 "Why BMW's focus on the deep-pocketed customer makes sense")
What sets a luxury carmaker apart from the sea of mass car companies? For one, the former gets away with charging a rather obnoxious premium for the brand, and it can do so because there are enough rich folks out there to fork out the dough. But what if the brand is no longer as exclusive any more, and the luxury marquee becomes too common on the roads?
That is the probably the worst fear for a luxury car company marketing executive. A mass car brand has it simple, it just has to sell more numbers. The challenge for a luxury brand, however, is to strike that fine balance between exclusivity and volumes; unfortunately, these are inversely proportional to each other.
BMW is one company that is clearly attempting to get this balance right, and there is some evidence to show that it is succeeding. Niche enough to keep the brand aspirational, but volumes just high enough for the economics of local production to work. In a chat a few days ago, Philipp von Sahr, the chief of BMW’s Indian arm explained how things changed in the 2012-13 fiscal for the company, when it decided it was losing too much potential revenue in an unsustainable competition with its main German rivals, Audi and Mercedes-Benz.
Gone then was the corporate edition of the 3-Series, at the time one of the cheapest BMWs in the market with a starting price of about Rs 25 lakh. The company started focusing on the more profitable top-end variants and its bigger and niche cars. The strategy has clearly had its rewards; even though BMW India’s topline fell 12% to Rs 2,024 crore in 2013-14 as per data from the Registrar of Companies, profits jumped 11 times to Rs 107 crore.
While data for rival Audi is not available because it reports financials as a whole with the Volkswagen Group, it must be mentioned that even Mercedes-Benz showed a strong growth in profits the same year. However, Mercedes’ profit growth was largely on a sharp rise in revenues – the company recorded Rs 191 crore in profit – versus a Rs 13 crore of loss in FY13 – on the back of a 39% growth in the topline to Rs 3,030 crores in the fiscal.
It is true that BMW has also launched new entry models in the past few years – the 1 Series hatchback and the X1 crossover/compact SUV, but the brand is now consciously only pushing its top-end products. BMW has thus seen volumes decline consecutively; from a high of 9,375 in 2012 to 7,327 (2013) and 6,812 (2014), while Mercedes and Audi are both retailing over 10,000 units in India. But von Sahr is clearly not worried, he says that preserving the brand from potential dilution is something the customers have told the company to focus on as well.
So, while 2015 will see up to 15 new BMW models, these will largely be in the top end of its portfolio. This includes four new M performance variants meant for track duty, and the BMW i8 hybrid sports car - all priced Rs 1 crore upwards.
(Roudra Bhattacharya covers corporates, including the auot sector, at Business Standard)