Market Entry Strategies for Premium SUVs

1 Torsten Arnold – Market Entry Strategies for Premium SUVs

Strategy Case Study:

Market Entry Strategies for Premium SUVs

Tuebingen 2010/11/29

University of Tuebingen

A case study in the context of the masters seminar

Competitive Strategies

Winter semester 2010/2011

Prof. Dr. Wilhelm Rall

Torsten Arnold


Purpose and Organization of the Research


Questions to be answered

1. Understanding the context

• What are the driving forces behind the development of

the premium SUV segment?

2. Uncertainty pattern and strategic rationale

• Description of the uncertainty pattern in the years 1993

(MB decision),1998, 2002, 2004 (Q7 point of no return)

• Which strategic rationale, if any, can be assumed

behind the model introduction sequence of the different

OEMs?

• Did Audi make the right decision to introduce the Q7 as

late as 2005?


Outline

1. Understanding the context • Economics of the global car industry

• Global dimensions and growth of the premium SUV segment

• Driving forces of the segment

• Opportunities for OEMs

2. Uncertainty pattern and strategic rationale • Model introduction sequences

• Global and OEM specific uncertainty patterns

• Abstraction Process • „Strategic“ market entry

• Generalized Cournot model

• Stackelberg model

• Limited capacities (Kreps/Scheinkman)

• Conclusion Audi


1. Understanding the context


The automotive industry is a high commitment industry with high

sunk costs and long development cycles of up to 60 months

• Huge investments into new production technology and manufacturing plants are necessary (several 100 Mio. USD)

• Long lead times and development cycles for new models (36 - 60 months)

• High total development costs (1 - 2 Bn. USD) and early initial costs (biggest cost block at launch minus 18 - 24 months)

Point of no return

Figure 1: Development time of new car in months, cost blocks and accumulated costs

in percentage [McKinsey & Company 2010, own graph]


Global annual sales by segment: Premium SUV segment is emerging

and yet small, but one of the fastest growing segments

• Automotive industry is a relatively mature industry with moderate to low growth rates

• SUV segment evolved from off-road segment

• Premium SUV market is a very small niche market which was „tailored“ to upcoming customer preferences in the late 1990s

66

50

8,5

3

0,45

0,15

2008

1997

0 10 20 30 40 50 60 70

Premium SUV sales

SUV

Global light vehicle sales

Figure 2: Global light vehicle sales, SUV sales, Premium SUV sales, 1997 and 2008

in million units [McKinsey & Company 2010, own graph]


Premium SUV sales are flourishing

0

50

100

150

200

250

300

1997 2000 2003 2006 2008

Europe 0 46 123 258 239

US 15 79 100 120 115

China 0 0 3 9 31

Rest of World 0 16 26 54 60

Th

ou

sa

nd

un

its

* SUV models: VW Touareg, BMW X5 and X3, Mercedes M-Class, Porsche Cayenne, Audi Q7 and Q5

Figure 3, Table 1: Sales of selected premium SUVs*, 1997-2008 [McKinsey & Company 2010, own graph]


Very high growth dynamics in the premium SUV segment with remarkable

market performance of German premium SUVs* – yet with global differences

• Stable and significant share of German premium brands in Europe (~20%)

• Premium SUV market with increasing volume based on high growth rates since 1997

• Europe as the leading force in annual premium SUV sales since ~2002

• German premium SUVs with share gains in Europe (2002-2007: 46.5% -> 63.9 %)

• Relatively small market share of German premium brands on the US market (~5%)

• US market is the initial leading force for premium SUV sales, with high growth rates up to ~2002

• Premium SUV segment is growing but on rather moderate growth rates (1997-2008: ~21% p.a.)

• German premium SUVs do not realize share gains in the USA (2002-2007: 22.1% -> 20.4 %)

• Moderate market share of German premium brands in China

• Very high (> 60%) market share in the small but growing Premium SUV market

• Late introduction of German premium SUVs (2003+), since then significant growth rates

• German premium brands have a market share of above 10% in the global car market

• Premium SUVs exhibit a low, but growing share of German premium OEMs total production

(1997: 0.4% -> 2007: 7.3%)

• High growth in the premium segment in general and very high growth dynamics in

particular for premium SUVs.

• Global growth rates of premium SUV segment (CAGR +36% p.a.) clearly outperform non-

premium SUV segment‘s growth rates (CAGR +7%) as well as light vehicle growth rates

(CAGR +2%) (1997-2008)

* SUV models: VW Touareg, BMW X5 and X3, Mercedes M-Class, Porsche Cayenne, Audi Q7 and Q5

Table 2: Premium SUV* share and growth in EU, US, China, World, 1997-2008 [McKinsey & Company 2010, own illustration]


Various forces drive the development of the

Premium SUV segment

Customers (demand side)

Capture consumer rent

• Socio-economic/demographic factors (increased purchasing power of upper-

and upper-middle class in developing countries)

• Lifestyle / Personality (Premium SUV = chic, state-of-the-art)

• Trends (Individualisation and differentiation)

Internal organizational perspective • Availability of technological development

• Utilisation of (local) production capacity

• Extent of scale economies (e.g. platform

production)

• Compliance with organizational setup

• Liquidity constraints

• Natural hedging (price pressure, EUR/USD)

Competition of premium OEMs • Expand market volume against trend

• Conquer market share in new or

developing markets (e.g. China, etc.)

• Improve premium brand loyalty +

positioning

• Expansion of model line-up

• Occupy market niches

New segment: Premium

SUVs Government initiatives,

regulations and

legislation

Energy policy, tax relief

plans, reduction in tax

rates, etc.

Environm

enta

l

uncert

ain

ty

Str

ate

gic

uncert

ain

ty

Figure 4: Driving forces of the premium SUV market [own illustration]


New growth for premium OEMs in the mature automotive

industry is only possible through expansion of model lineup

and through further global expansion

Imp

roved

mark

et

pen

etr

ati

on

(e

specia

lly in g

row

ing m

ark

ets

)

New products (selective addition to existing product range)

Figure 5: OEM expansion possibility space

[Adapted from: AUDI AG, Rupert Stadler, Sandford Bernstein, 2nd Strategic Decisions Conference, London, 27.09.2005]




Model Introduction Sequences: The Three Waves

First-Mover Fast Follower/

Second Mover Late Follower

• M-Class was the first

premium SUV and opened a

new segment

• BMW X5 was already at the

planning stage before the M-

Class was launched in 1997

• For both firms it was very

difficult to forecast the future

in this segment

• Volkswagen and Porsche

launched their models in a

relatively clear market

situation

• The segment was already

established and growing

• Audi was the last premium

manufacturer to enter the

segment with its Q7

• However, they launched a

differentiated type of model,

mainly tailored to the needs

of the US-market

Figure 6: Model introduction sequence of selected premium SUV OEMs [own illustration]


Environmental Uncertainty Strategic Uncertainty

OEMs faced different sources of uncertainty

• Regulations

• Technological

developments

• Demand patterns

• Socioeconomic

factors

• Competitive action

and reaction

Figure 7: Sources of environmental and strategic uncertainty of selected premium SUV OEMs [own illustration]


Altering uncertainty patterns within the global

premium SUV segment

15 60

84

141 179

200

252

392 407

441

516

445

M-Class X5

Touare

g

Cayenn

e Q7

Crude Oil Price

EUR/USD

1997 2001 2005 2011 2008 1998 1999 2000 2002 2003 2004 2006 2007 2009 2010

Weak US-Dollar

and increasing oil price

Global Sales of premium

SUV`s (in thousand units)

EUR/USD USD

1993 announcement

Level of uncertainty

high

medium

low

Figure 8: Global uncertainty patterns within the global premium SUV segment and selected influencing factors,1997-2008 [own illustration]


Mercedes Benz – Environmental uncertainty

High level of

uncertainty:

• New plant

• Foreign market

• New model

• New employees

• High investment

1997 2001 2005 2011 2008 1998 1999 2000 2002 2003 2004 2006 2007 2009 2010

Start of production:

M-Class W163; $

300 Mio investment;

Capacity 65,000

Facelift M-

Class W163

M-Class W164

26.000 additional vehicles

of the M-Class built at

Magna-Steyr in Graz,

Capacity 106,000

Facelift M-

Class W164

M-Class

W16X

Addition $ 80

Mio investment;

Capacity 80,000

Medium level of uncertainty:

• Growing demand

• New investments

announced

• Established model

• Efficient plant

• New entrants (e.g BMW)

Low level of uncertainty:

• Growing sales in the

SUV segment

• Audi as new entrant

• Economic boom

• New model update

High level of

uncertainty:

• Economic

downturn

• Increasing oil price

(Jul 2008 – $

133.90

• Flagging USD

• CO2 discussion

Audi Q7

1993 announcement

Figure 9: Environmental uncertainty for Mercedes Benz 1993-2008 [own illustration]

http://www.autobild.de/marken-modelle/mercedes-benz/m-klasse/w164



BMW – Environmental uncertainty

High level of uncertainty:

• New production

• Foreign market

• New model

• New employees

• High investment

However: Land Rover‘s SUV

know-how

Start of production:

X5 E53


• Growing demand for premium SUVs

• Customers are familiar with the segment

• High investments

• Established M-Class since 1997

• New entrants in the market (e.g VW, Porsche

and Audi)

• Facelift and the announcement of a

new model

High level of

uncertainty:

• Economic downturn


(Jul 2008 – $ 133.90

• Flagging USD

• CO2 discussion

Expanding the

production

South

Carolina, USA:

$ 200 Mio.

investment;

Capacity

140,000+

Facelift X5 E53 X5 E70 Facelift X5 E70

+ $ 750 Mio investment

(X3,X5 & X6 production)

1997 2001 2005 2011 2008 1998 1999 2000 2002 2003 2004 2006 2007 2009 2010

+ $ 300 Mio

investment

Audi Q7 Figure 10: Environmental uncertainty for BMW 1997-2008 [own illustration]


Volkswagen – Uncertainty patterns

1997 2001 2005 2011 2008 1998 1999 2000 2002 2003 2004 2006 2007 2009 2010

21.04.2006: Production of

the 250,000th Touareg

Announcement

of co-platform

developement

with Porsche Mass Production

of VW Touareg I

(30. 06.2002) Model

introduction USA

Facelift Touareg I

Touareg II

introduction


• Development of a new

model in a growing

segment

• Cooperation with Porsche

to lower costs


• Growing demand for premium

SUVs

• Customers are familiar with the

segment


• Audi also enters the market in

2005

High level of

uncertainty:



(Jul 2008 – $

133.90

• Flagging USD

• CO2 discussion

Audi Q7 Figure 11: Uncertainty for Volkswagen 1998-2008 [own illustration]


Porsche – Uncertainty patterns

Announcement

of co-platform

development

with Volkswagen

1997 2001 2005 2011 2008 1998 1999 2000 2002 2003 2004 2006 2007 2009 2010

Audi Q7

Model presentation

in Europe -

December 2001

Production plant

Leipzig finished Production start Cayenne I in

Bratislava / Leipzig / Zuffenhausen

(Sept 2002)

Model introduction

USA 2003

~ 270,000 sales

Facelift Cayenne I Cayenne II

launch


• Development of a new

model in a growing

segment

• Expansion of model line-

up, real hedging strategy

• Cooperation with

Volkswagen to lower costs

• Capacity inverstments in

Leipzig and Bratislava


• Growing demand for premium

SUVs


segment


• Audi also enters the market in

2005

High level of

uncertainty:



(Jul 2008 – $

133.90

• Flagging USD

• CO2 discussion

• Decreasing sales

figures on the

Cayenne

Figure 12: Uncertainty for Porsche 1998-2008 [own illustration]


Audi seeks to conquer the premium

segment by focusing on prestige

Premium

Traditional

Volume

1994

2005

2015

Progressive

Figure 13: OEM profiles with respect to image and volume and AUDI’s focus on premium image

[ Adapted from: AUDI AG, Rupert Stadler, Sandford Bernstein, 2nd Strategic Decisions Conference, London, 27.09.2005]


Audi – Strategic uncertainty

1997 2001 2005 2011 2008 1998 1999 2000 2002 2003 2004 2006 2007 2009 2010

Audi declined platform

development with

VW/Porsche, hence A6

Allroad disaster

Decision to build Q7

on PL71 platform in

Bratislava, Slovakia

Q7 Prototype Detroit

Motor Show

SOP first generation

Q7 in Bratislava ,

Slovakia

New model planned

2011 (CO2 emission

reduced)

Facelift Q7

Low / Medium level of

uncertainty

• Audi was the last premium

manufacturer to enter the

SUV segment

• After A6 Allroad disaster,

cooperation with VW and

Porsche


• Ongoing growth demand for

premium SUVs


segment


• Cooperation with VW & Porsche

• “Crossover” SUV for the large

U.S. market

High level of

uncertainty:



(Jul 2008 – $

133.90

• Flagging USD

• CO2 discussion

Q7 point of no return Approx. 300 Mio. € investment in the

joint production facility in Bratislava

Figure 14: Strategic uncertainty for AUDI 2000-2008 [own illustration]



Abstraction process


Abstraction process: „Strategic“ Market Entry (1/5)

First mover (Mercedes-Benz / BMW) • Advantages („The early bird catches the worm“)

• Could face high market demand / monopoly position

• Disadavantages • High innovation costs (R&D)

• Incumbent inertia • locked in to a specific set of fixed assets

• reluctant to cannibalize existing product lines

• may become organizationally inflexible

Second mover / Fast follower (VW / Porsche) • Advantages ("The second mouse gets the cheese“)

• Free rider effects • Buyer education (public education)

• R&D

• Infrastructure development

• Imitation costs < innovation costs

• Lower market uncertainty and better technological opportunities

• Disadavantages • Has to react to first mover‘s commitment



• Late mover (Audi)

„Late movers are companies that respond to a competitive

action, but only after considerable time has elapsed after

the first mover‘s action and the second mover‘s response.“

• Advantages

• Shifts in technology or customer needs

• New technologies (rapid virtual prototyping)

• Even lower imitation costs

• Further resolution of uncertainty

• Disadvantages

• As late movers are the last ones to respond to the first and

second movers‘ actions, late movers tend to be poor performers

and often are weak competitors!

* Quote from: Michael A. Hitt,R. Duane Ireland,Robert E. Hoskisson. 2009. Strategic management: competitiveness and globalization : concepts & cases.



The generalized Cournot-model for asymmetrical firms:

• Profit functions of the firms

• Profit maximization w.r.t. the output yields the market price:

• and the profits:

* Formulas and results from Tirole, Jean, The Theory of Industrial Organization (1998); Stadler, Manfred, Industrial Organization lecture notes

Equation [1]

Equation [2]

Equation [3]



• Starting point in standard Stackelberg model:

• An incumbent i=1 (Mercedes), already established in worldwide

SUV premium market with a first-mover advantage

• A potential entrant i=2 (VW/Porsche), has to pay fixed costs

• For the following profit functions will result in

competition in quantities:

• Stackelberg-solution with the leader 1 and the follower 2 for


Equation [4]

Equation [5]



• From a model perspective, we see a first mover advantage for

Mercedes, setting the quantitiy and anticipating the best answer of

VW/Porsche. Best answer function:

• BUT, since the natural market entry barriers are enormously high

a creation of strategic entry barriers is unnecessary

model: a blockaded entry with

• However, VW/Porsche could afford entry costs anyways, worldwide

demand exceeds capacity of incumbent model with limited

capacities needed (Kreps/Scheinkman 1983)

• AUDI can‘t afford for entry into premium SUV segment, until late

cooperation with VW/Porsche to divide among this „platform coalition“


Kreps / Scheinkmann (1983):

• Assumption: Technically seen, relatively homogenous goods within the market niche for

premium SUVs

• Capacities as strategic variables

• Prices as tactical variables

Determination of the subgame perfect Nash-equilibrium through backward induction:

1st stage

(strategic var.)

2nd stage

(tactic var.)

1st step

• Determination of the prices on the second stage with alternative

quantitative commitments (capacity) on the first stage

2nd step

• Determination of the optimal capacities on the first stage with

anticipation of the following price determination

3rd step

• Determination of the optimal prices on the second stage, given

the optimal capacity commitments on the first stage

Abstraction process: Limited Capacities (1/5)

Figure 15: Determination of the subgame perfect Nash-equilibrium [own illustration]


Fundamental assumptions:

• Standardised market demand function:

• Unit production costs:

• Efficient-rationing rule:



Figure 16: Shape of the unit cost function [own illustration]

Figure 17: Efficient rationing example [own illustration]

Equation [6]

Equation [7,8]

Equation [9,10]


Optimal setting of the price on the second stage:

• The market clearing price with given capacities:

• creates a Nash-equilibrium in „pure“ strategies, if:



Figure 18: Firm capacity example in pure strategies

[own illustration]

Equation [11]

“Equation” [12]


Optimal setting of the price on the second stage:

• for higher capacities Nash-equilibria in „mixed“ strategies (non-deterministic)

• for the Bertrand-equilibrium

• In the SUV case we expect Cournot-results, „mixed“ strategies ruled out

1

1



Figure 19: Cournot and Bertrand results depending on capacity precommitment [own illustration]


• Profit function in reduced (Cournot-) form with

average capacity building costs :

• Optimal capacity dimensioning at the first stage:

• Optimal prices and profits:

Bertrand price competition softened!



Equation [13]

Equation [14]

Equation [15]


Classification into the Taxonomy of Business

Strategies (TIROLE)

Fundamental equation of strategic competition:

(+) direct effect negative investment makes competitor agressive

underinvestment

Assumption:

In the normal case of substitutes

Prices have a strategic complementary character and

quantities/capacities have a strategic substitutive character.

In this case the investment in the strategic variable (capacities) makes

competitors agressive. As prices are strategic complements, companies choose:

puppy dog strategy of peaceful underinvestment

(-) strategic effect,

tactical variables strategic complementary


Conclusion Audi


Did Audi make the right decision to

introduce the Q7 as late as 2005?

Ex ante

• Low uncertainty • US market already mature

• Europe‘s sales outperforming US sales

• Already 900k premium SUVs sold in total world-wide

• Goal: World-wide leader in the premium segment* • Strenghten core brand

• Historical issue in the USA: Audi 5000

• US market penetration through the premium SUV segment

• New model: Luxurious cross-over SUV (prestige)

• Audi tailored a model to the US market

• Technological know-how (quattro experience, rapid prototyping)

• Product pipeline mismanagement and corporate constraints

* AUDI AG, Financial Report 2006: [http://www.audi.de/etc/medialib/cms4imp/audi2/company/financial_information/pdf.Par.0267.File.pdf]


Did Audi make the right decision to

introduce the Q7 as late as 2005?

Ex post

• Too late

• Audi could not capitalize on the first 900k sales

• Brand loyalty problem due to late move in the markets

• Despite late introduction, high growth dynamics and

rapid market penetration from Audi Q7, especially in

the important US-market and later in China

• Establishment of new premium SUV derivative („cross-

over SUV“)

• Late follower strategy was unexpectedly successful


Questions


Thank you for your attention!


Appendix


List of Figures

Figure 1: Development time of new car in months, cost blocks and accumulated costs in percentage

[McKinsey & Company 2010, own graph]

Figure 2: Global light vehicle sales, SUV sales, Premium SUV sales, 1997 and 2008 in million units


Figure 3: Sales of selected premium SUVs*, 1997-2008


Figure 4: Driving forces of the premium SUV market

[own illustration]

Figure 5: OEM expansion possibility space


Figure 6: Model introduction sequence of selected premium SUV OEMs [own illustration]

Figure 7: Sources of environmental and strategic uncertainity of selected premium SUV OEMs[own illustration]

Figure 8: Global uncertainty patterns within the global premium SUV segment and selected influencing factors,1997-2008

[own illustration]

Figure 9: Environmental uncertainty for Mercedes Benz 1993-2008 [own illustration]

Figure 10: Environmental uncertainty for BMW 1997-2008 [own illustration]

Figure 11: Uncertainty for Volkswagen 1998-2008 [own illustration]

Figure 12: Uncertainty for Porsche 1998-2008 [own illustration]

Figure 13: OEM profiles with respect to image and volume and AUDI’s focus on premium image


Figure 14: Strategic uncertainty for AUDI 2000-2008 [own illustration]

Figure 15: Determination of the subgame perfect Nash-equilibrium [own illustration]

Figure 16: Shape of the unit cost function [own illustration]

Figure 17: Efficient rationing example [own illustration]

Figure 18: Firm capacity example in pure strategies [own illustration]

Figure 19: Cournot and Bertrand results depending on capacity precommitment [own illustration]


List of Tables

Table 1: Sales of selected premium SUVs*, 1997-2008 [McKinsey & Company 2010, own graph]

Table 2: Premium SUV* share and growth in EU, US, China, World 1997-2008 [McKinsey & Company 2010, own illustration]


Backup charts and information


Strategic decision timeline

1993 1998 2002 2004

Mercedes-

Benz

Decision M-

Class

BMW Production X5

Volkswagen Joint Venture

PL71

Production

Touareg

Porsche Joint Venture

PL71

Production

Cayenne

Audi Point of no return

Q7


Global Capacity Surplus Worldwide

(all model lines, all OEMs)

Global surplus

capacity approx.

5 million vehicles

p.a.

Approximation based on B&D Forecast, Prof. Dr. Dudenhöffer, 2005

AUDI AG, Sanford Bernstein, 2nd Strategic Decisions Conference, 2005



Backup: Preisübersicht – Premium SUVs

Smallest Diesel Entry Price


Overview Model Lineup

A1 A3 A4 A5 A6 A8 Q5 Q7 TT R8

Mini 1er 3er 6er 5er 7er X3 X5 Z4 Z8


Various forces drive the development of the

premium SUV segment

© provenmodels

Market / Customers

• value of firm-specific know-how

• tacit nature of know-how

Environmental variable • country risk

• location familiarity

• demand conditions

• volatility of competition

Competition

• extent of national difference

• extent of scale economies

• global concentration

Development of premium

SUV segment


Market entry


Key characteristics entry mode alternatives

required resources

co

ntr

ol

exporting

low

low

high

high

licensing

joint venture

wos

tec

hn

olo

gy

ris

k

low

high

required resources low high

exporting

wos

joint venture

licensing


Entry mode depends on interplay variables

...

synthesis

1. For certain groups of MNCs reducing

dissemination risk is of vital

importance; e.g. when competitive

advantage is based on proprietary

know-how.

2. when an organisation has multiple

foreign operations optimizing the

portfolio is better than optimizing a

simple market entry decision; e.g.

when market conditions are very

similar and scale economies can be

achieved, a global strategy based on

wholly-owned subsidiaries provides

the highest returns. Reduced strategic

and tactical flexibility from higher

resource commitments is the

consequence from pursuing such a

strategy.

environmental

strategic

transaction


Entry mode advantages/disadvantages

entry mode advantage disadvantage

exporting • ability to realize location and experience

curve economies

• high transport costs

• trade barriers

• problems with local marketing agents

turnkey contract • ability to earn returns from process

technology skills in countries where FDI

is restricted

• creating efficient competitors

• lack of long-term market presence

licensing • low development costs and risks

• lack of control over technology

• inability to realize location and experience curve

economies

• inability to engage in global strategic coordination

franchising • low development costs and risks • lack of control over quality


joint venture

• access to local partner’s knowledge

• sharing development costs and risk

• politically acceptable

• lack of control over technology


• inability to realize location and experience curve

economies

wholly owned

subsidiary

• protection of technology

• ability to engage in global strategic

coordination

• ability to realize location and experience

economies

• high costs and risks


Porter‘s Five Forces Framework


Porters Five Forces


Mercedes-Benz Backup


Mercedes Benz - Overview

M-Klasse W164

(ab 50.873 €)

M-Klasse W165 M-Klasse W163

(ab 32.057 €)

1997 2001

M-Klasse W163

Modellpflege

(ab 43.500 €)

2005 2011

M-Klasse W164

Modellpflege

(ab 52.539 €)

2008 1998 1999 2000 2002 2003 2004 2006 2007 2009 2010

Produktionsbeginn in

Tuscaloosa County,

Alabama,USA:

$ 300 Mio investment;

Capacity 65.000

Addition $ 80 Mio

investment in the USA;

Capacity 80.000

26.000 addition vehicles of

the M-Class built Magna-

Steyr in Graz, particular for

the European Market;

Capacity 106.000

Mercedes Benz

announces a new $ 600

Mio investment in the plant

to bulit M-, R-, GL-Class.

Total annual

production

volume after

expansion;

capacity app.

174,000 units

(including M-, R-

and G-Class)

DaimlerChrys

ler Merger

Daimler sells

Chrysler to Cerberus





• Growing demand and

segment (see McKinsey)

• New investments

announced


• Working plant

• New entrants

Mercedes Benz – Uncertainty Pattern

M-Klasse W164 M-Klasse W165

1997 2001

M-Klasse W163

Modellpflege

2005 2011

M-Klasse W164

Modellpflege

2008 1998 1999 2000 2002 2003 2004 2006 2007 2009 2010

Produktions

beginn: M-

Klasse

W163

Addition

investment

Addition vehicles Magna-

Steyr in Graz

Announces a new $ 600

Mio Investment

High level of uncertainty:

• New plant

• Foreign country/market

• New model

• New employees

• High investment


• Fast growing market

• More competitors

• Established

market/model

• Economic Boom

• New Model Update

• Boom in the SUV

Segment

Medium level of

uncertainty:


• Co2 discussion

• Worldwide Economic

Crisis

• Lower deman

Low level of

uncertainty:

• Boom in China

• Growing demand

• Recurring

economic growth

• New model in

2011

• Established plant

with new model


BMW Backup


BMW - Model introduction sequence

1997 2001

X5 (E 70)

(from 53.100 €)

2005 2011 2008 1998 1999 2000 2002 2003 2004 2006 2007 2009 2010

Expanding the production

facility for the X5 model in

Spartanburg, South

Carolina, USA:

$200 Mio additional

investment (Total = $800

Mio); Capacity 140.000+

1994: BMW

acquires LandRover

BMW sells LandRover

(excl. Mini) to Ford

Introduction X3

(Steyr, AU)

X5 (E 53) introduced

at Detroit Auto Show

Facelifted X5 (E 70)

(from 54.200 €)

Facelifted X3

(Spartanburg, USA)

X5 (E 53 )

(09/1999)

40.000+ € Facelifted X5 (E 53)

(09/2003)

(from 48.050 €)

+ $300 mio

+ $50 mio

08/2001:

100,000th X5

shipped

09/2007:

100,000th

next gen. X5

shipped

06/2010: 1.0 million

X5 shipped

…

Total invest. value: $3.0

billion. Annual capacity

240.000+

+ $750 mio



• Growing demand and segment

(see McKinsey)

• New investments announced


• Economies of Scale; great plant

• Major investments

• Announcement of facelift model

• But: New entrants/competitors

BMW – Uncertainty Patterns

1997 2001 2005 2011 2008 1998 1999 2000 2002 2003 2004 2006 2007 2009 2010


• New plant

• Foreign country/market

• New model, high R&D costs

• New staff

• High investments

• However: Fast follower +

Land Rover SUV know-how

• Moderate degree of novelty

Low to medium level of

uncertainty:

• Fast growing market

• More competitors

• Established

market/model X5

• Economic Boom

• New Model Update

• Boom in the SUV

Segment

• But: Initial uncertainty

about X3 potential

Medium level of

uncertainty:


• Co2 discussion

• Worldwide Economic

Crisis

Low level of

uncertainty:

• Boom in China

• Growing demand

• Recurring

economic growth

• New model in

2011

• Established plant

with new model

1994: BMW

acquires Land

Rover

BMW sells Land Rover

(excl. Mini) to Ford

Launch of X3 (prod.

in Steyr, AU)

Launch of

facelifted X3

(USA)

+ $300 million + $50 million

+ $400 million

09/2007:

100,000th

next gen. X5

shipped

Launch of

facelifted

X5 (E 53)

$200 million

add. investment

Launch of

facelifted

X5 (E 70)

Launch

X5 (E 53),

USA

Launch

X5 (E 70)

PONR

1 million X5

shipped

Medium:

• Next gen.

model with

2,400 new

parts

• Explosion of

mid-size

SUVmarket

• First mover

for X3 mid-

size prem

SUV


1 series 13%

3 series 43%

5 series 19%

6 series 2%

7 series 4%

X3 114.000

10%

X5 75.321

6%

Z4 3%

BACKUP: Product Split of BMW in 2006

by produced vehicles, in total 1.185.088


Model introduction sequence of BMW

• History and identy/image of the company • BMW is famous worldwide for cars and as a powerful and respected

brand that means as much to those who do not drive a BMW as those who do.

• "People will not buy products from companies they don't know and don't like," says BMW's Freymann. "Car manufacturers from countries like China will grow from the bottom up. They may become a threat to a company like Ford, but not to us. We are not just selling a car, we are selling an image.“

• Freude am Fahren – sheer driving pleasure

• BMW is one of the best-known brands in the world. The famous blue and white roundel symbol is clear proof that the owner is driving a prestige car (or motorbike). The symbol also identifies the brand as delivering the finest design, technology, engineering and quality available in motoring today.

• How does the model lineup (Modelpalette) look like?



• Model introduction sequence: • When was which model introduced?

• Facelift / new models / product life cycle

BMW X5

• The X5 represents BMW's first foray into the popular sport-utility-vehicle marketplace.

• Billed as a "Sports Activity Vehicle" by its maker, the X5 is designed to handle like a true BMW.

• Unveiled in Detroit at the 1999 North American International Auto Show

• For sale in late 1999

• By the end of its second model year was BMW's second-best-selling model.

• November 2006: Redesignb of E53 - For 2007 the X5 was redesigned with a revised chassis, more powerful and fuel efficient engines and a more responsive 6-speed automatic transmission. Longer, wider and taller than its predecessor, the X5 now offers available 7-passenger seating.

• First X5 (E53) was built between 1999 and 2006: many parts in common with Land Rover (bought in 1994, sold in 2000)

• Next BMW X5 (E70) since 2007

• The X5 heralded the shift from truck-based body-on-frame SUVs to sedan-based crossovers that would come to fruition in the late 2000s.

• BMW describes the X5 as a Sport Activity Vehicle (SAV) rather than an SUV, to emphasize its on-road ability despite its size.

• Expansion of production in the USA is a strategic rationle (natural hedging due to weak dollar) http://www.automobile.de/cgi-bin/deeplink.pl/news/bmw/x3/BMW-will-weiter-wachsen-X6-und-neuer-X3-werden-in-USA-gebaut-19038.html

• With sales of approximately 580,000 units worldwide since its launch in 1999, the BMW X5 has become an outstanding global success and still enjoys great popularity to this day. Of course the U.S. is the market where the X5 has had the greatest impact. Over 240,000 BMW X5s have been sold in the U.S. alone. Read more: http://www.worldcarfans.com/10608086491/new-bmw-x5-unveiled-in-detail#ixzz15NJVDacI

• One millionth X5 produced in June 2010! Sold to China =)

• Built in Spartanburg County (USA), South Carolina. Dense network of suppliers in close proximity!

• Sold on 120 markets worldwide

http://en.wikipedia.org/wiki/BMW_Sports_Activity_Series

http://www.automobile.de/cgi-bin/deeplink.pl/news/bmw/x3/BMW-will-weiter-wachsen-X6-und-neuer-X3-werden-in-USA-gebaut-19038.html




























http://www.worldcarfans.com/10608086491/new-bmw-x5-unveiled-in-detail












• OVERVIEW • The 1990s was the decade of the four-wheel drive -- boom time for mud-pluggers with a civilised twist

as Australians discovered the people-carrying practicalities of bush bashers. Big-engined power, high seating position, plenty of room, towing prowess and that elusive -- and rarely fulfilled -- dream of conquering Big Red lured thousands into 4X4 sport utility vehicles.

• Prestige brands like Mercedes-Benz and BMW foresaw a demand for upmarket sports utility vehicles (SUVs), not so much for the well-heeled Outback wanderer, but for all those urban needs. Hence the emergence in the late 1990s of the Mercedes-Benz M-class, followed in 2000 by the BMW X5.

• BMW's success with X5 has been unstoppable since launching first with a 4.4-litre petrol V8, followed a few months later by a keenly priced 3.0-litre, six-cylinder model. Since then two more have joined the line-up; the high performance 4.6iS in February 2002 and the 3.0-litre diesel in January 2003. BMW's off-roader, it seems, has come full circle.

• COMPETITORS • Immediate competition for the BMW X5 essentially consists of the Mercedes-Benz M-class. The

cheaper Land Rover Discovery offers a rival for some models, while the more expensive Range Rover features the same diesel and 4.4-litre V8 engine as the BMW.

• Mainstays like the Nissan Patrol and Toyota LandCruiser can't match the X5's refinement or car-like performance, and while the Audi AllRoad TDi certainly can, it can't equal the X5's 2700kg towing capacity.

• Since the start of 2003, the mid-sized SUV market has exploded. Rivals for BMW and Benz now include Honda MDX, Volvo XC90, Lexus RX330, Volkswagen Touareg and even Porsche Cayenne.



Volkswagen/Porsche Backup


Audi Q7

Volkswagen – Overview

1997 2001 2005 2011 2008 1998 1999 2000 2002 2003 2004 2006 2007 2009 2010

Prod. / Sales

6343

Prod. / Sales

59.625

Announcement of

co-platform

developement with

Volkswagen

Mass Production of

VW Touareg I

(30. 06.2002)

Model introduction

USA 2003

21. 4.2006: 250 000 st

Touareg V10 TDI 5,0l

verlässt die

Fertigungsstraße

Touareg I Facelift

Modellpflege

Touareg II

introduction


Audi Q7

Porsche – Overview

1997 2001 2005 2011 2008 1998 1999 2000 2002 2003 2004 2006 2007 2009 2010

Sales volume

-30% Europe;

-40% USA

Prod. / Sales

24.925 / 20.603

Prod. / Sales

41.149 / 39.913

Prod. / Sales

41.299 / 41.299

Prod. / Sales

35.128 / 34.134

Prod. / Sales

36.169 / 33.943

Prod. / Sales

~46.000 / 45.478

~ 270.000 sales

Prod. / Sales

~36.000 / 35.250

Model introduction

in Europe -

December 2001

Model introduction

USA 2003

Announcement of

co-platform

developement with

Volkswagen

Production

plant Leipzig

finished

Production start Cayenne I in Bratislava / Leipzig

/ Zuffenhausen (Sept 2002) Cayenne nearly half

of total sales!

Facelift Cayenne I Cayenne II launch


Audi Backup


AUDI Q7- Overview

1997 2001 2005 2011 2008 1998 1999 2000 2002 2003 2004 2006 2007 2009 2010

Audi declined platform

developement with

VW/Porsche, instead A6

all-road desaster

Decision to build

Q7 on PL71

platform in

Bratislava,

Slovakia

Q7 Prototype

Detroit Motor

Show (Jan.

2003)

Start of First generation

(2005- ) mass production,

Bratislava , Slovakia (Aug.

2005)

Introduction Basisversion Q7 (starting at 64000 €),

March 2006, annual plan: 50,000-70,000 vehicles

March: Germany, June: USA and China

Hediging it’s bets with updates

Facelift, Q7 3.0 TDI clean

diesel quattro

(CO2 emission reduced

234 g/km)

Facelift planned

Q7 2011 (CO2 emission

reduced, 195 g/km)

2005/2006(total

production all models:

250.000) [5]

Prod. / Sales

59.008 / NA

Prod. / Sales

27.929 / NA

Prod. / Sales

77.395 / NA

Prod. / Sales

79.169 / 52.771 Prod. / Sales

81.775/ NA

Approx. 300 Mio. €

investment in the joint

production facility in

Bratislava

Q7 point of no return



The increasing diversity of types of households goes hand in

hand with the increasing number of body derivatives.


Internal -> Leader in the Premium segment

vs. Very late introduction of Q7

Resources technology not available and A6

Allround deaster • Eigentliche Kernstory: Konzernstruktur VW/Audi – Dilemma Plattform – A6 Allroad

Desaster

• Das Erbe: Audi fehlen durch die falsche Produktpolitik der Vorjahre Modelle. Mit Rücksicht auf VW und den damaligen Chef Ferdinand Piëch musste beispielsweise der VW-Flop Phaeton vor dem neuen A8 eingeführt werden. Und VW baute den Geländewagen Touareg, der besser zur Premiummarke Audi passt. Erst zum Jahreswechsel kommt jetzt der Q7 (2005/2006).

• Missmanagement in der Produktpalette

• Produktpalette nach oben auffüllen / abrunden

• VW Abhängigkeit / Konzernstruktur VW/Audi – Dilemma Plattform – A6 Allroad Desaster

• New Car concept within premium SUV segment – seven seats, cross-over, US market!

• AUDI gebranntes Kind im US Markt durch AUDI 5000 Automatik Problem („Manufacturing the AUDI scare“ WSJ 1988) Erst 16 später erholt … Vorher kein standing – strategisch in USA reinkommen mit erfolgsmodell

• US Makrt extrem wichtig - Volumen

• Einstieg in Trend „Cross-Over“

• Audi profitiert im Premium SUV Segment ggü. US-Mitbewerbern vom exorbitant steigenden Ölpreis.

Documents

Market Entry Strategies for Premium SUVs