PORTER'S FIVE FORCES ANALYSIS of BMW

BMW is among the leading luxury automobile manufacturers in the world. The company is based in Munich, Germany. It has become a leading name worldwide in luxury mobility through its focus on innovation and customer experience. It is known for making stylish and high performance luxury vehicles and motorcycles. Apart from the BMW brand, the BMW group also owns the MINI and RollsRoyce brands as well as BMW Motorrad.

In 2023, the company delivered more than 2.55 million vehicle units, which was slightly higher compared to the prior year. The company has increased its focus on electric vehicles. 14.7% of the total vehicles sold by the company in 2023 were electric vehicles according to its annual report. Its total net revenue for 2023 remained €155.5 billion or 9% higher compared to the prior year. At the end of 2023, the company employed 154,950 people.

In this post, we will conduct a Porter’s five forces analysis of the BMW group. Porter’s five forces analysis is an analytical tool that measures the competitiveness of a firm in terms of five critical forces. These forces can have a significant impact on a firm’s market position and competitiveness.

Bargaining Power of Suppliers: Low

The bargaining power of suppliers in the luxury automobile sector depends on various factors. The size of the supplier firms, their financial strength, concentration of suppliers as well as their ability of forward integration are all important factors affecting the bargaining power of suppliers. BMW has managed its supply chain well and has suppliers located in various corners of the globe. The company does not depend on a single supplier for any parts or raw material.

It has also formed strong supplier relationships to ensure continuous supply of raw materials. The suppliers of BMW are mainly smaller firms that are scattered all over the globe. These firms lack the financial advantage and are much smaller in size compared to the BMW group. They depend heavily on BMW for business. As a result their bargaining power is low. BMW does not face any competitive threat or threat of forward integration from its suppliers either.

Bargaining Power of Customers: Moderate

In the 21st century, the bargaining power of buyers has increased due to several factors. Apart from the higher number of substitutes in the market and higher competition, the higher availability of information is also an important factor affecting the bargaining power of buyers. There are several competitors of BMW in the market such as Audi and Mercedes as well as Lexus and many others. Companies are aggressively competing to expand their customer base. They are investing in customer loyalty programs to gain the favor of customers and to turn them into loyal ones.

All these factors have led to an increase in the bargaining power of customers. However, there are some important factors that have helped the company moderate the bargaining power of customers. Customers consider brand name and brand image critical when buying luxury vehicles. BMW has established itself as a leading brand of luxury vehicles and enjoys a strong brand image. It also enjoys strong brand awareness in most corners of the world. Its higher focus on innovation and customer experience have also resulted in superior customer loyalty. Overall, the bargaining power of BMW customers is moderate.

Threat of Substitutes: Moderate

The threat of substitutes for an established company like BMW mainly arises from the other luxury car brands making and selling similar products. BMW has several rivals in the global market. The leading rivals of BMW include Mercedes, Audi, Lexus and others. These companies also offer similar products which causes the threat of substitutes to increase.

However, BMW is a well established brand of luxury cars with a strong brand image. There are several factors that have helped the company moderate the threat from substitute products including its market leading position, brand image and strong brand awareness. The company also places a strong focus on innovation. It invests a large sum each year in research and development. Its focus on marketing has also helped the company strengthen its competitive position and moderate the threat from substitute products. Overall, the threat of substitutes for BMW is moderate. Its large product range also helps it moderate the threat arising from substitute products.

Threat of New Entrants: Low

The threat of new entrants for well established players in the automobile industry is very low. It is mainly because of the high barriers to entry in the automobile sector. Companies aspiring to enter the automobile sector will need capital as well as access to technology and will have to invest in marketing as well as human resources. While the financial costs for such businesses are going to be very high for entering the automobile sector, companies also face other barriers like legal and regulatory barriers. In the automobile sector, the level of competition is very high and new players also face intense competitive pressure from the incumbent players.

Moreover, the incumbent players are quite aggressive about protecting their market share and customer base. The established players invest a huge sum each year in innovation as well as marketing. They are investing in new technologies as well as growing their brand awareness and customer loyalty. New players lack access to sufficient financial resources to compete with established players. They also face other significant barriers related to supply chain and manufacturing networks. As a result, the threat of new entrants for established players like BMW is very low.

Intensity of Competitive Rivalry: High

The intensity of competitive rivalry in the automobile sector is very high. Several of BMW’s rivals like Lexus, Audi, Mercedes, Honda, Skoda, Volvo cars and others are established names and fierce competitors of BMW. These brands also focus heavily on marketing and innovation to maintain their market share and customer base. They spend heavily on marketing and promotion of their brand and products. Since the rivals of BMW are mostly established names, the level of competition gets to be very high.

BMW has been able to moderate the threat to some extent since it has established itself as a market leader in the luxury car segment. The company is in a strong competitive position and invests a large sum in innovation as well as marketing and promotions to beat the competitive pressure. BMW also enjoys strong brand loyalty and is a highly competitive player. It has continued to expand its product line and is investing in electrical mobility. However, despite these factors, it is a fact that it is faced against fierce rivals and the overall intensity of competitive rivalry in the luxury car sector is very high.

Conclusion

BMW is a highly competitive brand of luxury cars. The company has established itself as a market leader in the luxury car segment. The German luxury car brand invests heavily in innovation which has helped it improve its competitive edge. Most of the forces in the porter’s five forces analysis are favorable for BMW. However, the company is facing strong competition and a moderate threat of substitutes. While the intensity of competitive rivalry continues to increase in the luxury car segment, BMW can expand its product line to beat the competitive pressure. It is investing in electric mobility to overcome the competitive pressure and grow its advantage. Apart from the other things, marketing has played a key role in helping BMW establish itself as a dominant player in the global luxury car market. It has positioned itself as an innovative brand of luxury cars. The company also enjoys strong customer loyalty and its strong focus on customer experience has also helped it cement its position.