1. What was BMW’s status in the market in 1986?
· Its unit sales was 96,000 cars in the US which was 6.8% market share in the luxury/performance segment in the US. (The segment of luxury cars has about 1.4 millions of retail sales in the United States.)
· Its worldwide unit sales were growing.
· Mercedes was its main competitors while its Japanese competitors haven’t entered the US market yet.
Who was buying BMW and what were they buying?
· People who positioned itself as yuppies or “on the way up.”
· They were socially responsible and skill individuals.
· They were smart, in-the know, value-oriented buyers.
· They wanted to control their driving rather than being control by their cars.
· They wanted a prestige, fun, excitement, long-term trust and confidence.
· Their ages were between 38 to 46, which was younger than the average ages of other luxury cars.
· Their incomes were between $100K to $320K.
· Most people buy 3-series, which has about 50% of its sales. It was followed by 5-series (32%) and 7-series (16%).
1. 3-series: age between 38-42, income between $100K and $140K
2. 5-series: age between 42-46, income between $120K and $220K
3. 7 series: age between 43-48, income between $220K and $330K
2. What caused the unit sales decline from 1986 to 1991
· In 1987, both Tax Reform Act and Stock Market Crash dropped the sales from $1.45M to $1.3M, which was about 20% units decline.
· The Tax Reform Act made the luxury cars more expensive. The stock market crash made the economic and emotional below to the luxury car market.
· In 1991, Luxury Tax and Gas Guzzler Tax increased the BMW price and dropped the sales below $1.1M.
· New competitors, such as Acura, Infinite, and Lexus, entered the market. They had better distribution channels. Their customer satisfactions were scored higher than BMW.
· The appreciation of DM increased the costs of German made cars.
Could BMW have prevented it given its position in 1986?
· Most of the above factors are external factors that BMW can’t control, so I don’t think BMW can prevented what were happened in 1986.
· The factor may change the BMW’s position:
1. Its pricing strategy: It raised price to offset the changes of tax and currency, which led BMW to the less competitive position. If they could reduce its profit and remain its price in the US market. It may change its position.
2. If they already had manufacturing plants in US, they may avoid some tax imposed.
If they already had some inexpensive new model ready to launch, it might
change its position.
3. Evaluate Gerlinger’s performance. What has he accomplished to date?
· Gerlinger was appointed as the president in August 1989. In 1992, he has accomplished:
· 23% unit sales increase for 1992.
· 7-series unit sales in December 1992 were up 45% from 1991 to 1992.
· New 325i had obtained good review from trade press and selling well.
· Using “Value Pricing Strategy” by successful adjusting its price structure and introducing new model to keep its existing customers as well as to attract new customers from lower price segment.
· Strengthened its value and improve its performance by redesigning BMW.
· Kept its prestige image by improving its performance and setting 10% to 15% price premium.
· Changed its relations with dealer from a policeman to a consultant by the newly created Area Managers. Areas Managers would assist dealers to improve their financial and operational performances.
· Created the Manual “Dealer Operating System” to help dealers providing better services to customers.
· Committed on customer services by shifting dealer bonuses from sales-volume-based to customer-satisfaction- and market-penetration- based.
· Increasing capacity and saving production and operation cost by manufacturing locally.
· However, according to the case, BMW’s dealer reorientation has not been fully achieved and customer care program has not been fully implemented until 1992.
Can BMW effectively compete against Lexus and Infiniti?
· Lexus and Infiniti were commented just increased their prices but not improved their features. Therefore, BMW had great opportunities to compete against Lexus and Infinite. I believe BMW can successfully compete against Lexus and Infinite if it can make the following efforts:
· Keep up its integrated plan
· Launch new product line to meet its target customers’ need: young, sporty.
· Maintain and continually improve the performance and reliability of its cars.
· Strengthen its channel relations and media relations.
· Manufacture locally to increase its margin.
· Increase its marketing budget.
· Develop its exclusive dealer network.
4. What advices would you give Gerlinger to help him achieve his 100,000 units sales goals?
· Develop its own dealer store in major affluent cities.
· Launch new models to target young customers and decrease its eight-year cycle to four-year cycle.
· Continually improve the performance of its cars.
· Increase the reliability of its cars.
· Form a BMW fan club and organize events such as golf tournament for club members.
· Provide sales training to dealers.
· Produce mini-van.