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International Distribution and Logistics, UV IMBA
International Distribution and Logistics, UV IMBA
April 2011
Prepared by
Gubanov Andrey
Suslova Daria
Malikova Julia
Rodriguez Adrian
Table of Content
Introduction 3
1. Industry overview 4
1.1 Automobile Industry Trends 4
1.2 Customer Habits 5
1.3 Competition 5
2. The BMW Company Portfolio 7
2.1 The Company Srtucture 7
2.2 BMW Overseas subsidiaries 7
2.3 BMW Positioning 8
2.4 Environmental record 9
2.5 BMW Strategies 9
2.6 Worldwide Sales 11
2.7 BMW’s line Up 11
3. Target Audience 13
3.1 Analysis of the Target Customer Segments 13
3.2 Service Outputs Demanded 13
4. Distribution 15
4.1 Distribution Channel Structure 15
4.2 Market Coverage 15
5. Channel Evaluation 16
5.1 Channel efficiency 16
5.2 Gap Analysis 17
5.2.1 Demand Gaps 17
5.2.2 Supply Gaps 17
5.2.3 Closing Gaps 17
6. Power imlementation 18
7. Conflict in distribution channel 19
8. Overview of logistics and supply chain management. 20
8.1 Logistics as a part of the Overall Strategy 20
8.2 Supply chain structure 20
8.3 Passing of Property 22
9. Competitive advantage 23
Conclusion 24
Appendixes 25
References 27
2
Introduction
We have chosen the BMW company, because it is one of the World’s super
brands in automobile production and as the years proved they are very efficient not
only in it, but also in marketing, distribution and logistics. The company has a lot
of competitive advantages, such as the high level of customization, broad line up,
high level of after-sale service and a wide variety of highly trained official dealers.
All these factors provide an outstanding image of the BMW Company and
contribute to the strong brand loyalty among the customers.
3
1. Industry Overview
1
Article. Auto Industry Trends Economy. Watch - online economics community that publishes
economy, investment & finance reports.
http://www.economywatch.com/world-industries/automobile/auto-industry-trends.html
4
even deliver competing bids for cars, offer insurance and financing in such a way
that lowers costs and improves satisfaction among consumers.2
The franchisee type of contracts arise in many spheres in automobile
industry: production of motor vehicle parts, supply stores, equipment rental and
leasing, tire dealers and repair and also maintenance franchises. The automotive
franchise industry (excluding dealers) generates around $25 billion in sales
annually and employs over 175,000 people in 35,600 franchise establishments
(according to the International Franchise Association sponsored study "Economic
Impact of Franchised Businesses: Vol. 2" by PricewaterhouseCoopers, March
2008)3
In coming years, auto experts believe that among the following trends in
the automotive industry the most significant is fuel efficiency from both ecological
and economical sides.
1.3 Competition
Here are the main competitors of BMW according to their positioning on the
market4 :
1) Mercedes-Benz competes with BMW in almost every single segment and
both try to catch up with each other, starting from designing and production and
finishing with marketing and distribution. Nowadays, this tendency is changing,
but not very fast. Russians consider Mercedes as a classy and stylish brand for
1) South Africa
BMWs have been assembled in South Africa since 1968, when Praetor
Monteerders' plant was opened in Rosslyn, near Pretoroa. BMW initially bought
shares in the company, before fully acquiring it in 1975; the company became
BMW South Africa, the first wholly owned subsidiary of BMW to be established
outside Germany.6
Since 1997, BMW South Africa has produced vehicles in left hand drive for
export to Taiwan, the United States and Iran, as well as South America.
BMW's with a VIN number7 starting with "NC0" are manufactured in South
Africa.
4) China
In 2003 the contract was signed on the production of sedans in China. May
2004 a factory in the North-eastern city of Shenyang was opened, where Brilliance
Automotive produces BMW-branded automobiles in a joint venture with the
German company.10
5) Canada
In October 2008, BMW Group Canada was named one of Greater Toronto’s
Top Employers by Mediacorp Canada Inc., which was announced by the Toronto
Star newspaper.11
6) Egypt
Bavarian Auto Group (BAG) is a multinational group of companies
established in March 2003 when it was appointed as the sole importer of BMW
and Mini in Egypt, with exclusive rights for import, assembly, distribution, sales
and after-sales support of BMW products in Egypt.12
BMW has taken measures to reduce the impact the company has on the
environment. It is trying to design less-polluting cars by making existing models
more efficient, as well as developing environmentally friendly fuels for future
vehicles. Possibilities include: electric power, hybrid power (combustion, engines
and electric motors) hydrogen engines.15
13
according to numerous articles from the magazine AutoReview (http://www.autoreview.ru/)
14
Article. BMW's Hydrogen 7: Not as Green as it Seems. Spiegel, online newspaper
http://www.spiegel.de/international/spiegel/0,1518,448648,00.html
15
Bird, J and Walker, M: “BMW A Sustainable Future? ”, page 11. Wild World 2005
9
introduced improvements on the products and offered innovative features and
designs in order to enhance the value of its products.
1) Well-Executed Strategies
BMW is a company with well-executed strategies. The company recognizes
its distinct capabilities and chooses the market and subsequently markets, which
realized its full potential. Its dealings with its suppliers and distributors, its pricing
approach, its branding and advertising strategies, are all built around that
recognition and these choices. The company maintains a tight control over its
distribution network. This control supports the brand image and aids market
segmentation. BMW cars are positioned differently and priced very differently in
the various national markets. The same tight control is reflected in BMW’s
relationships with suppliers, who mostly have continuing long associations with
the company. BMW’s activities are focused almost exclusively on two product
ranges – high-performance saloon cars and motorbikes – which reflect its
competitive strengths.
2) Image of Prestige
Part of the company’s overall strategy is to market its products as
‘prestigious’. The company was able to develop an image of quality, reliability and
consumer aspiration. Advertising images can create strong differentiation in the
customer’s eyes. BMW has spent millions of dollars on advertising to create an
image of performance and prestige for the automobile buyer.
3) Branding
Branding is also an important strategy of BMW. BMW was able to develop
premium brands. In the development of premium brands, BMW subjects its
products in a process of continuous evolution and development. The company
established a Brand Academy.
5) Differentiation
Differentiation is the act of designing a set of meaningful differences to
distinguish the company’s offering from competitor’s offerings. The five
dimensions of Differentiation are:
1. Product – physical products vary in their potential for differentiation.
2. Services – when the physical product cannot be differentiated easily, the key to
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competitive success nay lie in adding valued services and improving quality.
3. Personnel – companies can gain a strong competitive advantage through having
better-trained people.
4. Channel – companies can achieve competitive advantage through the way they
design their distribution channels’ coverage, expertise, and performance.
5. Image – buyers respond differently to company and brand images. Identity
comprises the ways that a company aims to identify or position itself or its
products, whereas image is the way the public perceives the company or its
products.
The automobile manufacturer uses differentiation strategies to differentiate
its products from its competitors’. By introducing innovations in engineering and
design, the products of BMW gained an image of prestige. This image is
strengthened by the company’ advertisement campaigns.
11
M-series models (fifth column in the table): based on the 3 Series, the
M3 defined an entirely new market for BMW: a race-ready production vehicle.
Since its debut, the M3 is heralded in enthusiast circles, in large part due to its
unique geometry and award winning engines. The newest V8-powered platform
became available the autumn of 2007 in Europe, and second quarter of 2008 for the
U.S. in coupe (E92), and later the cabriolet (E93), and sedan (E90) variants. Based
on the 5 Series, the M5 is the M division's V10-powered version of the E60 5
Series. The M6 is the M division's version of the 6 Series, and shares its drive-train
with the M5. The Z4 M, or M Couple/M Roadster, is the M division's version of
the Z4. The X5M is the M division's version of the X5, and the X6M is the M
division's version of the X6. Both the X5M and X6M share the same V8 twin
scroll twin turbo.
Hybrid series models (sixth column in the table): the same cars as 7
and X6-series models, but with a hybrid engine. These cars have the same
packages.
All series (except M) can have 4 types of package: Basic, Comfort,
Exclusive, and Individual.
12
3. Market Segments
Bulk Breaking. Most of the potential customers of BMW can buy any
models in any amounts desired. Businesses usually buy from three to five cars; the
Government Structures tend to buy quite a big amount of cars, about 5-7 units.
As for the Individuals, the bulk breaking is higher; as for them it is more important
to buy one car instead of three.
Spatial Convinience. In big cities the distance between dealers is not more
than 30 kilometers; so that every dealer covers radius of 15 kilometers. What is
more BMW can transport the cars wherever the client wants.
16
according to numerous articles from the magazine AutoReview (http://www.autoreview.ru/)
13
Businesses and Government Structures are not so interested in spatial convenience
as Individuals are.
Waiting time. Intensity of demand differs for:
Original equipment (→ low)
Postsaleservice and parts (→ high)
There is often a correlation between bulk-breaking, spatial convenience and
waiting-time.
Businesses, Government Administration and Police the supply is equal to
demand, as these segments need cars asap, and the delovery time is frome 1 to 3
months which is much less then competitors' delivery time (of 6 months in
VolksWagen, Mercedes, Jaguar and PSA group).
As for the Individuals and Army, the supply is much higher then the demand as
these segments are used to wait for a longer time, and a couple of moths is seen as
a very short period.
Customer Service.
Individuals and Police use service centers, as they don’t want to deal with repairing
themselves. Besides, Police orders 5 series models, but they also have a privilege
to choose specific power engine.
Other segments, Businesses, Government Administration and Army, have special
services of their own within their structure, so they don’t need any BMW service
facilities.
14
4. Distribution
After the cars are manufactured, the Logwin company transported them to
BMW Ruland Trading and dealers (more detailed information in “Supply chain
structure”). Besides, BMW Ruβland Trading also provide dealers with accessories
and parts. End-users can purchase the cars from both dealers and BMW Ruβland
Trading.
Major Channel for segments. In order to satisfy various customers needs,
BMW uses the following channels.
Individuals make orders through the web site and in dealer offices.
Businesses as well make their orders in dealers but they also can order the cars
directly from BMW Ruβland Trading.
Government Structures, obviously, order cars from BMW Ruβland Trading.
15
5. Channel Evaluation
There are different types of performance measurement and we have chosen
Fairness, Economic Measurement, Channel Efficiency and Gap Analysis:
- Fairness: the business is very socially responsible and all business processes are
transparent, thus the company realizes its responsibility in the whole distribution
chain, from subsidiaries to dealers and service centers.
- From the Economic point of view, the whole business is very feasible and in
2010 won a lot of awards, including those about business feasibility.
5.1 Channel efficiency
In order to analyze the channel efficiency and performance different tools can
be used. We have chosen the Coughan’s Efficiency Template, which helps to
answer the following questions:
a) Who is doing what flows in the channel?
b) How much of the cost/ value added each member is responsible for?
c) Whether each channel member is being fairly compensated?
16
End-user's performane is in Physical possession, Ownership, Promotion.
Financing, and Payment, as it is the customer who makes the whole system
working.
BMW has the power to influence its dealers’ decisions. The headquarters put
a lot of attention to the relations with dealers and comes up with different programs
and bonuses or penalties. Because of its commanding brand image and well
recognized automobiles after so many years in the industry BMW has the power to
implement different strategies over the dealers to assert their power.
Strategies used by BMW are as follows:
Reward power (Promise Strategy)
It’s an often used friendly strategy to reward the dealership if they do follow
BMW’s rules. This also serves as great motivation for the dealers. BMW monitors
the operations of its dealers and to those that have best performance the company
provides certain rewards, such as discounts, free staff training and even free
accessories.
Coercive power (Threat Strategy)
This is more of an old fashion strategy still used today to get things done.If
the dealers don’t adhere the terms of contract, the company can punish them in
several ways: call off the delivery, write articles on the official club website (which
is under the BMW headquarters) unflattering references, which would damage the
dealer’s image completely.
Legitimate power (Legalistic Strategy)
The legalistic strategy where the dealership agreed beforehand to follow
BMW’s guidelines accordingly, BMW has the right to make their own rules and
the dealership have to follow them because they agreed beforehand making them
dependable of the manufacturer.
Expert, reward power (Recommendation Strategy)
As the BMW has enormously big experience in automobile industry in
general and in co-operation with dealers in particular, obviously the company has
know-how in this area, which it shares with the dealers. There is a so-called
concept of three “S”: Service-dealership center. The BMW provides standard
Schematic Designs for dealer centers (of different sizes) according to the
architectural and engineering standards of BMW, as well as furniture and elements
of corporate identity. Servicing depot also must be designed and equiped according
to the BMW standarts. Spare parts stock, in which there must be a certain amount
of different parts and accessories.
Dealers treat all these as both an obligation and at the same time as the right,
as it helps a lot for the new dealer to start its operations.
Most of the strategies that BMW implements in its relationships with dealers
refer to High Pressure Strategies, which generally results in resentment and
potential conflicts. However, in our case it is not so due to the specifics of Russian
culture and mentality.
As a luxury vehicle manufacturer BMW has the power necessary to apply
any of these strategies depending on the scenario must be aware that there is many
ways to assert their power dominance however they understand how to use it and
when is the most adequate time to do so.
18
7. Conflict in distribution channel
The only conflict in the BMW’s logistic channel is the existence of gray
dealers all over the Russia. The amount of gray dealers is huge despite the constant
growth of the number of authorized dealers. This happens due to the fact that in
Russia it is absolutely legal to run such gray business. According to the experts’
opinion, gray dealers in Russia account for 20% of the whole market (not only
BMW). Gray dealers appear not only on Russian market, but also in many
countries all over the world.
In order to survive on the market, gray dealers are very flexible and prompt;
they eager to satisfy the needs of customers as soon as they appear. And often the
new models appear on the Russian market before the official release date.
From the side of the manufacturer, this conflict is perceived, as BMW, off
course, is against unauthorized centers, but the perception of this situation is
cognitive, emotionless, dui to the fact that this problem is impossible to solve.
From the side of dealers, however, the conflict is affective, as they lose their
potential customers and as a result have less profit. But still, the conflict is not
expressed, as it is absolutely legal.
Gray dealers offer wide variety of services and can lower their prices, thus
having lots of customers. They even have their segmentation:
Those who don’t want to wait for the car being delivered in 3 months, and
able to pay more in order not to wait.
Those who would like to spare money as the cars shipped from the US are
cheaper up to 20%. The paradox is that shipping the car from America is much
cheaper than from Europe. This happens because the tax on cars in the US is very
low, and the cars mostly are bought from the US leasing companies and get
customs clearance on Russian buyers, which also results in lowering of prices.
There are certain negative sides for the customers: dealers offer the cars with
poorer accessories and without any guarantee (even those which is provided by
manufacturer). Still, official dealers take such cars for repair and maintenance,
which is a chargeable service.
Nevertheless, from the marketing point of view, BMW takes advantage from
gray dealers, as they satisfy the need of those customers who cannot offer to buy
cars from official dealers, which maintains the interest in the brand and the offtake
level. 17 18
17
Article. Gray Dealers. Auto Expert, web portal
http://www.autoexpert77.ru/seryie-dileryi.html
18
Articles. Za Rulem – russian magazine dedicatet to the automobile industry
19
8. Overview of logistics and supply chain management.
21
There is one more direct channel which is fictional: customers can make the
offer (purchase a car) via Internet on the BMW Ruβland Trading web site. It is
fictional because all the documents must be signed physically.
(«Appendix 7. Order Flow»)
22
9. Competitive advantage
The most notional competitive advantage that BMW gets through its
distribution and logistic strategies is that the delivery time in not more than 3
months, whereas the main competitors such as Mercedes, Volkswagen and Jaguar
deliver cars in 6-10 months. This advantage is achieved through several ways:
- Localized Production: BMW sets up the plants in strategic geographical points in
order to minimize the delivery time.
- The high speed of order acceptance due to the well-formed and frictionless
structure of client service and drawing up of an order.
- Outsourcing the transportation to Logwin, which is an international company
from Luxembourg that provides comprehensive logistics and transportation
solutions. Logwin has expertise in how to deliver the products within the minimum
time needed.
Besides, the service of delivering the car the customer’s place, which is
provided for more than 5 years (whereas Mercedes for example has offered such
service for only half a year)
23
Conclusion
To achieve its aims, the company knows how to deploy its strengths with an
efficiency that is unmatched in the automotive industry. From research and
development to sales and marketing, BMW Group is committed to the very highest
in quality for all its products and services.
24
References
25
12.Article. Overview of Plunkett's Automobile Industry Coverage.
Plunkett Research, Ltd. – the organization that deals with industry statistics,
trends and in-depth analysis of top companies.
http://www.plunkettresearch.com/automobiles%20trucks%20market%20res
earch/industry%20and%20business%20data
26
Appendixes
27
28
29
30
31