International Distribution and Logistics, UV IMBA

Dr. Marta Frasquet Del Toro

BMWs Description and Evaluation

of the Distribution and Logistics Strategies

April 2011

Prepared by
Gubanov Andrey
Suslova Daria
Malikova Julia
Rodriguez Adrian
Table of Content

Introduction
1. Industry overview
1.1 Automobile Industry Trends
1.2 Customer Habits
1.3 Competition
2. The BMW Company Portfolio
2.1 The Company Srtucture
2.2 BMW Overseas subsidiaries
2.3 BMW Positioning
2.4 Environmental record
2.5 BMW Strategies
2.6 Worldwide Sales
2.7 BMWs line Up
3. Target Audience
3.1 Analysis of the Target Customer Segments
3.2 Service Outputs Demanded
4. Distribution
4.1 Distribution Channel Structure
4.2 Market Coverage
5. Channel Evaluation
5.1 Channel efficiency
5.2 Gap Analysis
5.2.1 Demand Gaps
5.2.2 Supply Gaps
5.2.3 Closing Gaps
6. Power imlementation
7. Conflict in distribution channel
8. Overview of logistics and supply chain management.
8.1 Logistics as a part of the Overall Strategy
8.2 Supply chain structure
8.3 Passing of Property
9. Competitive advantage
Conclusion
Appendixes
References

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Introduction

The automobile industry produces automobiles and other gasolinepowered vehicles, such as buses, trucks, and motorcycles. The automobile industry
is one of the most important industries in the world, affecting not only the
economy but also the cultures of the world. It provides jobs for millions of people,
generates billions of dollars in worldwide revenues, and provides the basis for a
multitude of related service and support industries. Automobiles revolutionized
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transportation in the 20th century, changing forever the way people live, travel, and
do business. The automobile has enabled people to travel and transport goods
farther and faster, and has opened wider market areas for business and commerce.
The auto industry has also reduced the overall cost of transportation by using
methods such as mass production which is making several products at once, rather
than one at a time, mass marketing which is selling products nationally rather than
locally, and globalization of production that pertains to assembling products with
parts made worldwide.
As a result of easier and faster transportation, world economies have
become dependent on the mobility that automobiles, trucks, and buses provide.
This mobility allowed remote populations to interact with one another, which
increased commerce. The transportation of goods to consumers and consumers to
goods has become an industry in itself. The automobile has also brought related
problems, such as air pollution, congested traffic, and highway fatalities.
Nevertheless, the automobile industry continues to be an important source of
employment and transportation for millions of people worldwide.
Alternative energy sources for cars, such as natural gas, electricity,
ethanol, vegetable oil, sunlight, and water, will compete with the traditional energy
sources in the future. Many large automakers are now adapting fuel cell
technologies: fuel cells are cleaner, quieter, and more energy efficient than internalcombustion engines.
We have chosen the BMW company, because it is one of the Worlds 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.
1. Industry Overview
1.1 Automobile industry trends
After the first practical automobile was built by Karl Benz in 1885
(Germany), the Automobile Industry has developed a lot. The automobile industry
includes design, development, production, and selling motor vehicles, and is one of
the world's most important economic sectors by revenue. Todays automobile
industry is characterized by several major trends, which we would like to list
below:
After the II World War the companies all over the world started becoming global
very intensively. The globalization didnt pass the automobile industry over. Car
and parts manufacturers are merging and take over their competitors; component
3

design and manufacture are now frequently outsourced. Meanwhile, all biggest,
most successful automobile producers have become totally global in nature.
Shifting to emerging markets, in particular to Asia and BRIC countries (which
happens by 2 reasons: the production costs in these countries is significantly lower
and, on the other hand, the demand on cars in not satisfied there so there is a
market in that countries is not occupied entirely). What is more, this enables
leaders of the industry to compete with local auto manufacturers that were
flourishing in absence of quality competition.1
The manufacturers tend to work together in joint ventures on designing platforms,
engines, electronics (it could be everything except for exterior and interior design
of the models). After the project is finished, companies continue working
separately on the design of the models.
Automobile producers tend to work with exclusive dealers and service centers,
which are authorized by the companies headquarters. It helps to control the quality
of the entire distribution chain and of all contacts with consumers.
Being green, ecologically friendly is not just a trend - it is a lifestyle for a
constantly growing number of people. So, automobile producers try to meet the
needs of customers and produce eco-friendly cars.
Automobile producers tend to expand the customer segments (and consequently
the product line). In particular, companies focus on production of low-priced cars.
E-commerce has had a strong influence on the car industry. Before purchasing a
car, consumers use the Internet to become better informed with the models and the
services. Automobile manufacturers now use the most up-dated e-commerce
methods to deal with their supply chains. Besides there are various online
organizations that steer millions of car buyers toward specific dealers and 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
1 Article. Auto Industry Trends Economy. Watch - online economics community that publishes

economy, investment & finance reports. http://www.economywatch.com/worldindustries/automobile/auto-industry-trends.html

2hArticle. 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%20research/industry
%20and%20business%20data

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.

1.2 Customer Habits

In order to have the whole image of the trends in the industry, it is necessary
to have the understanding of consumer buying habits, which are as follows:
Ecological issue: as the Planet is facing serious problems with the Global
Warming, Carbon Dioxide Emissions, Pollution and other environmental problems,
it is becoming more and more popular to buy the products and use the services of
green companies.
Price consciousness: many people are not in the race for expensive cars and there
is a great demand on low-priced cars for everyday use (particularly of Asian
automobile producers, like Kia, Hyundai, and Cherry).
Innovation: people enjoy it to use cutting-edge technologies in a car, such as Wi-Fi,
TV connection, entertainment, autopilot system and so on.
Tendency to use small cars, because of their mobility, which is extremely relevant
in big cities.
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
individuals who achieved everything, but the company doesnt provide as many
services as BMW. Another problem of Mercedes, is that they provide customers
with cars within a long period of time (about 4 to 6 months) and prices for
additional packages are very high. What is more, Mercedes doesnt have the
production in Russia, which is quite a relevant issue from the point of view of
Russian economy.
2) Volkswagen Group in general, and Audi brand in particular, are
considered by the Russian consumers as not very innovative and classy. Audi
offers the same level of customization for the customers, but the Audi cars (along
with Mercedes) are not produced in Russia. Besides, customers have to wait for the
3 Article. Automotive Industry Trends - Automotive Franchises. Franchise Direct web portal
http://www.franchisedirect.com/automotivefranchises/automotiveindustrytrendsbusinessreportii/7/249
4 BMW goes ahead/together with Mercedes-Benz
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cars for quite a long period of time. In terms of brand image, Audi is considered to
be not as good as Mercedes and BMW.
3) Jaguar brand competes with BMW in the segment of upper class of
sporty and saloon cars. The fact that Jaguar is an exclusive brand, accounts for a
number of problems. The cars are produced in the UK only, the costs of production
are lower, thus the price is lower as well, but they are not able to offer that variety
of services and additional packages for their cars that the competitors do.
Sometimes a waiting list for a Jaguar car in Russia is a year, which is also very
high in comparison with the competitors.
4) PSA (Peugeot and Citroen) just as Jaguar competes with BMW only
partially - with BMWs 5-series. The prices for PSAs cars are low, the level of
customization is the same, but again in terms of logistics they are not equal to
Mercedes and BMW. Besides, customers still tend to think of Peugeot and Citroen
as stylish cars, but not of the same high quality and class as BMW and Mercedes.5
2. The BMW Company Portfolio
2.1 The Company Srtucture
Bayerische Motoren Werke AG (BMW) is a German automobile, motorcycle and
engine manufacturing company founded in 1916.
BMW is among the most recognized automobile manufacturers in the world today.
The company has established a reputation for quality, efficiency and prestige. It is
Germanys biggest multinational company that operates in different parts of the
globe. BMW employs the strategies that help the company to gain competitive
advantage and maintain its position in the market in spite of the increasing
competition and other environmental challenges.
The headquarters are situated in Munich, Germany. Besides the BMW brand it
owns and produces the Mini brand, and is the parent company of Rolls-Royce
Motor Cars. Also BMW produces motorcycles under BMW Motorrad and
Husqvana brands. In our project we will focus on BMW Auto. (Appendix 1. The
Company Structure).
2.2 BMW Overseas subsidiaries
In order to be efficient in overseas markets BMW has 6 subsidiaries, so as to
gain a foothold on different markets:
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
5 according to numerous articles from the magazine AutoReview (http://www.autoreview.ru/), such as
http://www.autoreview.ru/_archive/section/detail.php?ELEMENT_ID=71736&SECTION_ID=2048
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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.
2) United States (BMW Spartanburg factory)
BMW Manufacturing Co has been manufacturing the X5 and, more recently,
the X6 in Greer near Spartanburg, South Carolina, USA. BMW's with a VIN
number starting with "4US and 5US" are manufactured in Spartanburg.
In 2010 BMW announced that it would spend $750 million to expand
operations at the Spartanburg plant, which will allow production of 240,000
vehicles a year and will make the plant the largest car factory in the United States
by number of employees.8
3) India
BMW India was established in 2006 as a sales subsidiary in Gurgaon
(National Capital Region). An ultramodern assembly plant for BMW 3 and 5
Series started operation in early 2007 in Chennai. The plant started operation in the
first quarter of 2007 and produces the different variants of BMW 3 Series and
BMW 5 Series.9
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
6 Article. BMW South Africa
websitehttp://www.bmwplant.co.za/Content/frame_content.jsp@content=http-3a-2f2fhaf0gau02~5.htm

7 Vehicle Identification Number

8 Article. BMW to Expand Plant in South CarolinaThe Wall Street Journal: p.B5.

9 International BMW websitehttp://www.bmw.com/

10 Article. BMW opens China factory. TestDriven websitehttp://www.testdriven.co.uk/bmw-opens-

china-factory/

5) Canada
In October 2008, BMW Group Canada was named one of Greater Torontos
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
2.3 BMW Positioning
BMW is a Nicher - it does not go directly against with large automobile
manufacturers. Rather it focuses on niche markets. Through market niching, the
company identifies its target markets and produce products that will satisfy their
needs and wants. BMW focuses on the premium segments.
The company was able to establish a strong position as a premium car brand.
BMW, employed niche marketing in order to fill in the void in the automobile
industry. The company focused on small, market niches. The niche markets that
BMW focused on developed into mainstream markets, propelling the growth of
BMW.
BMW experienced a gradual change in position from a follower to a nicher.
Today, it is one of the market leaders in its category, which is the high-performance
and premium category.
The combination of a production system (which gives the company a
particular advantage in its chosen market segment), a world-wide reputation (for
product quality) and a brand (which immediately identifies the aims and
aspirations of its customers) continues to make BMW one of the most profitable
automobile manufacturers in the world.13
2.4 Environmental record
The company is a charter member of the U.S. Environmental Protection
Agency's (EPA) National Environmental Achievement Track, which recognizes
companies for their environmental stewardship and performance. It is also a
member of the South Carolina Environmental Excellence Program and is on the
11 Article. BMW Canada Inc. http://www.eluta.ca/work-at-bmw-group-canada

12 Bavarian Auto Group website http://www.bag-eg.com/

13 according to numerous articles from the magazine AutoReview (http://www.autoreview.ru/)

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Dow Jones Sustainability Group Index, which rates environmentally friendly

companies.
However, there have been some criticisms directed at BMW, and in
particular, accusations of greenwash in reference to their BMW Hydrogen 7. Some
critics claim that the emissions produced during hydrogen fuel production
outweigh the reduction of tailpipe emissions, and that the Hydrogen 7 is a
distraction from more immediate, practical solutions for car pollution.14
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
2.5 BMW Strategies
One of the main strategies employed by BMW is niche marketing. BMW
protects its niche position by engineering, manufacturing, and developing
advertisement campaigns. BMW offers a distinctive product and service and it
developed differentiation between its products and the competitors.
BMW used frontal attacks in order to gain a competitive position in the
automobile industry. The company employed a limited frontal attack, which
focuses on specific customers. Another frontal attack that was employed by the
company is through research and design. The company invested large amount of
money in designing and differentiating its products and services. The company
introduced improvements on the products and offered innovative features and
designs in order to enhance the value of its products.
The detailed view on Strategies is as follows:
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
14 Article. BMW's Hydrogen 7: Not as Green as it Seems. Spiegel, online
newspaperhttp://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
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the various national markets. The same tight control is reflected in BMWs
relationships with suppliers, who mostly have continuing long associations with
the company. BMWs 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 companys 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
customers 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.
4) Flexibility for the Customer
The BMW Group has optimized its internal processes to such extent that
wishes expressed by the customer to modify the power unit, the color, upholstery
and special equipment of the car he has ordered may be taken into account just six
days prior to the start of assembly without any affection on the delivery date of
the car.

1.
2.
3.
4.
5.

5) Differentiation
Differentiation is the act of designing a set of meaningful differences to
distinguish the companys offering from competitors offerings. The five
dimensions of Differentiation are:
Product physical products vary in their potential for differentiation.
Services when the physical product cannot be differentiated easily, the key to
competitive success nay lie in adding valued services and improving quality.
Personnel companies can gain a strong competitive advantage through having
better-trained people.
Channel companies can achieve competitive advantage through the way they
design their distribution channels coverage, expertise, and performance.
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.
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2.6 Worldwide Sales

BMW is known for its performance and luxury vehicles, and is a global
leader in premium car sales. In 2009, it manufactured 1,224,280 four-wheeled
vehicles and 98,047 motorcycles. These figures for the year 2010 are lower than in
2007, which happened due to the recent World Financial Crisis. For more detailed
information, see please Appendix 2. Worldwide Sales.
2.7 BMWs Line Up
Table 1

1, 3, 5, 6 and 7 models (first column in

the table): saloons, coupes, sedans and
cabrios with different types of engine
(diesel or gasoline + hybrid engine
choice for 7-series model), size and
package.
X1, X3, X5 and X6 models (second
column in the table): crossovers,
usually four-wheel drive, also of a
different size, with different types of package and engine (diesel or gasoline).
5 GT model (third column in the table): 5 GT is a step of BMW in the new niche of
car production segment: saloons plus crossovers of a big size, like 7-series model,
also with different types of package and engine (diesel or gasoline).
Z4 models (fourth column in the table), which are classic roadster, cabrios and
coupe cars: very powerful, with limited types of package, wider variety of exterior
and interior customization and different gasoline engines.
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.
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 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.
3. Market Segments

3.1 Analysis of the Target Customer Segments

After a careful investigation of Russian market we have divided BMW
customers into 3 major segments: Individuals, Businesses and Government (which
includes Police, Administration and Army).16 For clarity have a look at
Appendix 3. Types of Customers
Individuals, amount for almost half of all customers (45%), are businesspeople of
medium+ and high income (starting from 2,500 Euros). These are people, who
work for large companies or businesses owners. These are middle-age people,
living in big cities, of high-status, open-minded, adventurous and young in spirit.
These people usually have at least two cars in the family. Their cars are usually of
such models, as 5, 6, X3, X5, X6 and Z4 (usually as the second or the third car in
the family).
Businesses amount for 20% of BMWs clients. These are medium- and high-sized
businesses with a years revenue of more than 2,000,000 Euros. They prefer to use
the cars in a leasing form (and then lease new ones). Their cars are 5 and 7 models.
Government: administration amount for 27% of the clients. All governmental
staff that have cars with drivers (BMW 7-series); and governmental staff of middle
level which use 5-series.
Government: army amount for 1%. These are generals who have cars (7-series)
with drivers.
Government: police amount for 7% of the customers: Special Forces of police,
who work in order to perform high-speed pursuits and catch very fast criminals.
Their cars are BMW 5-series, preferably starting with 3.5-liter gasoline engines.
3.2 Service Outputs Demanded
Different customers have different needs, as it is impossible for a product or
brand to be everything to all customers. So any company should matching target its
segments with specific core competencies. (Appendix 4. SOD)
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.
16 according to numerous articles from the magazine AutoReview (http://www.autoreview.ru/)
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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.
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.
Depth of Assortment / Variety. As Individuals tent to differ in their
preferences, they need a multiple option. As for the rest, Businesses and
Government Structures, they are quite aware of the models they are intended to
buy and they choose particularly what they need.
Customer Service.
Individuals and Police use service centers, as they dont 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 dont need any BMW service
facilities.
Information provision: education of buyer about product, attributes, usage,
services, etc.
As individuals dont sometimes know about the BMW cars they need to be
educated so BMW dealers provide full high-quality consultation to customers if
needed.
Other segments tend to be familiarized with the car option and various
packaging so they dont need any information provision.
4. Distribution

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4.1 Distribution Channel Structure

Table 2. Distribution Channel Structure

according to the BMW official web site

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 Ruland Trading also provide dealers with accessories
and parts. End-users can purchase the cars from both dealers and BMW Ruland
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 Ruland Trading.
Government Structures, obviously, order cars from BMW Ruland Trading.
4.2 Market Coverage
On the Russian market BMW uses only exclusive distribution. This type of
distribution is usually seen with high end and luxury products, which is absolutely
suitable for BMW cars.
The structure of an exclusive distribution favors both the manufacturer and
the distributor: All dealers receive cars and auto accessories without mark up, they
have unlimited dealer agreement and are provided with all necessary corporate
identity elements. The headquarters on the other hand have complete market
coverage and a total control over the quality of front office, which is especially
important for luxury products.
All Customer Segments are covered: those customers who are aware of the
BMW products are able to buy very easily what they are intended to buy; those
who dont know what they need but want to buy some BMW car, receive high
quality consultancy so that they can make a decision whether to buy a car and
choose the specific package that absolutely suits the customers needs.
In order to communicate to those potential customers who dont have the
intention of purchasing BMW, the company uses TV, wire advertising, product
placement and screening short films dedicated to BMW cars, so that potential
customers become interested in this brand.
5. Channel Evaluation
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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 Coughans 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?
Table 3. Efficiency Template

Weight for flows

Major Costs are among Physical possession, Ownership, Promotion,
Financing as these are the most expensive business processes in car manufacturing.
In 2010 there was a situation that Beneficial Potential influenced the Final
Weight as follows:
- Physical possession appered to be higher as the company didn't manage to sell
targeted amount of cars.
- Ownership, Promotion, and Payment were in result a bit higher as in these
processes there is always room for improvement but the company manages with
them quite sucsessfully.
- As for the rest, Negotiation, Financing, Risking, and Ordering the Beneficial
Potential is Low as there absolutely no problems with these.
Proportional flow performance of channel member:
Manufacturer performs mostly in Promotion, Negotiation, Financing, and
Risking, and Payment - as these are the most important parts of the business.
Logwin (outsourcing) most performance is in Physical possession,
Negotiation, Risking as it deals with warehousing and transporting the cars.
Dealer is mostly involved in Negotiation, Risking, and Ordering, as it needs
to deal with customers directly.

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End-user's performane is in Physical possession, Ownership, Promotion.

Financing, and Payment, as it is the customer who makes the whole system
working.
The cost added by each member is as follows:
Dealers
7-10%
Logwin
5%
BMW
82-85%
So it is obvious that each channel member is being compensated absolutely
fairly.
5.2 Gap Analysis
5.2.1 Demand-side Gaps
From the side of Russian market, the supply of BMW exceeds the demand of
Russian customers in most cases. This happens due to the fact that Russian market
is historically not as used to such a high level of service as in European and US
markets. The BMW Company uses the strategy of offering only the best quality
products and services in all markets, so only time can help to close these gaps.
5.2.2 Supply-side Gaps
Firstly, we would like to start from the sources of the gaps and they are as
follows:
Dealer Offices:
- Managerial bounds: the service in dealers offices exceeds hugely the
demand, so that customers feel uncomfortable (which goes together with
specifity of Russian market, and makes this gap to be solved with time only).
- Environmental bounds: more involvement in introducing new programs
of customer service techniques (e.g. neiro marketing, playing on the five senses
in dealer offices).
Manufacturer:
Environmental bounds: even more involvement in high technologies and
techniques.
Secondly, we would like to talk about the supply-side gaps, which in our
case is promotion and negotiation, which you can see from our Appendix
concerning Supply-side gaps.
5.2.3 Closing Gaps
Planned techniques for closing gaps are the following:
Dealer Offices - Environmental bounds:
Negotiation: Better usage of new technologies, improvement of web-site
Manufacturer - Environmental bounds:
Promotion: constant search for new techniques and new high-technologies.
6. Power imlementation
16

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)
Its an often used friendly strategy to reward the dealership if they do follow
BMWs 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 dont 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
dealers image completely.
Legitimate power (Legalistic Strategy)
The legalistic strategy where the dealership agreed beforehand to follow
BMWs 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. 7. Conflict in distribution channel
17

The only conflict in the BMWs 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 dont 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
8. Overview of logistics and supply chain management.
8.1 Logistics as a part of the Overall Strategy
In order to remain competitive and to protect its niche market, BMW opened
manufacturing plants in South Africa, the United States, and China. This strategy
was implemented as part of the overall strategy of the company and in order to
17 Article. Gray Dealers. Auto Expert, web portalhttp://www.autoexpert77.ru/seryiedileryi.html

18 Articles. Za Rulem russian magazine dedicatet to the automobile industry

18

make the transportation of materials and products (logistics) more effective and
efficient. Logistics play an important role in the production and manufacturing of
the companys products. The BMW products are created by very flexible and
highly efficient production network with mature job processes and the most
advanced plants and facilities. As a global player, the BMW Group is represented
through its premium products of the BMW, MINI and Rolls-Royce brands in more
than 140 countries. A flexible network of production plants in 12 countries ensures
that each customer receives exactly the car he has ordered tailored to his specific
wishes and preferences.
Flexible and efficient assembly at BMW is guaranteed by sophisticated
logistics for a smooth flow of materials and efficient production. Efficient logistics
ensures precise delivery of the parts required exactly on time, with a smooth and
efficient flow of parts from BMW Group components plats or supplier companies.
8.2 Supply chain structure
Suppliers (Appendix 5. Supply Chain Structure)
Communications with suppliers are in the responsibility of BMW Group
partners from Purchasing, Development, Logistics, and Quality Management (the
so-called Clover Leaf).
The overall responsibility for the purchase and procurement of production
material lies within the Division Purchasing and Supplier Network of the BMW
Group. During the process of selection, potential suppliers have to prove that they
meet the demanding requirements of BMW Group.19
The biggest supplier is Saudi Basic Industries Corp. (SABIC), which
provides 16% of BMWs raw materials.20 Other big suppliers are Lilliput
Electronics Co., Ltd (China), Guangzhou AutoMile Co.,Ltd (Hongkong), Auka
Industrial Ltd (China), Jeasun Technology Co., Ltd (China)21
Manufacturer
Under the Bayerische Motoren Werke AG (BMW), there are about 30
BMWs plants all over the world. In our case, the manufacturer develops
corporative brand in order to make all the products known among the end-users.
The cars that go to the Russian Market are assembled on 4 factories:
19 Article. Supply Chain Management of BMW. Management Paradise, online
communityhttp://www.managementparadise.com/forums/elementslogistics/211402-supply-chain-management-bmw.html

20 Article. SABIC. Mubasher, exchange trading analysis

tool.http://www.mubasher.info/portal/CASE/getDetailsStory.html?
storyId=1813751&goToHomePageParam=true&siteLanguage=en

21 Article. Bmw Dash Suppliers. TradeFord, web marketplace platform

http://www.tradeford.com/suppliers/bmw-dash_7
19

1) USA, South Carolina, Greer (the production of X5, X6 models)

2) Austria, Graz (the production of X3models)
3) Germany, Munich (the production of all BMW Auto models, some of
which partially), which produces cars together with
4) the plant in Russia, Knigsberg (the production of X5, X6, 5 models).
For more information look Appendix 6. Production by Country
Transportation and Wharehousing
Cars assembled in these factories (except for the plant in Russia, Knigsberg
the cars go directy to BMW Ruland Trading) are transported to the warehouse:
for more than 30 years the motor manufacturer BMW has outsourced the
management of vehicle exports to the logistics service provider Logwin (formerly
Thiel Logistik).
These long-term relationships are very strong due to the fact that the
majority shareholder in Logwins parent, Delton, is also the largest single
shareholder in BMW. However, as Dr Stephan Freichel, Managing Director of
Logwins Solution business sector points out, Logwin has regularly and
successfully won repeat and additional business in open BMWs tender against the
offerings of port operators and other logistics companies.
BMW Ruland Trading, Dealers
The cars than are transported to BMW Ruland Trading, which is located
in Russia and includes BMW Finance Services (that provides the credits and
insurance for cars and auto accessories) that in its turn includes Leasing mostly for
serving the Businesses Customer Segment.
1) Then the cars go directly to customers: Businesses and Governmental
Structures.
2) Another direction is to Dealers. There are 37 Dealers, some of which
have affiliates, so the overall number of Dealer Offices is 57. The future plan of the
company is to have about 70 dealers in Russia in a couple of. Every Dealer has a
Service Center and a Finance Service office (which has the Leasing section).
So there are 57 Service Centers (that are located together with the Dealers)
and also 2 separate Service Centers, both situated in Moscow. Besides there is very
many non-official service centers in Russia that offer repair for BMW cars. But the
company wants to offer its clients only the best quality service, so non official
service centers, which show high level of performance, have the chance to
participate in the BMW's programme, which is called Partner in Quality. Within
this program, BMW offers non-official service centers to become BMW authorized
official ones, therefore BMW provides them with high-quality staff training and
official accessories without any mark-ups and even an ability to become BMW
Dealer.
There is one more direct channel which is fictional: customers can make the
offer (purchase a car) via Internet on the BMW Ruland Trading web site. It is
fictional because all the documents must be signed physically.
(Appendix 7. Order Flow)
20

8.3 Passing of Property

The moment of passing of property (signing the documents) happens
directly when the customer comes to the dealer to pick up the car or when car is
transported to the customers place. (Still the potential customer, who ordered a car
even with specific package, can refuse to buy it even after the car is transported to
the dealer or the customers place.) The same happens with Leasing: right of use is
passed in the moment when customer physically takes the car.
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.
Other advantage is that customers have a possibility to choose from various
accessories for any BMW model. BMW is the only producer that offers this in the
premium segment.
Besides, the service of delivering the car the customers place, which is
provided for more than 5 years (whereas Mercedes for example has offered such
service for only half a year)

Conclusion

BMW is a company with a well-planned and well-executed strategy. It is a

company, which managed to recognize its distinctive capabilities and chose the
market, 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. It continues to dominate the
industry it belongs in. BMW is constantly improving its product line. It is finding
new ways to give their product a more unique identity and provide to clients
products that gives them satisfaction.
21

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.
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1. Kotler, P. Marketing Management Millennium Edition, 10th edn., Upper
Saddle River, New Jersey: Prentice Hall., 2000.
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The Wall Street Journal: p.B5.
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http://www.autoreview.ru/
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http://www.bmw.com/
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http://www.bag-eg.com/
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community that publishes economy, investment & finance reports.

http://www.economywatch.com/world-industries/automobile/auto-industrytrends.html

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http://www.plunkettresearch.com/automobiles%20trucks%20market
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http://www.testdriven.co.uk/bmw-opens-china-factory/
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http://www.eluta.ca/work-at-bmw-group-canada
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http://www.autoexpert77.ru/seryie-dileryi.html
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22.Article. BMW's Hydrogen 7: Not as Green as it Seems. Spiegel, online

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Appendixes

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