DISTRIBUTION Michel GARDEL

MARKETING STRATEGY CASE STUDY

BAYERISCHE MOTOREN WERKE AG

MBA SCIENCES PO 2007 Kaoru TANISHO Rebecca MICHEL Greaud VISINONI Alain DAYA

MBA Sciences Po 2007 Michel GARDEL

BMW Study Case

Contents
1 The Problem: BMWs position in the US market__________________________________3
1.1 PEST analysis of BMW environment.......................................................................................3 1.2 The SWOT analysis of BMW before the arrival of Gerlinger................................................3 1.3 Porters five forces applied to BMW.........................................................................................5 1.4 Summary of the Problem...........................................................................................................5

2 The marketing strategy of BMW_______________________________________________5

2.1 Previous strategy........................................................................................................................5 2.2 New strategy designed by Gerlinger.........................................................................................6

3 Reengineering: implementing the new strategy___________________________________7

3.1 Internal structure of BMW........................................................................................................7 3.2 The dealers..................................................................................................................................7 3.3 The customers.............................................................................................................................7

4 Conclusion_________________________________________________________________8
4.1 Sustainable Differentiation or Not............................................................................................8 4.2 Other ideas and critiques...........................................................................................................8

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MBA Sciences Po 2007 Michel GARDEL

BMW Study Case

1 The Problem: BMWs position in the US market

1.1 PEST analysis of BMW environment
Political: the Tax Reform Act in 1987 had an impact on deductions and depreciation, which made owning a luxury car more expensive. Later, two other taxes were added: a 10% luxury tax on cars with a price tag above $30 000 and the gas guzzler tax, which penalized the owners of cars not meeting fuel efficiency standards. Economic: the Stock Market Crash of October 1987 coupled with the change in tax policy lead to a 24% overall reduction in automobile sales. The DM/USD exchange rate changed markedly in favour of the DM. Import to the US became more and more expensive for European companies and in particular for BMW due to indexing of the cars prices to the fluctuation of the currency exchange rate. There was 25% overall increase in the price and 27% increase of the 5 and 7 series. Technology: the mass production technology of the Japanese manufacturers and their experience made them more efficient in terms of cost management, allowing them to produce less expensive cars compared to the competition. The price quality ratio was therefore higher compared to other manufacturers. Social: the consumers conspicuous consumption during the early 80s gave way to more value-oriented purchasing. Customers wanted to rationalize their consumption. So, not only was the overall luxury/performance car market decreasing, but, BMW was loosing its share in that market.

The Rest of the Luxury Automobile Market

BMW
BMW

The Rest of the Luxury Automobile Market

1.2 The SWOT analysis of BMW before the arrival of Gerlinger

The following data represents the SWOT analysis of BMW before the new strategy: Strengths:

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BMW Study Case

High Quality Long experience as automobile manufacturers (since 1923) Financially independent (no ventures or partnerships) Solid brand recognition: the BMW brand is well known and the dealers have deep respect of BMW products Very large choice of cars (11 models) compared to Japanese manufacturers which often had only 3 models with accessories making the difference between the models Artisan production process means high quality and not mass produced; makes the products special Weakness: They are only in the luxury market, so they are totally dependant on the trend of this segment The artisanal approach did not allow BMW any benefit from economies of scale and gave them an 8-year cycle instead of 4 year for new product development. Moreover, it implies high production cost. Low advertising budget (half of the Lexus budget) The dealer network was very weak, with few exclusive sellers (106/375) and financially in trouble Prestigious brand in a market in quest of more value (in terms of quality/price ratio). BMW had a reputation for having an outrageous price with less value No manufacturing facilities in the US Price dependent on the exchange rate German plants were close to their limits of production Opportunities: Winning in the US market can facilitate the expansion or help/facilitate world success Highlight other aspects of the product BMW would bring value and pleasure: have a BMW make you socially responsible driver (sofa vs. cockpit). Building a plant in the US would accommodate high price and production constraint Justify the premium and build owner loyalty Dealer relationship can be improved Diversify the products in order to allow the customers through their life Threats: Competition of the Japanese manufacturers: Lexus in, BMW out. Competitors have developed a good reputation with reliability, customer service and important dealer network BMW is small overall competitor with 1.7% of the worlds output and only 0.7% of the US market share) Competition financially stronger through ventures Competitors prices are much more attractive Change in social values and consumer buying behaviour: more valueDistribution 4/8 TANISHO/MICHEL/VISINONI/DAYA

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BMW Study Case

oriented The US market volatility: tastes change quickly Currency fluctuations The Tax Reform Act, Stock Market Crash, Lux and Gas Guzzler taxes

1.3 Porters five forces applied to BMW

New entrants: it is difficult for new manufacturers to enter this market because of the high switching cost of production facilities, the brand identity, capital requirement, learning curve and the access to distribution channels. However, other existing manufacturers could introduce new products to compete against BMW Supplier bargaining power: suppliers can be easily substituted so that they have less power on the manufacturers Customer bargaining power: it is very high since there are many choices. BMW buyers were the youngest and in the highest income bracket of the luxury segment. They were the most demanding. Additionally, BMW did not have the same standing as Porsche or Ferrari. These two manufacturers do not have to attract the customers because their name is enough. Yet, buying volume was low and access to information was high. Threat of substitutes: luxurious and safe motorcycles, teleconferencing/ commuting, airplanes, long-term lease vehicles, taxis and limousines. Market competition: the US market is one of the most competitive automobile markets in the world. The luxury segment is very dense, 20 competitors, with few buyers. There are three big Japanese companies (Lexus for Toyota, Infinity for Nissan and Accura for Honda). Several others are present (Audi, Porsche). BMW also had a weak relationship with their dealers compared to the competition. They were considered to be too policing, giving them little autonomy and no support.

1.4 Summary of the Problem

BMW was struggling with increasing competition in a shrinking market, where their brand image was no longer helpful. They had tied their price to a non-advantageous currency exchange rate leading to over inflated prices in a weak economy and a market diminished by regulation and new taxes.

2 The marketing strategy of BMW

2.1 Previous strategy
The previous strategy analysis based on the study of the four Ps (Place, Products, Price, Promotion):

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BMW Study Case

BMW is performance and quality oriented. It is a prestigious brand. The prices of their products were high (above 20 000 USD for the cheapest model) in comparison with the competition. BMW advertised little, relying on its reputation and customer loyalty to make sales. They did have a deep product line with 11 models, however. The BMW Driver was seen as a yuppie. The company was focusing on the driving pleasure and the marketing strategy led the brand to be associated with selfish people, who drive too fast, with no care for others. This brand was also associated with aggressive success and for people on the way up. (JD Power customer Satisfaction Survey) There was a lack of customer care. The dealer network was in very bad shape. Most of them did not have support form BMW and had financial difficulties. Less of 30% of the dealers were exclusively selling BMW. It implied a loss of control of BMW and as a consequence there was little attention to customer care. The price, promotion and product strategy that worked in the 80s, was no longer relevant to the 90s market due to changes in the economic and political environment which lead to a shift in the consumers values.

2.2 New strategy designed by Gerlinger

BMWs main objective was to increase sales and market share. For that, Gerlinger and his team had designed a new strategy to meet consumers needs. Price: First, he focused on the composition of the product line on the low end and the position of the price ladder overall. At the time, the cheapest BMW was almost $25,000, so Gerlinger decided to create a BMW under $20,000 (the 318i) to dispel the outrageous price image. In addition, he implemented price cuts along the 5 and 7 series lines while devising a series of goodwill programs to limit the negative impact on customers who recently purchased the same car at a higher price. Place: Then, it was necessary to proactively change the culture of how BMW takes care of its customers on every level, including in the dealership. BMW transformed their policing policy into a consultant role with added incentives to create a real partnership that added value to the distributor. This in turn allowed BMW to give the client the feeling of a prudent investment with trust and confidence. The image of the brand was then transformed to revolve around BMWThe Smart Choice. BMW had to not only focus on selling a brand, but giving a customer a heightened personal experience. They dissociated the brand from the image of the yuppie driver by showing that BMW drivers were socially responsible, concerned with value and that they do not build driving sofas like the Lexus (BMW makes you a better driver). Then Gerlinger introduced six new models in 1992 which one of which Car and Driver described as A sports sedan with its priorities straight.

Promotion:

Product:

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BMW Study Case

Thus, BMW was able to meet the customers demand for a valueoriented vehicle

3 Reengineering: implementing the new strategy

3.1 Internal structure of BMW
In order to change from a policeman to a consultant, BMW developed a series of internal and external changes. Account Manager: One of the first internal changes BMW made was to appoint an Account Manager within BMW to interface with each dealer backed up by three consultants in sales, parts & services, and a technical engineer. The account manager could call them to help with individual dealers. Thus, allowing BMW to set objectives and assist dealers in improving their financial and operational performance. Gerlinger announced Building an Organization for the Future, and its concept was to view the dealership as an integrated part of BMW. US Manufacturing Facility: In addition, BMW showed dealers serious commitment to the US market by building a manufacturing facility in South Carolina. This move also helped BMW to deal with capacity constraints back home. Michael De Marco: Finally, BMW had appointed Michael DeMarco as the leader of a two-year customer satisfaction project to make BMW a leader in customer satisfaction.

3.2 The dealers

To further strengthen dealership relationship, BMW implemented additional external changes. Retail Operations: This concept was driven by the Dealer Operating System (DOS bible) which gave a blueprint of how an ideal dealership should operate. Dealer Bonuses: Bonuses were shifted from sales volume to customer satisfaction and market penetration based.

3.3 The customers

In addition to the appointment of DeMarco, BMW also added 4 year/50,000 mile warranty on all models, post-delivery quality review, free roadside assistance, nocharge maintenance plan standard on certain models, a loaner car program and a 24hr customer hot-line.

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BMW Study Case

4 Conclusion
4.1 Sustainable Differentiation or Not
Political and economical changes lead to changes in social values and consumer buying behavior. The old business strategy needed to change and Gerlingers overall strategy helped to address several of these problems that BMW was experiencing in the US market. However, the true test of a good strategy is if it allows the company to have a competitive advantage that is durable and protectable. What is good about BMWs branding strategy is that it allows the company to use its 20 year old message that BMW is still the Ultimate Driving Machine, but now because its a smart choice that makes you a better driver. This is a durable message that adds value to an established positioning of the brand. Additionally, by setting up a manufacturing plant in the US, BMW will be able to not only better hedge its currency or economic risk by being present in multiple territories, but it makes the company more agile to react to customers needs and show its serious commitment to the market. However, the company will need to continually keep in contact with users in order to keep in touch with what those needs are in the US. The appointment of DeMarco will be key to achieving this, but the company may also wish to try to get closer to the customer. In this case, it may be a good idea for the company to try to get more exclusive dealerships so that the entire BMW buying experience is ensured from start to finish, giving BMW a lasting competitive advantage over competitors that can last a long time. Overall, the strategies put in place by Gerlinger allowed BMW to adapt to the changes in the marketplace. Certain strategies also permitted BMW to have a sustainable advantage over the marketplace, however, to continue to stay on top, BMW will need to continue to monitor the marketplace closely to adapt to future changes in the marketplace.

4.2 Other ideas and critiques

While the dealership relationship was strengthened through the various internal structure changes at BMW, it is also advantageous and ensures positive client experience to have exclusive dealerships. This helps so that when a customer buys a BMW, they dont just buy the car, but the entire purchasing experience. In this case, one other idea, would be to eventually get a higher percentage of exclusive dealerships. In order to do so, however, BMW will also have to assist dealers in their financing, perhaps by giving them loans with low interest rates. To make the strategy truly sustainable, BMW will also continually have to innovate on the product to meet market needs and perhaps reduce the new product cycle to stay as innovative as the Asian car companies.

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