[RedStripe]

August 2, 2006
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Brawny BMW Seeks 'the Idea Class'

By NEAL E. BOUDETTE and GINA CHON
August 2, 2006; Page B1

Over the last five years, BMW AG had its foot pressed hard on the gas, increasing sales in the U.S. by 62%, a rate that has outpaced just about every other auto maker. Now the German company is making a bold move in hopes of maintaining its breakneck pace.

For well over a decade, BMW has focused its marketing almost exclusively on its cars' German engineering and technical sophistication, and targeted its message to one very specific customer group -- upscale auto enthusiasts.

In a break with that formula, the company is promoting a corporate culture of independence and innovation. One advertisement in a new campaign that has turned heads in the auto industry highlights the design by architect Zaha Hadid that BMW chose for a striking glass-walled factory in Leipzig, Germany.

BMW hopes the approach will broaden its position in market share and appeal to a group the company calls "the idea class" -- upscale car-buyers who are swayed more by artistic values than horsepower.

Despite its aesthetic nature, the effort is all about business. BMW needs to fend off rising competitors like Nissan Motor Co.'s Infiniti brand and the Acura unit of Honda Motor Co. that offer credible performance vehicles for far less money. The company also aims to grab a bigger share of the U.S. market as part of an ambitious global plan to increase sales of BMW-branded vehicles to 1.6 million a year by 2010, from just over one million this year.


BMW's new ads promote the car maker's innovation.
"Our opportunity to grow exists in the U.S.," says Tom Purves, chief of BMW's North American sales arm, noting the company has less than 2% market share in the U.S. -- about half its share in Western Europe and well below the roughly 10% it has in Germany.

"Why can't we sell more in the U.S.?" Mr. Purves says. "If we doubled our market share, that's a huge volume increase for us and that's what we have in Europe. We thought that was possible, but we had to think about it in a different way."

BMW's new direction reflects the intensifying competition in the luxury-car segment, a key battleground that generates a big chunk of the industry's profit.

The baby-boom generation, which is now in its peak earning years, will drive increasing sales of luxury cars for the next several years, says Michael J. Jackson, chief executive of AutoNation Inc., the nation's largest chain of auto dealerships. "Luxury cars will be a crucial high profit opportunity."

BMW's shift in direction began last year, after an internal study revealed 1.9 million consumers bought luxury cars in 2004, and 1.4 million of them didn't even consider BMW. Of those, about 600,000 said they were looking for cars that are fun to drive -- which should be BMW's forte. "That is low hanging fruit," says Jack Pitney, BMW's head of marketing in the U.S.

Instead, many of these buyers ended up choosing Saab, the Swedish brand of General Motors Corp., or the Japanese luxury brands Infiniti, Acura and Toyota Motor Corp.'s Lexus unit.

One reason these buyers overlooked BMW is that they know little about the brand. Steven Bennett, an optometrist who owns two busy vision centers in Ann Arbor, Mich., admits he likes a car with some kick. "I like power. I like being first off the line," he says. He drives a Lexus LS430, which he bought in 2002 for $54,000. When he bought the car, BMW never crossed his mind. "I've never driven one. I've just never given them a thought."

Mr. Pitney says BMW realized it had to do a better job of reaching out to customers like this. Last fall it decided to switch advertising agencies and chose GSD&M, an Austin, Texas, agency. GSD&M suggested BMW target the wealthy group of high-achievers author Richard Florida described in his recent book, "The Creative Class."


This "idea class" is made up of self-motivated architects, professionals, innovators and entrepreneurs, and numbers about 1.5 million people. They typically are not car nuts although they buy luxury automobiles. They prize innovation, authenticity and, above all, independent thinking.

To appeal to them, GSDM crafted a series of ads to show that these values also run deep in BMW's corporate culture. "BMW is known for performance but there's so much more to this company," said Lee Newman, an agency executive who works on the BMW account.

One ad listed other luxury brands and their corporate parents, suggesting rivals like Cadillac and Acura have to make compromises to cooperate with their mass-market sister brands, Chevrolet and Honda. The ad showing the Leipzig plant asked, "Would a parent company let us build this?"

The ads are intended to say that BMW, as an independent company, can put its ideas into reality, Mr. Purves says. "It should appeal to the idea class that we are independent, that we are free to do something."

Going beyond straight advertising, BMW recently said it is now sponsoring a PGA Tour golf tournament that will be called the BMW Championship, one of four tour playoff tournaments. The golf sponsorship completes BMW's three-pillar sports strategy, which also includes sponsorships in Formula One and the America's Cup. The BMW golf tournament will be held at golf courses in Chicago and other cities in the Midwest, where BMW hopes to increase sales, Mr. Purves says.

Write to Neal E. Boudette at neal.boudette@wsj.com and Gina Chon at gina.chon@wsj.com

URL for this article:
http://online.wsj.com/article/SB115447865020324063.html

[findtom]

IMO many people don't consider BMW because they think they are way more expensive than they actually are.

[findtom]

BTW... cool article. Thanks for sharing.

[Bimmerista]

That graph omits one very important fact: Lexus would be nowhere without the Rx330/350/Rh.

40% of Lexus' sales are Rx sales-they are very dependent upon a single product for their success. Their cars do not sell as well as the competition and their other trucks are not a factor either. The Lexus success is much less relevant in this light. To their credit, they have so far succeeded in protecting Rx sales. But the competition for crossovers is increasing, and we'll see whe Lexus will be 18-months from now.

[findtom]

Originally Posted by Bimmerista

That graph omits one very important fact: Lexus would be nowhere without the Rx330/350/Rh.

40% of Lexus' sales are Rx sales-they are very dependent upon a single product for their success. Their cars do not sell as well as the competition and their other trucks are not a factor either. The Lexus success is much less relevant in this light. To their credit, they have so far succeeded in protecting Rx sales. But the competition for crossovers is increasing, and we'll see whe Lexus will be 18-months from now.

BMW must have a huge % chunk of sales in the 3-series though, don't they?
Doesn't the Cayenne make up more than half of Porsches sales too now?


BTW.... I drove the RX around a course at a BMW x-drive event. It was absolutely horrible, it feels and handles like a minivan. The IS on the other hand I quite enjoyed driving but didn't like the interior at all or the light steering.

[Bimmerista]

Originally Posted by findtom

BMW must have a huge % chunk of sales in the 3-series though, don't they?
Doesn't the Cayenne make up more than half of Porsches sales too now?


BTW.... I drove the RX around a course at a BMW x-drive event. It was absolutely horrible, it feels and handles like a minivan. The IS on the other hand I quite enjoyed driving but didn't like the interior at all or the light steering.

OK, good point. But the 3 series is comprised of several model lines, sedan, coupe, AWD, wagon, convertible, different engines.

The Rx is one model one config (other than options).

Porche is a specialty manufacturer, I would not really use as a comparison.

[foofighter]

the ES/IS/RX is essentially Lexus bread and butter sellers. They'll continue to sell the Rx as the new gen is due to come out soon.

[whippersnapper]

Originally Posted by Bimmerista

That graph omits one very important fact: Lexus would be nowhere without the Rx330/350/Rh.

40% of Lexus' sales are Rx sales-they are very dependent upon a single product for their success. Their cars do not sell as well as the competition and their other trucks are not a factor either. The Lexus success is much less relevant in this light. To their credit, they have so far succeeded in protecting Rx sales. But the competition for crossovers is increasing, and we'll see whe Lexus will be 18-months from now.

40% of BMW's sales are 3 series a single model line so your point? In additional despite your claim of over reliance of Lexus on the RX SUV, the ES300/IS250/350 outsell the 3 series anyway. Put it another way, BMW has 2 product families making up over 15% of sales and Lexus has 3. Time to take off the BMW shades?

[ward]

nobody buys cadillacs


that survey's just incorrect

[findtom]

Originally Posted by whippersnapper

40% of BMW's sales are 3 series a single model line so your point? In additional despite your claim of over reliance of Lexus on the RX SUV, the ES300/IS250/350 outsell the 3 series anyway. Put it another way, BMW has 2 product families making up over 15% of sales and Lexus has 3. Time to take off the BMW shades?

Maybe we should look at worldwide sales before we take off the shades?

[findtom]

Originally Posted by ward

nobody buys cadillacs


that survey's just incorrect

Well, they do... but they're dying of old age. Except for the Escalade caddys are geezer cars.

[mkoesel]

Originally Posted by Bimmerista

That graph omits one very important fact: Lexus would be nowhere without the Rx330/350/Rh.

Not to mention the ES 300/330/350. I thought I recall the ES being the best selling luxury car in the US. Meanwhile Lexus tries to shift sales into the more prestigious RWD luxury segments with its renewed IS/GS/LS, and where its competitors flourish (although Cadillac retains the FWD DTS, which I believe is also their biggest seller). Unfortunately, you won't be able to send a unified marketing message to your customer base, like BMW and Mercedes do, with the stodgy ES littering up the dealership lots. Its just an uphill battle.

Furthermore, on the worldwide front, Lexus, Infiniti and Acura are at a huge disadvantage because all of their cars are already sold under Toyota, Nissan and Honda brands in other markets. Its hard to sell a badge engineered luxury car. Because of this (and other factors), the luxury brands are having fits making any sales outside North America.

[mkoesel]

Originally Posted by ward

nobody buys cadillacs


that survey's just incorrect

Take a trip to Detroit. You cannot walk out your door without bumping into one. From what I can gather, rather like the situation with BMWs out in your neck of the woods.

[Frosty]

As a younger....well lets say younger then the average Caddy buyer... I have to say Cadillac has made LEAPS on the styling front.

I almost had to hit myself for liking the CTS and the XLR... the XLR is a beautiful coupe....

I can’t believe I am saying this...

~Frost

[antidentite]

Honestly, I wouldnt really like it if there were twice as many BMW's in the US as there are now. I like being one of the few people I know who drives one, and that's also part of the reason I'm willing to pay more for one.

If BMW wanted to sell more cars, they'd have to compete more on price, although I cant blame BMW for trying to increase sales.

[whippersnapper]

Originally Posted by findtom

Maybe we should look at worldwide sales before we take off the shades?

Not really, Lexus is a brand designed for the US market so the relevant comparison is US only.

[findtom]

Originally Posted by whippersnapper

Not really, Lexus is a brand designed for the US market so the relevant comparison is US only.

They sell in other markets as well.

[ChrisPA]

Originally Posted by findtom

IMO many people don't consider BMW because they think they are way more expensive than they actually are.

I would agree with this. My dad has a 3 series convertible (I'm still in my 6+ year old A4 but getting a 3 series very soon, so I can't speak from personal experience), and he tells stories of people at his work - they drive around in their 30-40k SUVs and tease him about his expensive car. They're not malicious about it, but they seem to genuinely believe that his 3 series cost twice as much as their SUVs... its pretty funny that they don't believe him when he tells them otherwise.

When BMW says they want to continue growing their marketshare, I believe they could do it - just think of all those V6 Camry and Accord owners that pay close to 30k - if they knew $5k more could get them a 325, more than a few would do it...

[whippersnapper]

Originally Posted by findtom

They sell in other markets as well.

Sure but not too many and the reason is the product is optimized for a US audience which like many other things means it isn't that palatable elsewhere.

e.g in the first ten months of 2005 Lexus sold 15 times less as many cars in Europe as it did in the USa despite the fact that BMW and Mercedes sold twice as many cars in Europe as the US.

So the relative difference 30x less. Let's just say that Lexus makes there cars available for sale in Europe rather than actually selling them

[whippersnapper]

The idea class seems to be loosely defined...artchitects, professionals (defined how?), innovators and entrepreneurs??

[Josh49]

Originally Posted by whippersnapper

The idea class seems to be loosely defined...artchitects, professionals (defined how?), innovators and entrepreneurs??

I think they're looking for men who aren't interested in horsepower. So basically the target population size can be taken from the number of men who both need a car, and like other men.*


Seinfeld Disclaimer:
*not that there's anything wrong with that

[whippersnapper]

Well prima facie anyone who buys a 3 series is probably gay then since the BMW is underpowered compared to almost all alternative options