MNGT 220MNGT 220Week 8 Tutorial QuestionsWeek 8 Tutorial Questions

OverviewOverview

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.

Question 1Question 1

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

Question 1Question 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.

Question 2Question 2 2. Using Porter’s five-forces 2. Using Porter’s five-forces

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

Question 2Question 2

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

Question 2Question 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.

Question 2Question 2

Substitute Products. Also a significant threat. Other vehicles (e.g. motorbikes,

boats). Leisure products (e.g. cruises). Properties (e.g. holiday homes).

Question 2Question 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.

Question 2Question 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.

Question 2Question 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.

Question 2Question 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.

Question 3Question 3

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

Question 3Question 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.

Question 3Question 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.

Question 4Question 4 4. Discuss BMW’s sources of 4. Discuss BMW’s sources of

competitive advantage. What competitive advantage. What route(s) does it appear to pursue route(s) does it appear to pursue on the strategy clock? (10%)on the strategy clock? (10%)

Question 4Question 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.

Question 4Question 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.

Question 5Question 5

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

Question 5Question 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).

Question 5Question 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.