BMWs premium status under threat

Departing BMW UK chief Jim ODonnell will be taking a few moments to reflect on a job well done as he enters his final days in the role. During his eight-year tenure, UK sales have almost doubled and the marque has extended its product range without diluting the prestige of the famous Bavarian Motor Works brand.

BMWDeparting BMW UK chief Jim O’Donnell will be taking a few moments to reflect on a job well done as he enters his final days in the role. During his eight-year tenure, UK sales have almost doubled and the marque has extended its product range without diluting the prestige of the famous Bavarian Motor Works brand.

But there are those who believe that O’Donnell, who has been promoted to president and chief operating officer of BMW North America, is leaving at a good time, with the threat of Audi looming large in Europe and several other sizeable challenges ahead.

His successor, Klaus Kibsgaard, who becomes UK managing director on March 1, may be taking on one of the most enviable jobs in the UK automotive industry, but he is also taking on one of the toughest, with big shoes to fill and even bigger expectations to live up to.

BMW has extended its range better than anyone else – with the possible exception of Audi – but some observers believe it could fall victim to its own success. BMW outsold Toyota in the UK last year and is on the verge of becoming a mass-market producer of cars.

It has so far managed to retain its premium status more successfully than brands such as Burberry and Stella Artois, which have faced similar tests in recent years. But with people living longer and incomes increasing, the premium market is booming and the balancing act for BMW chiefs in Munich – and country bosses such as Kibsgaard – gets ever more perilous.

“That’s the main task for the [UK] incumbent,” says director of the Institute of Automotive Industry Research, Professor Garel Rhys. “You have got to keep your critical mass and grow over time because your rivals are growing, but if you grow too much that will affect the way people look at your product.”

O’Donnell has been a “very solid hand on the tiller”, according to Mike Moran, managing director of motoring consultancy The Automotive Partnership. BMW’s UK sales have jumped from 67,676 in 2000 – the year O’Donnell took over – to 121,575 last year. And he has overseen the launch of models including the 1 Series and the X3, in addition to the relaunch of the Mini brand in 2001 and the reintroduction of the 6 Series three years later following a 15-year hiatus.

Those close to O’Donnell say one of his main strengths is his understanding of the company’s dealer network. Robin Wight, co-founder of BMW advertising agency WCRS, says: “The power of the BMW dealers has always been at the core of the brand’s success.”

Wight, now chairman of the agency’s parent Engine Group, continues: “I have always regarded the dealerships as temples of automotive excellence, and Jim has done a remarkable job with the dealer group.”

The diversification of the BMW range with models such as the 1 Series and the X5 means that the current line-up has no obvious gaps. Some experts suggest it may look to launch a pick-up model in the US, although most concur expansion is likely to be focused on a fourth brand.

The company, which is 46% owned by the reclusive Quandt family, admitted at the start of this year that it was considering launching a “green” marque to sit alongside Mini, Rolls-Royce and the BMW brand. A BMW spokesman confirms: “There will be a fourth brand. It will be a smaller car which is more fuel efficient and has lower emissions and will be for urban environments.”

But Rhys warns that such a launch could have a negative effect on the rest of the group’s portfolio: “If BMW launches a green brand, is that saying the main brand is non-green?”

He thinks that the advance of Audi, whose UK sales increased almost 18% last year, should be of particular concern. The Volkswagen-owned marque now outsells BMW in 11 out of 25 European markets and is within a few thousand units of its big rival in their home market of Germany. Rhys predicts Audi will overtake BMW in the UK within five years if present trends continue.

“O’Donnell has had a pretty good watch but he is leaving at a fortunate time,” adds Rhys. “There’s no doubt that Audi is the new kid on the block and is closing on BMW. Munich is very alarmed at the advance of Audi.”

However, Wight, who worked on Audi’s advertising account in the 1970s, points out that Audi used to then outsell BMW by a ratio of two to one. “Audi has totally underperformed against its potential for many years,” he says. “It will increase its volume but will always be limited by the fact that it is front-wheel drive and that you do not get the driving experience you do when you drive a BMW. Audi is an example of marketing success, rather than engineering success.”

He explains that BMW uses a “multipeak” brand strategy. In each BMW model range, there is a car that has a higher signalling status than the bottom car in the range above. For example, the BMW 130 has more status than the bottom-of-the-range 3 Series. Wight adds: “That enables you to have far more exclusivity across the range.”

Design language
Moran says BMW is in “rude health” but believes the fact that its cars have become “quite ubiquitous” has led to the brand losing some of its exclusivity. Like a number of car experts, Moran is not convinced about the “design language” imported by BMW design chief Chris Bangle. He says: “If I had a worry about BMW it would be that I think its design has lost its edge. The styling on the latest 5 and 3 Series is not as good as on their predecessors. Audi and, to some extent, Mercedes are now out-styling them and out-designing them.”

Despite these concerns, and a sharp fall in the share price earlier this month, triggered by investors who were unimpressed with group chief executive Norbert Reithofer’s four-year, €6bn (£4.5bn) cost-cutting plan, BMW remains the world’s biggest premium automotive manufacturer and arguably the world’s top car brand. But the company – and the incoming Kibsgaard – must work harder than ever if it is to stay there.

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