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Group
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BMW Film Case Study

Section 3

Songyan He 0022666919

Amanda Jones 0022068131

Elena Ratnikova 0022428380

Mengjia Wang 0022743340

Emily Walker 0021865942

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The Harvard Business School case from 2002 shows BMW attempting to focus purely on

branding BMW in order to surpass competition in marketing innovation, gain market share and

reach new sales goals of an additional 40% in the US. This focus on branding resulted in the

production of 5 short films under the name BMWFilms that attracted the younger generation and

neglected the current consumers. BMW should supplement this with advertising focused on their

current consumer as well as additional customer service benefits for their current consumers who

could progress from the 3 Series to 5 Series to 7 Series if properly maintained. Additionally,

BMW in efforts to differentiate itself with seven new series in 2002 may potentially cannibalize

the brand and force entrance into the mass-market. In order to avoid this issue BMW should

focus on differentiating series and cars models from each other to better target their customers.

In 2000, BMW had reached new record high sales in the United States after recovering

from a record low in 1992. Due to this new high of sales along with no new car production for

the next six months, there was an opportunity for branding BMW’s name specifically to

differentiate it from the competition. This opportunity led to the creation of five short films that

were only available online at BWMFilms.com.

BMW hired Clive Owen as well as A-list producers to create these 5 short films that

showcased BMW cars as supporting actors in dramatic plots. These films neglected the BMW

customer profile while concurrently attracting the younger potential consumers. While this was

effective in increasing share of mind in the youth, it did not focus on maintaining the current
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BMW consumer. Additionally, these films came at a great cost to BMW, spending

approximately $15 million on the films, which comes out to about 25% of their media-spending

budget. And relative to their major competitors they spent less than 50% on media advertising in

general (see Exhibit 2).

Separate from the films, BMW was dealing with an underlying conflict of whether to

maintain their focus in the luxury car segment or switch to the mass-market segment. Although

this was not a focus of BMW in 2002 it was an issue in their future due to the BMWFilms

marketing strategy as well as the expected production of the various other models: the Z4 to

replace Z3, X3 to complement X5, 1 Series, 6 Series, redesigned 7 series and the Mini Cooper.

BMW’s innovative BMWFilms were successful in attaining a high level share of mind

within younger consumers. The profile of these consumers can be seen in Exhibit 11 as a 31 year

old, male with a median income $88,000. While this market segment is of the future consumers

of BMW’s 3 Series, it neglects the current BMW consumers who own a 3 or 5 Series and may

progress to the more profitable 7 Series.

We also suggest BMW supplement the locations of their advertisements as well as target

advertisements to the current consumer. For example better targeting the upper-middle-class,

working male, advertise the BMWFilms and other BMW marketing in The Wall Street Journal,

BusinessWeek, and finance.yahoo.com where they are regular readers. As well as giving loyal

customers benefits in their customer service plans to heighten retention rates. While we still

maintain that they should continue to advertise in the younger, urban and chic neighborhoods in
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order to increase their share of mind and add to their future 3 Series consumer base. In this way

we suggest that BMW further pursue innovative marketing, not necessarily exclusively, in the

form of additional BMWFilms released quarterly.

In addition to the introduction of new films, BMW is releasing 5 new models in 2002.

BMW is producing more cars than are sustainable for a small luxury car company. “BMW

introduces more new products every year than we could ever hope to support,” (221). At this

point in 2002 BMW faces a turning point of the company. BMW should maintain its luxury

image and by doing so they will raise consumers’ perceived value of BMW cars, which is where

value-based pricing comes in determining prices by consumer’s perceived values. The higher the

consumer’s perceived value, the higher price they will be willing to pay for a product.

We believe there is no way that BMW can maintain its luxury car brand with sales as

high as 300,000 cars. As could be found in a dictionary, the definition of “luxury” is something

that is expensive and hard to obtain. However, it wouldn’t be so hard to obtain a BMW car when

there are so many out there. The higher the supply of BMW cars the less consumers are willing

to pay for it because it is not a rare item. When the supply of cars decreases, some of the people

that want to purchase a BMW will simply not be able to. For this reason, people will be more

willing to pay a premium price to buy a BMW because of its rarity. In this way, BMW can

increase their profitability. In order to support this point, according to a 2001 McKinsey study,

pricing is strongly related to profitability. McKinsey’s study found that a 1% increase in price

leads to up to 8.6% increase in profit (See Fig. 1).

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In addition to decreasing the supply of cars, we suggest BMW distinguish their different

models within each series in order to better access the current consumers. So BMW should

distinguish their different models; for example, for Sedan, Series 3, 5, and 7 should have

different appearances, so do the SUV X series. In this way, different customers’ needs will be

met once they see the diverse cars BMW offers.

According to applications of pricing consumers are heterogeneous, i.e. different. Segment

1 consumers are consumers of the 3 Series models and they are willing to pay low price.

Segment 2 consumers are consumers of 5 Series and are willing to pay moderate price, and

finally segment 3 consumers that purchase 7 Series are willing to pay high price. The 3 Series

that are targeted towards a younger generation and should have more futuristic design yet not so

many features installed. By doing so these cars will appeal to younger people by looks and price

(cost of production would be small comparing to the 7 series due to the small amount of

features). 5 Series cars should be targeted to older people, 35-50 years old, who have a higher

income than 3 Series target consumers and lower income than 7 Series consumers. The amount

of features should be higher but not as high as 7 Series. The 7 Series cars should be loaded with

different features. The design of the 7 Series cars should be more classic because the target

consumers of this type of cars would be people from older generation that have higher income

and more savings. The progression of the consumer from 3 to 5 to 7 Series is important because

BMW earns consumer loyalty and increased profit as a consumer moves up through the Series

progression. Profit margin is especially great on the 7 Series. BMW should use type 2
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discrimination, self-selection, and price 3 Series cars at low price, 5 Series at moderate price, and

7 Series at high price.

Overall, BMW must focus on both its current and future consumers as well as

maintaining its luxury name while achieving high revenue levels through a decreased supply of

cars and enhanced differentiation of models through price discrimination and distinguishable

features. Despite the fact that BMW is at its highest sales levels the company must act

discerningly due to the future implications of eroding the luxury BMW name.
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Figure 1(Source: Price Lecture Slides)

McKinsey 2001 Profit Change

1 % increase in price Up to 8.6% increase

1% reduction in variable cost Up to 5.9% increase

1% increase in quantity sold Up to 2.8% increase

1% reduction in fixed cost Up to 1.7% increase