Seconda Università degli Studi di NapoliDepartment of Economics

Student: Luca BuffolanoCourse of Study: Economia e Commercio

ID: A09000779Class: Business English

Date: 01/07/2014

BMW vs VOLKSWAGEN:TWO LEADING AUTOMAKER COMPANIES IN COMPARISON

Luca Buffolano

ABSTRACT

The purpose of this study is to analyze various aspects of the market of these two great companies in order to compare their fundamental aspects; in particular I'm going to explain the differences within their range, the in-ternal and external strategies they adopt, which market segments they co-ver, their competitive advantage and their marketing mix. I will analyze this data through the available documents and sources in order to outline the characteristic and distinctive features that characterize these two ma-jor car companies.

In the first part of my paper, I will include literature reviewing of relevant marketing theories before I analyze these; subsequently, on the base of the literature review, I will expose my analysis and demonstrate my research; finally, after analyzing the various aspects of the marketing of these com-panies, I will comment all this on the conclusions of my work, in order to make more evident the results of my research.

Key Words: BMW Group; Volkwagen Group; Compare; Analyze.

INTRODUCTION

The automotive market is clearly growing. By now, thanks to acquisitions by large groups of small brands, there has been a polarization in this area where there are no more small brands in competition with each other, but a few large groups that compete to be able to cover multiple market segments as possible. Therefore, I felt it appropriate to compare the two giants in the global automotive market: the BMW Group and the Volkswagen group wich, having acquired the direction (total or near-total) of other companies of this sector, they are allowed to possess a wide and varied range of vehicles that implies a considerable diversification of products.

We all always live in the belief of believing German engineering as a hallmark (in spite of the internal combustion engine is not a German invention, but an Italian invention*); therefore, because of this belief, these two great brands stand out in the automotive sector.

*See Barsanti and Matteucci on this URL http://www.barsantiematteucci.it/inglese/documentiStorici.html

A BRIEF HISTORY OF THE COMPANIES● Specialized in the production of automobiles, BMW Group is globally

considered one of the most successful companies in the world. The group is composed by three main different brands, MINI, BMW and Rolls Royce, which are aimed respectively to different target markets. BMW continues to be one of the best players in the luxury automobile sector, growing despite the European markets’ crisis; as a matter of fact, BMW sales including Rolls Royce and MINI reached 191,269 units in March 2013 surpassing the result of 2012 of 5,528 units (Rushlane, 2013).

● Volkswagen group is a automotive conglomerate consisting of several brands of vehicles for a range of customer groups at a range of prices. It is one of the top automotive manufacturer’s in the world and is the top automotive manufacturer in Europe (Volkswagen, 2011a). Volkswagen Group sells passenger cars under the Audi, Bentley, Bugatti, Lamborghini, Porsche, SEAT, Škoda and Volkswagen marques; motorcycles under the Ducati brand; and commercial vehicles under the MAN, Scania, Neoplan and Volkswagen Commercial Vehicles marques (Volkswagen AG 2009, p. 106.)

LITERATURE REVIEWS● Competitive Advantage: Michael Porter defines competitive

advantage as the set of attributes that make a company more attractive and, indeed, more competitive than his competitors. More specifically, Michael Porter has defined two ways you can achieve a competitive advantage: the possibility of being able to charge lower prices and product differentiation. In his view, research and sustenance of competitive advantage is critical to the success of a company (Porter, Michael E. (1985). Competitive Advantage.). So I will put the emphasis on the differences in the competitive advantage of these two industrial groups thanks to the information I am in possession.

● Market Strategy: very often we are accustomed to believe established the concept of strategy; some quotes by Michael Porter (important theorist in economics and professor at Harvard Business School where he directs the Institute for Strategy and Competitiveness) can make the idea a bit clearer: "The essence of strategy is choosing what not to do." and also "Strategy is about making choices, trade-offs, it's about deliberately choosing to be different." (Porter, M.E. (1996) "What is Strategy", Harvard Business

Review, Nov/Dec 1996.). These aphorisms, adapted to the study I am going to lead, give an idea of what is meant by "different strategies" because it is above all this that I am going to define through the analysis of these two major groups.

● Marketing Mix: the marketing mix, as the word suggests, indicates the mix of marketing decision-making levers that companies employ to achieve their goals. Jerome McCarthy (Basic Marketing(1964)) formulated about this the model of the four p's which stand for: product (the product placed on the market by the company), price (the price at which the product is offered), place (distribution channels) and promotion (the way you advertise and promote the product). The marketing mix will be particularly useful for my analysis, through it I can demonstrate the fundamental differences between the two groups of car manufacturers. It also will compare the various product ranges that these companies offer, highlighting the differences of their marketing mix.On this particular subject I will put emphasis in my analysis studying the automotive segments covered and the differences in their range: the European Commission has cataloged, using a "Automotive Glossary", the groups in which the cars are divided, identifying these six segments

1. A Segment or "mini cars": includes very small cars, mainly citycars; 2. B Segment or "small cars": includes small cars;3. C Segment or "medium cars": includes medium sedans; 4. D Segment or "large cars": includes sedans medium-large; 5. E Segment or "executive cars": includes large sedans;6. F Segment or "luxury cars": includes luxury large sedans;(European Commission (2009), “Automotive Glossary - Automotive Segments” Available on this URL: http://ec.europa.eu/enterprise/sectors/automotive/files/projects/report_fta_india_asean_en.pdf; page 9)Thanks to this catalog, I will compare (model to model) which segments each company covers with his own range, adding some considerations with regard to "green energy" which shows different positions by companies.

RESEARCH METHODOLOGYEspecially with the help of academic sources and the data on companies found (available online), I can analyze their strategies, their marketing mix, their competitive advantage and which automotive segments (according to the European Commission) they cover thanks to their range (including in the range even the companies under their control).

Fortunately, the two companies do not hesitate to publish reports on their financial and commercial developments, this brings the opportunity to be able to access a lot of information that may be necessary to my analysis.

The information found on the network and the analyzes already carried out by other scholars, allow me to be able to accomplish very specific analysis. Moreover, through the official websites of these companies, I have identified and cataloged the entire ranges of products according to the model of the European Commission mentioned before.

Understand and catalog the range of products can be crucial in order to develop a good analysis of the marketing mix and, at the same time, also a good competitor analysis showing the segments that these companies have

in common.The SWOT Analysis will be used as a marketing tool to highlight some aspects of the companies.

1. COMPETITIVE ADVANTAGE

The competitive advantage of the two groups is mainly in product differentiation (as already mentioned earlier, the two groups, thanks to the acquisition of all or part of small brands, have a very wide range).This could be seen as a point in common, but, as I shall show later in the "Marketing Mix", there are many differences in the choices of production and of range.● As declared by the BMW Group: “[...]To meet these challenges we

formulated our Strategy Number ONE, which aligns the BMW Group with two targets: to be profitable and to enhance long-term value in times of change. And this applies to technological, structural as well as cultural aspects of our company. Since 2007, we have been implementing various initiatives in keeping with the strategy’s four pillars: Growth, Shaping the

Future, Profitability and Access to Technologies and Customers.” (BMWGroup, “Company Portrait. Strategy” (2013). Available on this URL: http://www.bmwgroup.com/e/0_0_www_bmwgroup_com/unternehmen/unternehmensprofil/strategie/strategie.html). Regarding the "Strategy Number One", the BMW Group has given further clarification: the "Strategy Number One" has four missions: 1. "Generate Growth" with new target groups and new products / services2. "Shaping the future"3. "Profitability"4. "Access to new technologies/ customers" with ecologic products and new accessories which make the customers appreciate more the individual mobility.(BMWGroup, “THE FUTURE OF SUSTAINABLE MOBILITY. LEADING (E)-MOBILITY INTO A NEW ERA.” (2013). Available on this URL: http://www.bmwgroup.com/d/0_0_www_bmwgroup_com/investor_relations/_pdf/20130610_The_Future_Of_Sustainable_Mobility_Sattig_FINAL.PDF)This information, in addition to demonstrating clearly a marketing strategy, show how the competitive advantage chosen by BMW Group is

primarily focused on R&D (Research & Development), which has the ultimate goal of being able to ensure growth and innovation compared to its competitors in the sector.

● Even the Volkswagen Group has carried out its own strategy called "Strategy 2018" by stating: “Our activities are primarily oriented on setting new ecological standards in the areas of vehicles, drivetrains and lightweight construction. […] In addition, we want to continually expand the Volkswagen Group’s customer base by further increasing satisfaction among our existing customers and acquiring new, satisfied customers around the world, particularly in the growth markets.”. (Volkswagenag: “Strategy. Group Strategy 2018”(2013). Available on this URL: http://www.volkswagenag.com/content/vwcorp/content/en/the_group/strategy.bin.html/pdfFile/strategy.pdf).The Volkswagen group has shown in his analysis of strategic plans to focus its competitive advantage on the research and development with the ultimate goal of expanding its "green" range thanks to new technology and trying, at the same time, to cover new consumer segments.

2. MARKET STRATEGY

As mentioned in the previous section, market strategies have been spelled out by the two automotive groups:● The BMW Group's “Strategy Number One” mainly focuses on R & D,

which represents the main competitive advantage of this company, and the search for new target consumers. Research & Development of the BMW Group shows its effects particularly in some vehicles: MINI E, BMW ActiveE, BMW i3 and BMW i8 (and in some Hybrid Vehicles that I will analyze in the "Marketing Mix"). These particular vehicles are powered entirely by electricity; electric motors represent the future of mobility as they allow considerable savings and a particular attention to environment. Obviously, the possibility to build vehicles 100% "green", allows you to be able to attract new market segments represented by consumers who can appreciate the extreme innovation and, at the same time, pay attention to environmental problems.

● The Volkswagen Group's “Strategy 2018” focuses, instead, on the objectives of the market that the group intends to achieve. In fact, the

name of the strategy intends to put as objective that: “Volkswagen aims to be the most attractive employer in the automotive industry by 2018. […] Volkswagen intends to deploy intelligent innovations and technologies to become a world leader in customer satisfaction and quality. We see high customer satisfaction as one of the key requirements for the Company’s long-term success.” (Volkswagenag: “Strategy. Group Strategy 2018”(2013). Available on this URL: http://www.volkswagenag.com/content/vwcorp/content/en/the_group/strategy.bin.html/pdfFile/strategy.pdf). Thus, the Volkswagen Group focuses its strategy on improving its position in the automotive industry and intends to do it through innovation that would be able to allow a greater advantage over competitors. The Volkswagen group, thanks to the many brands that counts, focuses its strategy also on the extreme differentiation of product that brings the group to cover a variety of market segments.

It must be said that, with regard to innovation, the Volkswagen Group has placed as an alternative to traditional petrol fuel, the methane fuel. The methane fuel is a good alternative (in fact, allows lower cost and lower environmental damage), but it must be said that, compared to the innovation of the BMW group, it is not concentrated on a real and advantageous alternative proposal.

2.1 SWOT ANALYSIS

To better understand the market strategies and correlating this topic with the “Competitive Advantage” mentioned before, I consider it appropriate to make a SWOT analysis on the BMW Group and on the Volkswagen Group.The SWOT Analysis highlights four main aspects of a company (Strengths, Weaknesses, Opportunities and Threats). The analysis can affect the internal environment (analyzing strengths and weaknesses) and external environment (analyzing opportunities and threats). The fundamental objective of this analysis is to identify the positive characteristics of a company, where a company needs to improve, but also capture the trends in the industry (from which a company can extract opportunities) and external forces that may cause threats or opportunities, this is possible just by looking ahead of time and by focusing on future events.

|2.1.1| BMW Group SWOT Analysis1. Strengths:The strengths of BMW Group concern, as mentioned several times, product

differentiation and innovation extreme thanks to investments in Research & Development. In addition there are a good brand reputation of brands that the group owns: in fact, the MINI brand was founded in 1959 and with its characteristic vehicles is considered a historic brand; the Rolls-Royce brand was founded in 1906 and with its luxury vehicles has always been considered as the luxury car for excellence; the BMW brand (founder of the BMW Group) was founded in 1917 with its sedans and luxury cars has always been regarded as a hallmark and excellence brand. Thus, the BMW Group with the brands that owns it is considered a mark of quality.

2. Weaknesses: The weaknesses of this group reside in the rigidity of prices. In fact, possess high quality brands causes a lack of major market segments; the BMW Group owns the brands with prices that are too high and do not have cars accessible to everyone.

3. Opportunities:As cause of weakness highlighted, is spontaneous to assume that a good opportunity for the BMW Group is to produce vehicles more affordable or buy a brand that can cover market segments for them absent.

4. Threats:The main threat is the intense competition in the automotive market. We all know by now that there are no more small groups competing each other individually, but there are few car manufacturers that have many internal companies. A so intense competition, especially due to the lack of certain categories of vehicles, could result in the loss of a large market share for the BMW Group.

|2.1.2| Volkswagen Group SWOT Analysis

1. Strengths:Also with regard to the Volkswagen Group, the main strength is inherent in the large product differentiation. In fact, the Volkswagen Group owns companies that produce cars of medium / low quality (Seat, Skoda Auto and commercial vehicles), cars of medium / high quality (Volkswagen and Audi) and high-quality / luxury cars (Lamborghini, Porsche, Bentley and Bugatti). This high differentiation allows the Volkswagen Group to sell vehicles of all kinds of high quality and with all kinds of features: from city cars to luxury cars. So the main strength of Volkswagen Group is to own a strong brand portfolio.

2. Weaknesses:A big weakness for the Volkswagen Group is represented by the fact of not having produced cars with alternative fuel to petrol, in addition to CNG powered engines that are long on the market but that does not represent a valid alternative, except for the following hybrid vehicles produced by Audi: Audi A3 Sportback e-tron (which is still a concept car) and Audi A3 Sportback g-tron (which will be soon on sale).

3. Opportunities:A great opportunity for the Volkswagen Group is represented by the search for new supplies for their engines. In fact, the Volkswagen Group has not entered the market of electric cars and neither has produced several hybrid cars. Therefore, increasing investment in Research & Development could produce cars of this sector.

4. Threats:As mentioned above, not entering in the sector of “green” cars can cause a threat to the Volkswagen Group that could lose a large slice of the market in the case in which this sector will grow considerably.

3. MARKETING MIX

With the help of the automotive glossary made by the European Commission, I am going to analyze which categories every single brand of the two groups covers. The list of the automotive segments, already mentioned previously, is the following:1. A Segment or "mini cars": includes very small cars, mainly citycars; 2. B Segment or "small cars": includes small cars;3. C Segment or "medium cars": includes medium sedans; 4. D Segment or "large cars": includes sedans medium-large; 5. E Segment or "executive cars": includes large sedans;6. F Segment or "luxury cars": includes luxury large sedans;(European Commission (2009), “Automotive Glossary - Automotive Segments” Available on this URL: http://ec.europa.eu/enterprise/sectors/automotive/files/projects/report_fta_india_asean_en.pdf; page 9).I decided to add the segment "Green" to show further differences between the two automotive groups.Through this glossary I proceed with my analysis.

3.1 RANGE ANALYSIS

We can summarize this scheme by identifying the segments covered by brand and not by individual model. So it was shown that:● BMW Group covers the following segments: B, C, D (BMW and MINI), E

(BMW), F (BMW and Rolls Royce) and “Green” (BMW and MINI).

● Volkswagen Group cover the following segments: A (Volkswagen, Seat and Skoda Auto), B, C (Volkswagen, Audi, Seat and Skoda Auto); D (Volkswagen, Audi, Skoda Auto and Porsche), E (Volkswagen, Seat, Skoda Auto, Audi and Porsche), F (Audi, Bentley, Bugatti, Lamborghini and Porsche) and “Green” (Audi).

The product range of these automakers are linking to these URLs:1. https://www.bmw.it/it/index.html2. http://www.mini.it/3. http://it.volkswagen.com/it.html4. http://www.rolls-roycemotorcars.com/5. http://www.bentleymotors.com/6. http://www.bugatti.com/en/home.html7. http://www.seat-italia.it/content/it/brand/it.html8. http://www.skoda-auto.it/9. http://www.audi.it/it/brand/it.html10. http://www.lamborghini.com/it/home/11. http://www.porsche.com/italy/

CONCLUSION

My analysis revealed many characteristics of the market of these two companies and now I will analyze the conclusions that they have shown, discussing every aspect of my research:

Regarding Competitive Advantage and Strategy, the two companies have shown to focus on values as similar as different:

● The BMW Group has shown particular interest in innovation extreme, as shown in his "Strategy Number One", of its products by investing heavily on creating technologically advanced products in order to attract, at the same time, new groups of consumers;

● The Volkswagen Group has shown as objective, on which focuses its "Strategy 2018" and its Competitive Advantage, the global growth that can obscure the competitors, making it a leader in the market, theorizing that this may attract new targets of consumers.

This reveals that, despite the goals appear similar, the two companies behave differently in this respect: the BMW Group has implemented its

strategy with obvious results (as we will see later), while the Volkswagen Group remained however stuck in its positions not particularly trying to invest on a product innovation, but preferring global expansion and good results of the market and not presenting a novelty on its products.

The SWOT Analysis has highlighted many aspects of these two companies, showing that: ● The BMW Group's R&D represents its biggest strength just as its good

brand reputation, but the company has been shown to have a price rigidity that causes the loss of a large share of the market accounted for by those who can not sustain these prices and has also that this can be seen as an opportunity if the company could be able to resolve this problem, in fact this company is threatened by the presence of brands that sell products at much lower prices and this causes an intense competition.

● Volkswagen Group on one hand has shown as its main strength its unrivaled product differentiation, but on the other hand has revealed a strong issue with regard to the innovation of its engines which, at the same time, causes threats, weaknesses and an opportunities (if the company decide to face this area).

The analysis of the "Marketing Mix" and the "Range Analysis" have shown that the BMW Group is not able to cover the "Segment A" because, as I mentioned previously, it does not offer consumers the chance to buy an economic car as a city car, nevertheless, the company demonstrates to have several cars in the segment "Green"; while, as regards the Volkswagen Group, it was shown that the product differentiation is evident, in fact, the company is able to cover each segment with its own brands, although, as previously mentioned, shows itself little efficient in the segment "Green", in which only has two cars that are "concept cars" and so are not yet on sale, but simple prototypes.

As far as competitors is concerned, the BMW has always faced the competition of the compatriots manufacturers such as: Mercedes, Audi, and Porsche which benefit from a similar brand-reputation and price range, but also from overseas brands brand such as Lexus and Toyota. It is important to consider that BMW Group has two other brands in its product range moving from the premium sector of MINI to the luxury one of Rolls Royce, which would imply also a different range of competitors. (Claudio Floritelli & Mark McPherson (2013). "BMW Marketing Report").

The comments made by Claudio Floritelli & Mark McPherson get to the point, but I would consider it appropriate to add that the BMW Group sees as a great competitor also the Volkswagen Group; the Volkswagen group also contains other brands, some of which are cited by the authors just mentioned, as: 1. Audi (owned by the Volkswagen Group to 99.55%): Audi owns Lamborghini entirely; moreover, Lamborghini owns Ducati entirely.2. Bentley is 100% owned by the Volkswagen AG. It was purchased in 1998;3. Bugatti is 100% owned by the Volkswagen AG. The Bugatti Automobiles SAS was created after the purchase of the brand name "Bugatti" in 1998; 4. Porsche is 100% owned by Volkswagen AG since 2012;5. SEAT is 100% owned by Volkswagen AG since 1990;6. Škoda Auto is owned by the group since 1991 (only since 2000, it is 100% owned).It is of course included Volkswagen as the group's founder brand.In addition, the Volkswagen group owns a majority stake of some brands for large transport vehicles: Italdesign Giugiaro; MAN SE; Scania AB.(Volkswagen (2014) “Our brands and services” Avilable on this URL: http://www.volkswagengroup.it/en_Marchi.asp).

So in conclusion, it was shown that the BMW Group and the Volkswagen Group, even if they may have similar goals and similar market and range segments, they are very different from each other and I hope to have demonstrated it by my analysis.

REFERENCES

(1) Rushlane.com (2013) Mercedes Benz, Audi and BMW global sales report for March 2013 | Rush Lane. [online] Available at:

http://www.rushlane.com/mercedes-audi-bmw-sales-mar-2013-1273856.html

(2) Volkswagen AG 2009, p. 106 "Volkswagen Aktiengesellschaft Annual Report 2008" (PDF). volkswagenag.com. Volkswagen Aktiengesellschaft. 12 March 2009. ISSN 0944-9817. 958.809.512.20. Archived from the original on 8 August 2012. Retrieved 8 August 2012.

(3) Porter, Michael E. (1985). Competitive Advantage.

(4) Porter, M.E. (1996) "What is Strategy", Harvard Business Review, Nov/Dec 1996.

(5) European Commission (2009), “Automotive Glossary - Automotive Segments” Available on this URL: http://ec.europa.eu/enterprise/sectors/automotive/files/projects/report_fta_india_asean_en.pdf ; page 9

(6) BMWGroup, “Company Portrait. Strategy” (2013). Available on this URL: http://www.bmwgroup.com/e/0_0_www_bmwgroup_com/unternehmen/unternehmensprofil/strategie/strategie.html

(7) BMWGroup, “THE FUTURE OF SUSTAINABLE MOBILITY. LEADING (E)-MOBILITY INTO A NEW ERA.” (2013). Available on this URL: http://www.bmwgroup.com/d/0_0_www_bmwgroup_com/investor_relations/_pdf/20130610_The_Future_Of_Sustainable_Mobility_Sattig_FINAL.PDF

(8) Volkswagenag: “Strategy. Group Strategy 2018”(2013). Available on this URL: http://www.volkswagenag.com/content/vwcorp/content/en/the_group/strategy.bin.html/pdfFile/strategy.pdf

(9) BMW range. https://www.bmw.it/it/index.html

(10) MINI range http://www.mini.it/

(11) Volkswagen Range http://it.volkswagen.com/it.html

(12) Rolls Royce Rangehttp://www.rolls-roycemotorcars.com/

(13) Bentley Range http://www.bentleymotors.com/

(14) Bugatti Rangehttp://www.bugatti.com/en/home.html

(15) Seat Rangehttp://www.seat-italia.it/content/it/brand/it.html

(16) Skoda Auto Rangehttp://www.skoda-auto.it/

(17) Audi Rangehttp://www.audi.it/it/brand/it.html

(18) Lamborghini Rangehttp://www.lamborghini.com/it/home/

(19) Porsche Range http://www.porsche.com/italy/

(20) Claudio Floritelli & Mark McPherson (2013). "BMW Marketing Report"