see no incentive in sharing Buyer information with Porsche.
The direct flow of Buyer information is critical for future product development, marketing success, and creating greater overall value for the company, dealers, and eventually the Buyers themselves.