Running Head: BMW of North America: Case Analysis

BMW of North America: Case Analysis

Mount Saint Mary’s University, Los Angeles

BUS_192
BMW of North America: Case Analysis 1

Table of Contents

Summary ……………………………………………………………...………………………......2

Overview of BMW…………………………………………………………………………..........3

Financial Issue at BMW…………………………………………………………………………...4

Financial Recommendation…….…………………………………………………………...…….6

Marketing Issue at BMW ………………………………………………………………………....8

Marketing Recommendation…………....……………………………………………..……..…..10

Conclusion…………………………………………………………………………………..….. 12

References………………………………………………………………………………………..14
BMW of North America: Case Analysis 2

Summary

BMW began gaining popularity in the media as they began to incorporate the

customization program. Even though this idea came at a time in which North American

households were not doing so great, BMW was able to stick to the project and make it work. In

this paper, we will be discussing the different problems and issues we identify in the case of

BMW of North America and the various solutions and recommendations for the company.

For BMW, The United States is one of their biggest markets. Therefore it was a great

place to imply their customization program. One of the issues that BMV faced was that they

were unsure of whether to expand their customization initiative to both new and existing models.

The most efficient solution to this dilemma is focusing on the vehicles that are high in demand,

those that resulted in excellent consumer satisfaction, or even cars that can be revitalized.

Along the way, BMW has also encountered other difficulties. They have faced numerous

financial obstacles. BMW’s sales have only increased by 1.7% which includes China, North

America, and Europe. BMW needs to focus on what strategy to use when creating new models in

order for them to improve their sales and financial difficulties. BMW can either concentrate their

customization process to a new model or an existing model but focusing on one at the time can

help them develop higher profits and better responses from their target market.

The “ Dream it. Build it. Drive it.” initiative has been very successful and it can only get

better with time. BMW is already a leader in the industry of luxurious automobile and now has

some of the most popular customizable vehicles. On the other hand, only 15% of the BMW cars

sold in the United States market were customized. It is a new way of communicating with

customers and letting them interact with the company’s product.

Overview of the Company

BMW is a German company that has expanded globally over time. They are primarily

known for manufacturing luxurious vehicles and motorcycles. BMW is divided into three main

business segments:

1. Automotive which includes BMW, MINI, and Rolls Royce

2. Motorcycles

3. Financial Services.

BMW's vision statement states “We are Number ONE. We inspire people on the move:

We shape tomorrow’s INDIVIDUAL PREMIUM MOBILITY.” BMW is recognized for having

a competitive advantage over its competitors by offering the best experience and customer

service to all of its consumers. They are said to have the most aspirational brands, shape future

technologies, and inspire people and help communities which leads to excellent results.

BMW can trace its roots as far as March 7, 1916, from the merge of two companies

called Flugmaschinenfabrik Gustav Otto and Bayerische Flugzeug-Werke. It eventually became

known as Bayerische Motoren Werke AG. They developed their emblem in 1917 which is

composed of the Bavarian state colors and the initials of the name of the company. It was not

until the 1920's that they started to incorporate their emblem on their advertising. This symbol

has changed over the years, but it has always kept its emblematic colors. They officially became

an automobile manufacturer in 1928 when they purchased a company known as Fahrzeugfabrik

Eisenach.
BMW of North America: Case Analysis 4

BMW faced losses and relocations due to World War II since they were their leading

supplier of aircraft. BMW then became known in Germany since it was considered a German

Armament Company know for supplying war materials. They were exclusively building aircraft

for the German air forces. During those times of war, convicts, war prisoners, and camp

prisoners were forced to work under terrible conditions.

Regardless of all the struggles, BMW managed to stay afloat and is now one of the most

known luxury car manufacturers in the world. BMW of North America was established in 1975

as an importer of these luxurious vehicles, and in 1980, BMW motorcycles were included. Their

Headquarters and training centers are located in Woodcliff Lake, New Jersey.

Financial Issue at BMW

BMW, luxurious vehicle car brand, has encountered financial obstacles within the last

five years. In recent reports provided by the Business Wire, BMW of North America’s sales

from December 2017 and December 2018 are compared. The comparison reflects that BMW

sales only increased by 0.3%. When looking at the full year of 2018, BMW’s sales increased by

1.7% in comparison to the prior year. The percentage includes newer vehicles such as the

passenger and light trucks sold in North America, Europe, and China put together. Their sales

increased by 5,329 new car units in comparison to 2017. The reports also include the percentage

of deliveries and productions the group has done within the past year. Although the percentages

between those two years are positive numbers, it is what happened in between the five years that

makes the market unstable. BMW group reports a production increase of 2.1% for 2018,

however; for 2015 and 2016 BMW has a rise of 6% in productions and 5% in delivery. Though

currently, they are still reporting at an increase in production and distribution, BMW is no longer
BMW of North America: Case Analysis 5

reaching the same percentages as prior years. BMW is also offering customization for all of their

vehicles, even the ones that are not performing as well. This creates more expenses for BMW

since consumers have the opportunity to customize any model, including the ones that that cost

more to customize.

In an article by the Financial Times, BMW Group issued a statement that said,

“2019 will be a challenging year for us.” This is because there are stricter CO2 laws, advanced

technology, high tariffs, and higher gas prices. After Chief Executive Harald Krueger of BMW

announced this statement, BMW shares dropped significantly. (Financial Times, 2019).

The Business Wire has provided the BMW report of all the BMW vehicles that

were purchased in December 2018 last year in North America. Both models X3 and X5, which

range from $41,000 – $57,000, are the vehicles that are most frequently bought. Additional

vehicles that are top performers are the 3,4, and 5 series selling at $40,000 - $50,000.

Unfortunately, there are various BMW vehicles that are well below a selling threshold that could

potentially hurt the company due to its high MSRP cost. This includes BMW Z4 model, which

ranges from $70,000 – $130,000, and was only sold four times during the year for 2018

(Business Wire, 2018). Customization is currently being offered all models including the Z4

model. On the other hand, this creates a challenge for BMW since the Z4 model is not

performing well. This then leads to higher overhead cost or consumers wanting to sell their

vehicles and not being able to since it has a personalization to it.

Financial Recommendation

In order for BMW to improve its financial performance, we recommend focusing on the

expansion and mass customization of only one model at a time. By allowing BMW to focus on
BMW of North America: Case Analysis 6

one product at a time, primarily the ones that are performing well, the company will save money

but still allow consumers to experience both the customization option and the car model at a

different level. According to the case study in our textbook by Dmitry Alenuskin and Andreas

Schotter, out of 242,000 BMW’s sold in the U.S. in 2009, only 15% were customized.

(Alenuskin, 2012) This goes to show that not many consumers want to experience the

customization option BMW offers and if they do, it would not be for all of their models offered.

For example, the model X3, which ranges from $38,000-$43,000, is one of the best

selling models for BMW with higher demand and better consumer satisfaction. This is because it

is an excellent choice for BMW’s target market which consists of people who are new to the

luxury market, people in their 20’s-40’s who are stepping out of domestic or non-premium

SUVs, young families who need a “not-to-large” SUV, and empty nesters downsizing their SUV

but have the money to afford luxury. (Alenuskin, 2012) BMW model Z4, on the other hand,

ranges from $70,000-$130,000 and only four of those models were sold in one year with one of

them being customized. (Business Wire, 2018). If BMW were to offer customization after seeing

which model is their best selling, they would then save money by avoiding the high

customization expenses from models which they would not profit from. If they offer to

customize just their best selling units, consumers would feel as though they still have the liberty

to customize and still get the sense of BMW’s newer moto, “Dream It. Build It. Drive It.”

Along with controlling the number of variations and selections and still offering the

appealing program of customization for best sellers, we also recommend BMW incorporating

lower/relative cost for their products on the costly end. As mentioned before, the Z4 model

ranges from $70,000 to $130,000. Many people did not purchase this model though due to its

higher prices. According to BimmerForums.com, many consumers state that “it is costly to
BMW of North America: Case Analysis 7

maintain a Z4 and would much rather purchase a different model.” A question that rose by

Joseph Wierda, BMW X3 product manager, was “Is the personalization aspect overrated? Should

we continue to achieve it?” Our answer is no; the personalization aspect is not overrated.

On the other hand, it is crucial for BMW to achieve a personalized strategy that controls

the number of selections while still offering customization and making it appealing and low in

cost. According to BMW North America, they are set to lower their prices for the Z4 model that

is rolling out in 2020. They are setting their prices for this new Z4 M40i at $65, 690 which is a

jump for the new Z4 model from the initial $70,000-$130,000 they were priced at a couple of

years ago. (Wong, 2018) BMW prices are not too affordable, but not too inexpensive when

compared to competitors such as Mercedes and Porsche. Mercedes and Porsche have a similar

model like the BMW Z4. However, they are priced below and beyond the Z4 respectively.

Furthermore, Mercedes has new models such as AMG SLC 43 that are priced at $62,000 while

the Porsche 718 S is priced at $72,000. Being in the middle of such competitors offers BMW the

opportunity to cater to consumers who do not have the ability to overspend but have the financial

stability to purchase BMW models.

BMW can incorporate a variety of grand strategies in order to reach these

recommendations. We recommend BMW to use product development which is a grand strategy

that involves the substantial modification of existing products that can be marketed to current

customers. (Pearce, 2015) This strategy is often adopted either to prolong the life cycle of the

existing products or to take advantage of a favorite reputation or brand name. As mentioned, the

X3 model is the best selling model which resulted in high consumer demand and satisfaction. If

BMW were to develop their products using the strategy behind the X3 model, they could attract
BMW of North America: Case Analysis 8

satisfied consumers to these new products as a result of their positive experience with their initial

model.

Marketing Issue at BMW

Henry Ford once said, “you can have any color, as long as it’s black” (BMW of North

America, 2012). Many companies resorted to creating new programs and inventions with the

goal to meet customers requests and desires. But in today’s generation, companies have realized

that one-size-does not fit all anymore. Now mass customization has changed the auto

manufacturing industry by allowing customers to personalize everything they buy. In keeping the

car design standard and straightforward, it ensured that expenses decreased and the need for

skilled workers to be unnecessary. However, mass customization has improved efficiency,

innovation, lower inventory levels, job-time reduction, cost reduction and increase cash flow.

Not only has mass customization improved the efficiency for companies, but it has allowed them

to cater to a whole new target market, such as trendsetters. Mass customization allows for

companies to focus on customers by providing them with a unique value in an efficient method.

There are four approaches for customization: collaborative, adaptive, cosmetic, and

transparent customizers. The customization approach used in BMW is collaborative, which helps

companies create a dialogue with customers to discover their needs and wants. Most importantly,

this approach helps customers articulate their needs to ensure they are receiving a product fit for

them. This collaboration between customers and manufactures gives an opportunity for BMW to

build a relationship with its customers as there is a high involvement of the customer in the

process of creating their dream car.

The automotive industry is a highly competitive market. Thus, it is important for BMW

to create differentiation by offering a unique relationship to the customers with the brand. This

encouraged BMW to implement a sales and marketing program that would allow customers to

customize their BMW X3 SUV and have it delivered to their home in a matter of weeks. The

mass customization program proved to be a successful strategy for BMW of North America as it

boosted the sales of BMW X3 to 450% in 2011 (BMW of North America, 2012). For example,

the program became a phenomenon on media as it received attention for celebrities such as

Martha Stewart, who customized her on BMW X3 live on her show called The Martha Stewart

Show. Factors that have contributed to the success of BMW customization program was its

media coverage through T.V programs and “My BMW” accounts that allow customers to see

their car be built from scratch.

Intrigued by the positive reaction towards BMW’s customization program called “Dream

it. Build it. Drive it.,” Joseph Wierda, BMW’s X3 Product Manager, wondered whether BMW

should expand the customization to new or existing models. The most effective solution is to

focus on promoting customization on vehicles that are in high demand rather than spending

resources on creating new models that will increase expenses. Not only will the customization of

existing products lower the cost manufacturing and distribution, but an opportunity to revitalize a

product. In return, BMW will have the ability to focus on the new era of “post-just-in-time”

manufacturing. This will modify the BMW customization process as customizers will not only

be able to build it but immediately drive it within days.

Marketing Recommendation
BMW of North America: Case Analysis 10

In addressing the issue of mass customization, it is recommended that BMW continues to

place a focus on existing models instead of expanding to new models. Although by focusing on

current models BMW would be able to expand the product life cycle for their vehicles. Based on

the case study provided in the textbook by Dmitry Alenuskin and Andreas Schotter the X3 series

vehicles fell into this category of product life cycle expansion due to their dramatic 86% drop in

sales in 2009. In contrast by 2011 the X3 became one of the best-selling models for BMW in

2011 due to its new motto, “Dream It. Drive It. Build It.” which goes to show that the

customization program revitalizes sales.

Mass customization allows BMW to provide customers with their dream vehicle as

they would be a part of the creation process. The mass customization process is seen as a win-

win situation for both the customer and dealers as customers would not have to worry about

paying premium prices and dealers would not have to finance larger inventories. Based on an

article in the Harvard Business Journal by Joseph Pine, Bart Victor, and Andrew Boynton in

order for mass customization to work it must be instantaneous, costless, seamless, and

frictionless (Harvard Business Journal, 1993). In the attribute of instantaneous BMW must be

able to identify the consumers need and provide such product rapidly. Costless, seamless, and

frictionless all fall into a similar category as the main goal is to ensure customer satisfaction in

price, quality, and experience. BMW incorporates all four of these qualities into their program

but requires some re-adjustments to remain successful.

In 2011 BMW experienced an enormous increase in sales of 450%, “a very successful

year for us. We are "spot on" with our new models and are building the cars people desire," said

Ian Robertson, sales and marketing chief at BMW, at the Detroit auto show. Although their

campaign was a success, there were areas for improvement such as catering to the American
BMW of North America: Case Analysis 11

consumer who was more impatient about waiting for their customized vehicle Americans would

rather pay lower prices in exchange for a different color or fewer features. In an article by Forbes

Joana Muller mentions how James O’Donnell a senior executive at BMW at the time wanted to

place a focus on the manufacturing process for the customized vehicles where the turn-around

time would be two to six weeks. BMW faced this issue by manufacturing a majority of the

customized cars in South Carolina. Although BMW had the goal of delivering a customized

vehicle with two weeks their average delivery time is five to eight weeks based on Automotive

News post by Larry Vellequette in 2016 (Automotive news, 2016).

In attempts to enhancing the customer experience, we recommend BMW to adapt the

grand strategy of innovation. When approaching their new target market of people between 20-

40 years of age BMW has created an online service which allows their customers to watch the

creation of their dream car. This experience would enable consumers to be a part of the three

stages of the sales process the initial internet search is the “Dream It” portion where the

consumer is searching for the vehicle that best fits their needs. The second stage is the individual

customization of the vehicle, “Building it,” via the BMW website in which the would be

connected to the creation videos based on the consumer's order. Lastly, the delivery portion in

which the consumer would receive their customized vehicle at home to complete the final stage

of “Drive It.” The new strategy is aimed to create a more personable and pleasant experience

which should attract those in their 20s-40s. The use of innovative technology gives BMW a

competitive advantage as stated by Wortman a senior vice president brand at BMW, “They want

brands that behave like human beings" (Autoweek, 2017). Wortman explains that their new

target market of millennials place a focus on experiences which is what BMW is looking to
BMW of North America: Case Analysis 12

achieve through their unique creative experience. The incorporation of their recent self-driven

car shows how they are working towards attracting their new market of 20-40 year olds.

Conclusion

In conclusion, after analyzing the case of BMW of North America, we identified two

main issues. The first issue we identified is whether BMW should expand the customization to

new or existing models. BMW should focus its customization program to vehicles that are in

high demand instead of spending resources on creating new models. Doing this will allow them

to cater to the current target market and provide them with what they want and need. If BMW

continues creating new models and customization options for all of them, there will be no change

in its performance. They can also expand it to vehicles that can be revitalized and cars that are in

high demand before.

BMW also has to focus on manufacturing fewer cars, offering lower prices while still

keeping their production costs relatively small, and determine which cars they can offer

customization for. Doing this will allow BMW to reduce expenses and lower the levels of sitting

inventory while still offering its consumers the sense of “Dream It. Build It. Drive It.” Using the

grand strategies such as Product Development and innovation will allow BMW to focus on

meeting their target market needs, which in return will reduce expenses from over-producing

vehicles that are or will never be bought. When it comes to the financial issue, we recommend

using the strategy that was used in their X3 model in order to focus on what can be the most

profitable option for the company. Because expanding this customization program can be very

expensive and can cause them to spend resources on vehicles that will not be very successful, we

recommend offering customization for just the vehicles that have proven to be “best-sellers.” The
BMW of North America: Case Analysis 13

customization initiative is excellent, and BMW has a loyal target market which allows them to

make changes now. We strongly believe that if BMW considers our recommendations, they will

be the leading company in the luxury car industry.

References

Alenuskin, D. & Schotter, A. (2012). BMW of North America: Dream It. Build It. Drive It.

Retrieved from https://hbr.org/product/bmw-of-north-america-dream-it-build-it-drive-

it/TB0301-PDF-ENG

B. Joseph Pine IIBart VictorAndrew C. Boynton. (2014, August 01). Making Mass

Customization Work. Retrieved from

https://hbr.org/1993/09/making-mass-customization-work

BMW Group. (2018, December). BMW Annual Report 2018: Milestones in Future Mobility.

Retrieved from https://www.bmwgroup.com/content/dam/bmw-group-

websites/bmwgroup_com/ir/downloads/en/2019/gb/BMW-

GB18_en_Finanzbericht_190315_ONLINE.pdf

BMW Reports December 2018 and Year-End U.S. Sales. (2019, January 03). Retrieved from

https://www.businesswire.com/news/home/20190103005729/en/BMW-Reports-

December-2018-Year-End-U.S.-Sales

BMW Working to Attract Millennials with M2 and X1. (2015, November 03). Retrieved from
BMW of North America: Case Analysis 14

https://www.bmwblog.com/2015/11/02/bmw-working-to-attract-millennials-with-m2-

and-x1/

Campbell, P. Samson, A (2019, March 20) BMW warns on 2019 profits ‘challenging’ year.

Retrieved from https://www.ft.com/content/e01cc1e8-4af0-11e9-8b7f-d49067e0f50d

COMPANY INFORMATION. (n.d.). Retrieved from

https://www.bmwusa.com/about/bmw-of-north-america.html

History. (n.d.). Retrieved from https://www.bmwgroup.com/en/company/history.html

Millennials are ruining traditional automotive marketing. (n.d.). Retrieved from

https://autoweek.com/article/car-news/millennials-are-ruining-traditional-automotive-

marketing

Muller, J. (2012, July 16). BMW's Push for Made-to-Order Cars. Retrieved from Muller,

J. (2012, July 16). BMW's Push for Made-to-Order Cars. Retrieved from

https://www.forbes.com/forbes/2010/0927/companies-bmw-general-motors-cars-

bespoke-auto.html#5d1e4b872651

Pearce, J. A., & Robinson, R. B. (2015). Strategic management: Planning for Domestic

& Global Competition (14th ed.). New York, NY: McGraw Hill Education.

Business Segments. (n.d.). Retrieved from

https://www.bmwgroup.com/en/company/business-segments.html

Should you special order your new BMW? (n.d.). Retrieved from

https://www.cartelligent.com/blog/should-you-special-order-your-new-bmw

Thread: Maintenance costs from high mileage z4 owners? (2010, September). Retrieved from

https://www.bimmerforums.com/forum/showthread.php?1527077-Mantenance-costs-

from-high-mileage-z4-owners
BMW of North America: Case Analysis 15

Wong, J. (2018, December 11). 2020 BMW Z4 M40i's $65,690 base price leaked. Retrieved

from https://www.cnet.com/roadshow/news/2020-bmw-z4-m40i-65690-base-price-

leaked/