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BMW Branding Governing Product Development
Company Background
BMW's 75 year history of car production has been one of comparative stability and success. The company has grown sales and revenue to all time highs and expanded production and sales into new markets.
The company puts driving first ¡V ¡¥the ultimate driving machine' ¡V and has excelled in innovation as well as quality. The focus on technology and design is paramount within the organisation. Its management endorse and defend this perspective, identifying it as a key component of its brand, what BMW is all about. They further attribute the disastrous acquisition of the Rover brand and production facilities to the impossibility of one company successfully managing a portfolio of diverse brands pitched at different levels of the market.
At first glance, it appears that BMW is getting everything right. Its revenues are increasing and BMW ranks as the fifth luxury brand in the US. It has a stream of new developments preparing to come to market and it has ramped up production capacity to meet demand. However there are indications of concern among investors about the company's length of time to market, and associated costs; and the introduction of the 7 Series has been problematic, especially in regards to a recall, which can be disastrous for a brand like BMW which relies so much on its quality and technological advantage.
Issues
1. Has BMW proved itself capable in continuing to build and maintain a premium brand?
. Can BMW continue to pour money into flagship products with little concern for commercial viability of the resultant products?
Response
Looking at the figures presented more critically two important factors come to light; one is the slowdown in revenue growth ¡V probably coinciding with product lifecycles; and secondly the related problem of an element of cannibalisation between products.
The following graph demonstrates the problem faced by BMW. The inner ring represents sales by model in 17, the outer ring is 000. The 5 and 7 Series have lost share to the Series during a period of sales growth and global economic success. The less profitable Series have moved from representing 5% of sales to 70%, with the 5 Series dropping from 4 to 5%. Other products have been omitted for the sake of simplicity.
While this undoubtedly covers many new BMW customers at entry level, there is no strong indication of existing BMW drivers trading up to the next series.
Strengths Weaknesses
¤Brand and image ¡V global, consistent, pioneering, luxury, leader
¤Engineering & design excellence
¤Company performance ¡V record sales and profits ¡V % revenue growth ¡¥-¡¥00
¤Focus on luxury cars
¤Innovative R&D ¡V alternative fuel, new driving system
¤Fast production allowing customisation
¤Success of new Mini ¤Cost and length of development process
¤Investors' anxiety impacting share price
¤Design department separate to business ¡V poor communication
¤Loss on Rover
¤Relevance of proposed new products to BMW drivers (eg hydrogen fuel)
¤Complexity and design of 7 Series
¤Recall ¡V disastrous for brand like BMW
¤Focus on luxury
¤May have backed the wrong technology in pursuing hydrogen as alternative fuel
¤Main growth in lower margin Series
Opportunities Threats
¤Asia
¤Brand becoming increasingly important in differentiating cars
¤Alternative fuels ¡V market leader opportunity
¤Broadening of market
¤Global economy still uncertain
¤Harder to differentiate product based on quality
¤How to maintain feeling of exclusivity with such high sales
¤Alternative fuels may be slower to take off than BMW expects
¤Change in EU law means dealers must be able to sell more than one make of car
Recommendations
1. Improve management of product life-cycle.
BMW has found itself with a number of its products reaching the end of their design lifecycle within a fairly close period of time. Better management of the design process and realisation of the need for the company as a whole to meet commercial realities should assist in preventing this from recurring. Pouring money into the design process is not a sustainable proposition, particularly where it results in design for design's sake and is not responding to consumer needs¡K
. Shift focus from technology to customer.
The underwhelming reception to the radically new 7 Series is a warning shot to the company. In its quest for innovation, it has overestimated the value its customers place in new technologies. The company seem to regard BMW drivers as people who love driving and who love innovation; this is not necessarily so, many of them may be impressed rather by luxury and status. Furthermore, as the potential customer base becomes younger and more diverse, BMW may need to reconsider this positioning. The 7 Series is an example of providing solutions to needs that don't exist. The company should not risk this happening again and may need to make more incremental changes to its cars, based on solid market research. Its motorsport division is the place to showcase new technology; not showrooms. It may be the case that projects such as the hydrogen fuel car are expensive supports to the brand overall by maintaining the image of innovation ¡V but they should not be expected to become major products. This further supports the argument for making the design team more conscious of the end user.
. Maintain exclusivity of the brand / polarise further
BMW has done very well to maintain its luxury and exclusive position against the large increase in production and sales. When BMWs become commonplace in middle class areas, will they still hold the same cachet as before or will customers move on to a more exclusive and stand out brand? Is there enough differentiation between the Series to encourage customers to trade up? The German market is an interesting example given that the Series is the third most popular car.
Europe remains BMW's most important market, and new regulations mean that dealers can sell more than one make of new car. It seems likely that dealers would segment themselves along pricing lines and so unless BMW changes its distribution system, the company may well find its products competing on the showroom floor with all the other luxury brands.
While BMW stresses its focus on luxury, and claims it cannot spread across other market segments, in fact it already has three brands ¡V Rolls Royce, BMW and Mini. It has applied the BMW brand to motorbikes and jeeps. Furthermore, in common with other luxury brands, it produces a range of branded products termed a ¡¥lifestyle collection' including luggage, clothing, watches, umbrellas and key rings although it is unclear how these are sold and distributed. This would suggest the brand is being used more flexibly than the company itself claims.
The experience of Mercedes in managing and protecting its brand through the introduction of the A class, as well as the purloining of its logo as jewellery by US rappers may encourage BMW to be braver with its brand. BMW should consider, based on market research, the introduction of new categories of car while upgrading the Series to maintain its prestige status. This could be done by extending the Mini range, but that brand is so strong on its own that while successful it is unlikely to appeal to a broad range of potential BMW drivers. The company may be overinterpreting the Rover experience which involved a weak brand as well as a myriad of production and design problems.
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