BMW Porter Five Forces Analysis
BMW Porter’s Five Forces analysis covers the company’s competitive landscape as well as the factors affecting its sector. The analysis focuses on measuring the company’s position based on forces like threat of new entrants, threat of substitutes, bargaining power of buyers, bargaining power of suppliers and competitive rivalry. Let us start the BMW Porter Five Forces Analysis:
Quick Glance:
Threat of New Entrants:
The threat of new entrants in the BMW Porter Five Forces Analysis can be explained as follows:
BMW is a globally recognized premium automobile manufacturer. Threat of new entrants is relatively low in the automobile industry because both entry and exit barriers are high. A massive amount of capital investment is required, followed by highly trained human resources and in-depth knowledge for research and development. At the same time, due to all these factors, it is not easy to exit the industry at any time as high stakes are involved. Many existing firms are forming collaborations to continue with their operations. Apart from all this, there is an increase in government regulations.
If, in any case, a new player enters the market, it will take a lot of time for them to establish themselves in the market and start their operations globally. The new firm inspiring to be BMW will face fierce competition from the existing ones, and till the time they form their strategies, the existing ones will be steps ahead. Altogether, these factors discourage any new firm from entering this industry. Thus, the threat of new entrants can be nil to none, talking about the automobile industry and a company on the level of BMW, which has been relatively established in terms of research and sales.
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Threat of Substitutes:
Below are the threats of substitute products of Porter’s Five Forces analysis of BMW:
BMW deals in the luxury segment and is not a must-have. Most of the people who shop in this segment do so to maintain a status symbol and class in society.
They want to improve the quality of their living, and this product is not seen as a must-have but more as an experience. It is more to complete their satisfaction. Thus, other means of transportation buses, scooters, public transport, etc., are its indirect substitutes. However, luxury motorbikes, sports cars, and bikes might substitute BMW luxury cars. Due to the rising awareness for environmental protection, people are shifting towards electric vehicles, but that segment will take time to gain recognition. Despite these few hurdles, BMW attracts a niche crowd who have brand loyalty and has the advantage of being decently popular against other luxury car companies. With the loyalty and high popularity, we can say that the threat of substitutes is moderate for the company.
Bargaining Power of Customers:
In the BMW Porter Five Forces Analysis the bargaining power of the customers can be explained as:
Customers are becoming more aware and informed these days. They are supported by government regulations that favor them, and they like to research before making the final purchase decision. The product alone is not the attraction, but the entire customer experience and the after-sales service matter greatly. There are a few competitors in the market, but because the value of the product is high, every competitor matters. Keeping the customers satisfied and maintaining the brand reputation by improving each customer touchpoint is crucial for a brand like BMW. There is an added requirement to constantly improve on the feedback given by the customers and keep on innovating so that the customer stays with the company. The switching costs are lower, and there is limited demand from the customers as it is a high-end product.
Although there is high product differentiation in the market, customers' bargaining power is still high and should be focused upon.
Bargaining Power of Suppliers:
Following is the bargaining power of suppliers in the Porter’s Five Forces analysis of BMW:
Because of its brand reputation, BMW must maintain a standard of quality in all the raw materials it uses, and hence they carefully choose their suppliers. Due to their influence, they control the suppliers and their practices. The suppliers need to agree on the terms and conditions of the company and abide by their code of conduct to keep their relationship with the company. BMW deals with over 12000 suppliers across the globe, many of which are auto firms themselves, and hence BMW tries to collaborate with them and establish the standard process of operations. Because there are many suppliers available in the market, switching costs are low, and the product supplied is not differentiated; hence, the suppliers always risk losing business if they don't adhere to the company protocol. There is a moderate chance of forward integration, but that does not affect the company much. Hence the bargaining power of suppliers is low.
Competitive Rivalry:
The impact of key competitors in the BMW Porter Five Forces Analysis is as follows:
Several competitors of BMW like Audi, Mercedes, Skoda, Tesla, etc., are leaving no stone unturned to increase their market share and attract new customers from the other companies. There is fierce competition, and all the firms invest in research and development and improve their customer experience. All these factors show a very intense competitive rivalry in the automobile industry. Some major firms are merging to form a collaboration so that instead of competing among themselves, they can benefit from each other's strengths and produce better quality products. Advertisement and marketing costs too play an important role here as it communicates the brand image to the customers. Being in the luxury car segment, all companies must invest in their brand image and make the customer proud of owning one of these cars.
BMW is trying to move towards a vision where it is selling luxury and helping save the environment with its production processes, thus making the customer feel more accomplished and satisfied.
To conclude, the above BMW Porter Five Forces Analysis highlights the various elements which impact its competitive environment. This understanding helps to evaluate the various external business factors for any company.
This article has been researched & authored by the Content & Research Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.
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