A Critical Asessment of the Boston Matrix and its practical application in BMW - Essay Example

? A critical assessment of the Boston Consulting Matrix and its application in BMW Report on critical assessment on the Boston Matrix and its application in BMW Executive summary The report aims at critically evaluating the branding concept and providing strategic guidelines on how organizations must engage in strategic marketing audit activities. For the critical evaluation of the strategic competitive strengths, weaknesses, opportunities and threats that face the company, the most recent and reliable management and marketing literature will be used in order to provide an overview of the operations of BMW. BMW is a global leader in the luxury car market segment and has attained high brand recognition and customer loyalty due to its superior manufacturing technology that aims at satisfying the premium market with stylish, quality and comfortable cars. The report has identified that the concept of marketing has shifted from the time the BCG model was developed to the current marketing concept that is characterized by customer relationships management and societal marketing. The advancement in car manufacturing technologies, the shifts in consumer preferences and decline in natural resources has provided companies with opportunities for product differentiation, formation of strategic relationships and re-organization of the product portfolio. The strategic audit has revealed that BMW is endowed with high technology, high financial resources and customer loyalty and thus it is possible to overcome the market challenges. The automobile industry is faced with scarcity of raw materials, increased global warming awareness, shifts in consumer preferences towards eco-friendly cars, increasing fuel costs, stringent pollution control laws, intense completion and possible defective product recalls due to high customer awareness. Table of contents: Executive summary……………………………………………………………………....2 1.0. Introduction…………………………………………………………………….…4 2.0. 2.0. Methodology………………………………………………………………....4 3.0 Critical findings of the strategic audit- BMW……………………………………5 4.0 Findings of the strategic audit……………………………………………………..5 4.1. increase in global warming……………………………………………….5 4.2. Intense competition in the industry……………………………………..5 4.3. Possible product recalls and lawsuits………………………………….6 4.4. Scarcity of raw materials ………………………………………………….6 5.0. Critical evaluation of the Boston Matrix…………………………………………6 5.1. Cash cows……………………………………………………………………7 5.2. Stars …………………………………………………………………………...7 5.3. Question marks/problem child……………………………………………8 5.4. Dogs……………………………………………………………………………8 5.5. Traditional views of marketing ………………………………………...…9 5.5. Positive perspective of BCG in modern marketing concept……..…9 5.6. Negative perception of BCG in modern marketing concept….……11 6.0.Recommendations for the next three years………………………………….…11 6.1. Formation of strategic partnerships…………………………………….11 6.2. Product differentiation ……………………………………………………12 6.3. Maintain customer relationships………………………………………...12 7.0. Conclusion……………………………………………………………………………12 8.0.Bibliography…………………………………………………………………………..14 9.0.Appendices……………………………………………………………………………16 9.1. Appendix 1- BMW Company Overview…………………………………16 9.2.Appendix 2-PESTLE analysis……………………………………………..16 9.3.Appendix 3. Five forces analysis…………………………………………17 9.4.Appendix 4- BMW product sales figures……………………………….19 9.5. Appendix 5- Boston Matrix………………………………………………..19 9.6 Appendix 6- SWOT analysis ………………………………………………20 9.7. Annotated bibliography……………………………………… 1.0. Introduction Boston Consulting Matrix (BCG) is an effective marketing tool that assesses the company’s market position and strategies that it should use in order to ensure competitive edge in the market. The tool was developed by Bruce Henderson in the early 1970s to analyze the business unit segments and their positioning in the market. The BCG model offered a model that can be used in managing the portfolio of different business units according to the market growth rate and market share in the market (Stern & Deimler, 2006). The BCG model is modeled on a product life cycle theory that determines what priority should be allocated on each brand. The model has the market growth and market share dimensions. The market growth rate is an indicator of market attractiveness and future cash flows. In this case, the relative market share indicates the economies of scale in cash generation since companies with higher market share will have higher economies in cash generation (Doole & Lowe, 2005). The second part of the report will critically evaluate the application of the Boston consulting Matrix (BCG) product portfolio analysis model to the BMW products and assess whether the model is still relevant to the modern marketing concepts. The report will rely on the company sales figures some of the leading products offered by the company in order to group them in to either cash cows, stars, dogs or problem child segments of the Boston consulting Matrix (BCG). The report will offer several recommendations that BMW management will have to implement in order to ensure high profitability and market share in the next three years. BMW (Bavarian Motor Works/ Bayerische Motoren Werke AG) (Appendix-1) is a German automobile company that owns brands such as BMW, MINI and Rolls-Royce. The company brand is associated with innovative engineering and high performance (BMW Group, 2013). 2.0. Methodology The report has utilized information from the current sources such as textbooks that are related to strategic marketing audit, business journals, Google Scholar, business newspapers, BMW corporate website and relevant books. The report is mainly based on the academic literature from distinguished management and marketing authors such as Kotler, Proctor, Rogers, Drummond and Ashford, and Murphy. Other notables scholars who work has contributed to the preparation of the strategic audit report include Balsiger, Whitehead, Suder, stern, and Deimler. The BPP Online library resource provided credible sources for the report. Accordingly, management journals such as Harvard Business Review and change management websites provided critical information on different aspects of business models relevant to strategic marketing audit in organizations. 3.0 Critical strategic audit of BMW From the strategic audit of BMW, the company has various strengths that it can utilize in exploiting opportunities in the automobile manufacturing industry. The findings have been attached in the appendices 2,3,5and 6. 4.0 Findings of the strategic audit and challenges 4.1Challenges presented by increasing global warming and need for eco-friendly cars There is persistent calls from several intergovernmental organizations and special interest groups for countries to ensure that automobile manufacturing companies utilize less carbon-emitting technologies in their manufacture. This challenge is evidenced by the numerous laws, regulations and taxes that have been imposed in order to control carbon-emissions, and save the population from air pollution (Westwood, 2002)). 4.2. Intense competition in the global automobile industry BMW operates in a global industry that is characterized by high rivalry among all the firms engaged in the manufactures of cars. The leading players in the industry have high economies of scale, diversified global operations, high distribution network and abundant financial assets. The firms are of relatively similar size and can engage in research and development activities that lead to differentiated car models. BMW is currently experiencing high competitions from the companies that have started manufacturing low-cost, high quality and stylish luxury cars just like the BMW 5 series and BMW 6 series cars. Companies like Toyota, Ford, Mercedes Benz, General Motors and Hyundai have dedicated product line that serve the high niche and luxury car segment. 4.3. Possible product recalls and lawsuits BMW is experiencing a high threat of product recalls and should ensure that manufacturing procedures and policies remain consistent in order to ensure that defective products do not gain their way to the market. the high customer awareness of the quality expectations across the car industry has led to numerous lawsuits that have affected other companies such as Toyota and General Motors. 4.4. Scarcity of raw materials and increase in fuel costs The increase in the global population has put a lot of pressure on the available raw materials and natural resources thus forcing the automobile industry to manufacture hybrid cars. BMW will have to shift from the fossil fuel driven car technology to eco-friendly cars that use renewable energy sources and are friendly to the surrounding environment. 5.0 Critical evaluation of the Boston Matrix Just like BMW, many organizations face difficulties in selecting a strategy that will maximize market share and ensure sustainable growth. However, the Boston matrix enables the managers to organize their portfolio in to two-dimensional decision-making matrix that enable the management to assess the potential growth rate of each product and its relative market share. The BCG matrix is constructed using the market-growth rate and the relative market share and each of the indicators is then divided in to either low or high in order to form four segments (Baker, 2001). The rows indicate the market-growth rate while the columns indicate the relative market share. The BCG matrix remains a relevant model in allocating resources among different business units and products in the organization in order to maximize the expected return on investment. With this model, BMW is able to assess the profitability and potential growth of different products and implement strategies that aim at maximizing the overall profitability through allocating more resources to the stars and retrenching products that have low market-growth rate and low market share (Baker, 2001)). 5.1. Cash cows These are products that have a large market share, but have a low market-growth rate. The cash cows require little additional investments and generate a lot of cash that can be invested in growing other products in the company. The cash cows present the best products for BMW since it is where the company obtains revenue streams and products have attained maturity in the market. The cash cows are associated with high customer loyalty and high brand awareness and thus the company should focus on maintaining such relationships with customers. The cash cows are profitable products that have contributed to the organizational quality perception and customer loyalty. Baker (2001) is of the idea that the pricing and promotional strategies for the cash cows should be geared at maintaining the existing market share since attempting to increase the market share for the products in a highly competitive industry may be unsuccessful for BMW. After the decline in the market share for the cash cows, BMW should counter the threat through introduction of low-cost products that will appeal to the mass market or use an innovative engineering technology that will differentiate the products from those offered by the competitors in order to maintain the market share (Ranchhod & Marandi, 2005). 5.2. Stars These are the products that have a large market share and high market-growth rate. The stars are the products that are currently approaching the maturity phase of the product life cycle and sustaining the demand requires BMW to acquire new customers for the products. BMW should stop relying on the traditional German market for the star products and should expand to emerging markets such as China and increase the exports to other European countries. The star products offer high prospects for growth and expansion of market share and BMW should select strategies that will ensure high product differentiation, high distribution channels for the stars and cost efficiencies in the manufacture (Baker, 2001). 5.3. Question marks (problem child) The question marks are high growth, but low market share products that are mainly new in the market. The products have high prospects for growth and BMW should invest huge resources towards the development of the products. Wright (1999) points out that there is a perception that high growth products ultimately contribute to higher returns for the organization, but this requires the management to implement strategies that aim at adapting the product to the changes in consumer preferences and external environment variables. In this case, the products will require huge investments in order to raise the product awareness and stimulate demand for the product. The selection of the best strategy for the question mark products will depend on the objective of BMW. For instance, the company must engage in high sponsorship deals and other promotional strategies in order to grow the market share for the question marks. The engineering technologies involved in the manufacture of question mark products should ensure that all products are fuel efficient and of high quality in order to attract the niche market. The main objective is to turn the question marks in to star products. BMW should invest ion growing those products and form strategic partnerships through acquiring competitor products in order to minimize the degree of rivalry in the market. 5.4. Dogs The Dogs represent the low growth and low market share products that have little value for the business organization. The products are usually in the decline stage of the product life cycle and should be divested from the organization. The dogs should be maintained in the product list as long as they contribute some profits to the organization. BMW should focus its attention and investments to other products that provide higher returns and maximize the returns of the dogs through minimizing the marketing costs associated with the dogs. BMW can also decide to dispose the products to competitors or ultimately drop the products from the portfolio if they start generating negative returns for the company (Daft, 2008). 5.5. Traditional views of marketing at the time when BCG was developed The traditional marketing concept was based on satisfying the demand in the market through developing mechanisms of communicating with customers. The traditional concept at the time of development of the BCG did not cater for the target marketing or market segmentation in order to satisfy the unique needs of the customers (Donaldson & O’Toole, 2007). 5.6. Positive perspective of BCG in portfolio strategic evaluation in modern era Murphy (1992) asserts that the marketing concept has shifted to relationship marketing strategies that aim at maintaining customer loyalty. In this case, modern era marketing requires market segmentation depending on the unique customer needs and characteristics of the customers. Organizations like BMW have segmented their markets depending on the customer preferences, economic status of the potential customers and geographic location of the customers (Proctor, 2013). Modern marketing era considers the long-time value of customers unlike the traditional marketing era that focused on the costs of acquiring new customers (Drummond, Ensor & Ashford, 2013). In this case, automobile companies like BMW need to implement strategies that will build customer satisfaction and maintain customer relationships through value-added products (Whitehead, 2012). In the current modern era, the importance of maintaining a balance product portfolio for BMW cannot be underestimated and thus BCG matrix offers excellent model for determining how the company will allocate its resources towards the fulfillment of this objective (Donaldson & O’Toole, 2007). The model allows the management to gain clues on the frequency at which new products should be developed in order to maintain the desired market share. Accordingly, the BCG model is ideal in determining the rate at which competitor’s are able to react to the organizational strategic choices and the current trends in emerging engineering technologies in the automobile industry. The model is able to determine the changes in consumer tastes and preferences through considering the changes in the relative market share of the products. In this case, the management of BMW will be capable of obtaining critical market intelligence on the strengths of competitors and market opportunities that exist in the automobile industry. It is worth noting that BCG analysis provides managers with simple, but effective strategic choices that the managers of BMW can implement in order to attain a balanced product portfolio and competitive edge in the market. In this case, BMW management can implement a hold strategy for the products with high market share and low growth rate through building customer loyalty and implement a build or invest strategy for the products that have relatively low market share, but with high growth rate potential (Smith, 2005). The management can implement a harvest strategy for the weak products and divest strategy for the products should demonstrate consistent negative returns (Proctor, 2013). According to Balsiger (2009), the model is relevant in the modern era since the management of BMW can use understand the factors that are affecting the business growth rate and market shares such as the customer loyalty, the product quality, the distribution channels and technological innovations. In this case, BMW will be able to select product development approaches and strategies that are aligned with the external environment factors that influence the success of companies in the automobile industry. For instance, the management will be capable of understanding whether the ecological concerns and shifts in demographics have affected their relative market share in the industry. In this case, BMW has moved to societal marketing concept that requires the business organization to promote the welfare of the society at large through engaging in activities such as environmental conservation, charity work and offering fair wages to the employees. BCG simplies the management work and will allow BMW to allocate the limited resources effectively towards the business units that offer higher returns for the company. The tool will enable the marketing department to engage in higher promotional campaigns for the problem child products, stars and cash cows and reduce the advertising spending on the Dogs. Accordingly, BMW will benefit from better decision-making through use of the model since it is capable of assessing the company’s growth rate relative to competitors such as Hyundai, Toyota, Ford and General Motors in the different product lines. High growth markets requires continued liquid finances that can be grow other markets and thus BMW will be capable of balancing between the profitability needs of the company and the high growth potential. 5.7 Negative perspective of BCG in portfolio strategic evaluation in modern era The BCG matrix application in strategic product portfolio evaluation has attracted several criticisms. The BCG matrix assumes that the boundaries between the numerous products are rigid and thus no chances of evolution over the long period of time. The BCG matrix only guides the management in making investments and managing resources in the organization (Suder, 2009). In this case, the BCG matrix is not a strategy, but a resource allocation tool that ranks the products depending on their relative market size and growth rate in the market. The BCG matrix may not be relevant in the modern era since it focuses only on two dimensions of the product and ignores the relationship marketing concept that requires managers to cater for the changing customer needs and competitive strengths of the organization in their strategic choices (Rogers, 2001). Accordingly, the BCG matrix advocates for high growth, but ignores organizational transformational processes like re-branding or differentiation that are can be used to revive the growth rate of the products with declining market share. Ideally, the model links the profitability of the organization with the relative market share, but ignores the costs associated with increasing the market size and serving the needs of customers in a mass market (Suder, 2009). 6.0 Recommendations for the next three years There are various strategic measures the management of BMW must undertake in order to overcome the challenges, and exploit opportunities in the market. 6.1 Formations of strategic partnerships According to various management scholars, it is evident that BMW must form strategic partnerships through acquiring competitor car models and forming strategic alliances that will increase the company’s distribution network. The company has relied on organic growth model that is irrelevant in a highly competitive industry and thus it is the right time for the company to seek partners across all the supply chain processes. 6.2. Product differentiation Another strategic measure that BMW must undertake is to differentiate the existing cash cow products and invest additional funds towards the promotion of the problem child products. The company is capable of utilizing its superior technology in differentiating the BMW1 series model through providing additional safety features, additional performance features like changes to the hydraulic braking systems and redesigning the interiors (Bradley, 2005). 6.3. Maintain customer relationships BMW has attained high customer loyalty in some products and thus it should focus on sustaining such relationships in order to ensure long-time profitability from the products. The company will do this through engaging in sports sponsorships, maintaining the unique design and quality of the cars and outlining the product attributes in all its promotions (Bradley, 2005). In addition, the company should focus efforts in establishing after-sale service centers in key cities and countries in order to foster the relations with customers. 7.0. Conclusion From the above analysis, it is evident that BMW growth is mainly organic and thus the company should focus efforts towards implementing strategic partnerships that will enable the company to diversify its brand portfolio. BMW has gained global brand recognition and high market share for some of its products. However, the automobile industry is characterized by challenges such as the need to conserve the natural resources, shifts in consumer attitudes in favor of eco-friendly cars, intense competition, high lawsuits for defective cars that are recalled and need to adhere with the laws governing automobile manufacture. According to the BCG matrix, BMW portfolio consists of both stars, cash cows, problem child and dogs and thus critical strategies must be undertaken in order to ensure a balanced portfolio that will contribute to high profitability and high market share. The management must differentiate the mature products and invest additional resources in promoting the products with high market-growth potential. In addition, the company must expand to emerging markets through strategic partnerships and also maintain the customer loyalty through opening up service centers in key cities. 8.0. Bibliography Baker, M.J. (2001). Marketing: Critical perspectives on business and management. London: Taylor & Francis. Balsiger, R. (2009). Branding you marketing you. London: Xlibris Corporation. Bloomsberg Businessweek. :Bayerische Motoren Werke AG (BMW). “Company description”, Accessed on 31st December, 2013 from http://investing.businessweek.com/research/stocks/snapshot/snapshot_article.asp?tick er=BMW:GR. BMW Group (2013). Insights: The Corporation. Available at: http://www.bmw.com/com/en/insights/corporation/overview.html BMW Group. “BMW Group sales figures December, 2012”, Accessed on 31 December, 2013 from https://www.press.bmwgroup.com/asia/pressDetail.html;jsessionid=b6lpSFnDQhTnwxk9xgGJvZ B7GqxvtQXR1v8pBKz0JQrT22JhXTrt!1914388667?title=bmw-group-sales-figures-december- 2012&outputChannelId=16&id=T0136027EN&left_menu_item=node__804. Bradley, F. (2005). International marketing strategy. London: Prentice-Hall. Daft, R.L. (2008). New era of management. London: Thomson. Donaldson, B & O’Toole, T. (2007). Strategic market relationships: from strategy to implementation. New Jersey: John Wiley. Doole, I & Lowe, R. (2005). Strategic marketing decisions in global markets. London: Thompson. Drummond, G., Ensor, J & Ashford, R. (2013). Strategic marketing. New York: Routledge. Murphy, J.M. (1992). Branding: a key marketing tool. London: Palgrave Macmillan Limited. Proctor, T. (2013). Strategic marketing: an introduction. New York: Routledge. Ranchhod, A & Marandi, E. (2005). Strategic marketing in practice. New York: Routledge. Rogers, S.C. (2001). Marketing strategic, tactics and techniques: a handbook for practitioners. Westport, CT: Quorum books. Smith, B. (2005). Making marketing happen. London: Routledge. Stern, C.W & Deimler, M.S. (2006). The Boston consulting group on strategy. New Jersey: John Wiley. Suder, G.S. (2009). International business. Los Angeles: Sage. Westwood, J. (2002). The marketing plan: a step-by-step guide. London: Kogan Page. Whitehead, J. (2012). What you need to know about strategy. New Jersey: John Wiley. 9.0. Appendices 9.1. Appendix 1- BMW BMW is one of the oldest automobile company that focuses on the premium car market segment. The company has attained customer loyalty due to its history of engineering innovative and stylish brands that aim at satisfying the needs of the customers. The main car brands are BMW, Mini, and Rolls-Royce. The car segment includes sedans, sports wagons, convertibles. The SUVs include X3 and X5 and roadster known as Z4. The motorcycles include R 1200 GS, R 1150 R and K 1200 GT models and associated motorcycle apparel such as gloves, boots and leather suits. BMW has implemented BMW strategy ONE that aims at attaining high profitability and attain long-term values during the modern era that is characterized by shifts in consumer preferences and innovative car manufacturing technologies. The main pillars of BMW are to enhance the product growth, improve the access to superior technologies, shape the future of automobile, enhance the profitability levels and increase the number of customers. The company is the global leader in the provision of globally-recognized luxury cars. 9.2. Appendix 2- PESTLE analysis Political High threat of global terrorism Trading barriers and government regulations Government assistance to certain domestic automobile companies Economic Negative impact of Euro zone crisis High global growth in gross domestic product High consumer incomes High impulse purchases for cars in developed countries Emerging economies such as China and Argentina Social Increase in global population Favorable consumer preferences towards luxury and fuel efficient cars High educational standards Diversity awareness Technological New opportunities to manage customer relationships Favorable attitudes towards innovative car engineering technologies Emergence of fuel saving technologies that lead to low carbon emissions Legal CSR concerns are on the increase Product safety litigations that may increase costs Minimum wage requirements Intellectual property laws Ecological environment Increased awareness on the need to combat global warming Opportunities for product recycling Carbon footprint requirements Renewable energy sources and green cars 9.3. Appendix 3- Porter’s five forces Details Implications Priorities High Low Political The EU zone and developed markets have implemented policies and laws on carbon emissions The EU provides incentives for green manufacturing and fuel conserving cars To divest from that emit high volumes of carbon dioxide v Economic The luxury car industry market is expected to grow at a higher rate The consumer incomes are currently increasing The company should increase investment in this product line v Social High global population growth Consumers desire eco-friendly cars Consumers require stylish, quality, safe and high performance automobiles Increase investments in innovative engineering technologies that lead to less fuel consumption Maintain the stylish and quality models that offer high driving performance v Technological Leading automobile manufacturers have invested in research and development activities that will enhance the car manufacturing technologies Innovation of manufacturing technologies to minimize emissions Reduce the number of cars that use non-renewable energy sources like diesel and petrol Patent the manufacturing technology and acquire copyright for the innovative technologies v Legal EU directive 195/2013 on innovative technologies Car stability and safety concerns Adhere with the legal framework on carbon emissions, respect employee rights and offer high quality and safe cars v Ecological Increase in the number of green cars that use gasoline and electricity Increased global efforts in combating global change Improve the ecological performance of the cars Invest in corporate social responsibility activities v 9.4. Appendix 4- sales figures 9.5. Appendix 5- Boston Matrix Stars (High market-growth rate and high market share) BMW 3 Series Saloon BMW 5 Series salon BMW 7 Series Saloon BMW X1 BMW X6 BMW z4 Roadster Question marks (High market growth rate, low relative market share) BMW 6 Series Gran Coupe BMW 5 Series GT Cash cows (low market-growth rate and high relative market share) BMW 1 series 5 Door Hatch BMW X5 BMW X3 BMW 5 Series Tourer BMW 1 Series Coupe BMW 3 Series Tourer BMW 5series Tourer BMW 6 Series Convertible Dogs (low market-growth rate and low market share) BMW 6 series Coupe BMW 1 Series convertible BMW 1 series 3 Door Hatch BMW 3 Series Coupe 9.6. Appendix 6- SWOT analysis S-Strengths Global brand recognition High reputation for luxury and high performance cars BMW named the brand of the year by Forbes in 2012 Certified by several organizations for its quality and environmentally-friendly car technology High customer loyalty Sports sponsorship deals Largest car manufacture company in German W-Weaknesses Overreliance on its traditional luxury car models Overreliance on German and North American markets High cost structure of the company Expensive car manufacture technology Reduction in the sales of non-renewable vehicles Overreliance on organic growth and less strategic partnerships across the globe O-Opportunities Rapid growth in global middle class that desire luxurious and eco-friendly cars Potential of high market growth in emerging markets such as China and South American countries Consumer preference shifts towards eco-friendly cars Research and development activities in producing hybrid car models Strengthening the distribution networks and formation of strategic partnerships Opportunities for differentiating the old car models T-Threats Global rise in the fuel prices Intense rivalry in the global automobile industry Increasing global concerns on climate change due to increase in carbon emissions The increase in the costs of car manufacture raw materials Rapid changes in customer preferences and desires Possible lawsuits due to defective cars Read More