pricing strategy of BMW

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Advertising in Marketing Research

BIRLA COLLEGE OF ARTS, SCIENCE AND COMMERCE

Name: Jakesh P. Dalal Dalal Roll no. : 55 Subject: Advertising in Marketing Research Topic: BMW Pricing Subject professor: Mr. Vijay Tondon Class: T.Y.Bmm (Advertising, (Advertising, English Medium) Submission Date: 19/03/2013

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Acknowledgement I would like to express my heartfelt gratitude to my project guide Mr. Vijay Tondon without whose invaluable support and continuous guidance this project would have remained a pipe dream. As per his initiation on me into this project and for his constant source of inspiration and encouragement. I would also like to thank my parents and my friends, who have stood by me whenever needed, and without whose support this task would not have been accomplished. I would like to thank all the people for co-operating with me and to provide their precious time and necessary information regarding the project. Above all, I would like to thank God for giving me the courage and strength to completed the assigned task in the stipulated period of time. Without the help and support of these people, this report would have been very difficult to Accomplish.

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Approval Sheet This is to certify that the project is a genuine record of studies carried, under the guidance of Mr.Vijay Tondon, in partial fulfilment of the requirement for Bachelors of Mass Media.

Submission date: 19/03/2013

Signature:

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PRICING

Introduction Pricing is the process of determining what a company will receive in exchange for its products. Pricing factors are manufacturing cost, market place, competition, market condition, and quality of product. Pricing is a fundamental aspect of financial modelling and is one of the four Ps of the marketing mix. The other three aspects are product, promotion, and place. Price is the only revenue generating element amongst the four Ps, the rest being cost canters. “ The aim of the pricing research is not to find what customers like, but what they are willing to pay and so what the optimum price point is to maximise profit or revenue or market share.” Price adaptation is the ability of a business to change its pricing models to suit different geographic areas, consumer demands and prevailing incomes. Marketing plays a significant role in price adaptation because pricing strategy is one of the four main components in determining product positioning, which is is how a company chooses to present products to consumers and generate interest. The more adaptability a business has, the better chance it has of appealing to more consumers.

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What a price should do...!! 

achieve the financial goals of the company (e.g., profitability)

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fit the realities of the marketplace (Will customers buy at that price?)

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support a product's positioning and be consistent with the other variables in the marketing mix

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price is influenced by the type of distribution channel used, the type of promotions used, and the quality of the product

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price will usually need to be relatively high if manufacturing is expensive, distribution

is

exclusive,

and

the

product

is

supported

by

extensive

advertising and promotional campaigns 

a low price can be a viable substitute for product quality, effective promotions, or an energetic selling effort by distributors

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Pricing Research Techniques

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Willingness to Pay – Consider simply asking respondents “How much would you be willing to pay for this?” when first researching pricing for a new product or service category. This technique is most useful as an input to subsequent, more elaborate pricing research. Van Westendorp PSM – When first mapping out consumer perspectives on price ranges for a product or service, this four-question battery created by Peter Van Westendorp can be used to identify prices that are considered too cheap, cheap, expensive and too expensive. Newton, Miller and Smith’s Extension to Van Westendorp PSM – This two-question battery follows up the Van Westendorp questions by asking about purchase likelihood at the prices the respondent has identified as “cheap” and “expensive”, allowing you to construct a purchase likelihood curve from the results.

Monadic Price Testing – Once you understand the market‟s perspective on appropriate different price points, you can test those price points against one another. Present only one price point to each respondent, then compare purchase intent across the different response cells. Sequential Monadic Testing – If you don‟t have enough sample to use monadic price testing, consider asking respondents their purchase likelihood at 7-8 different price points. Less reliable than monadic testing, but less expensive as well. Value Maps – When considering the competitive pricing environment, graphing perceived quality against perceived cost can be used to identify which brands are likely to gain, maintain or lose market share. Conjoint Analysis – If you are testing different product or service configurations, as well as price, consider using a conjoint study instead. Beware though – pricing can confound conjoint studies, as the price listed is often used by respondents as a proxy for quality. Conjoint is not appropriate for all categories. However, such studies are great for producing market simulators that include brand references and can be used to model competitive pricing changes. Elasticity Models – Real-world purchase data from suppliers such as Nielsen and IRI can be used as inputs into elaborate pricing models designed to account for rises in commodity prices, category elasticity, item elasticity, different retail channels and more.

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BMW Prising Research BMW regularly undertakes research into their customer‟s occupations and hobbies. The information is used across all areas of the business, from the design and development of the cars, through their premium pricing and all elements of the marketing mix. In the late 1990‟s, BMW sensed the attitudes and values of luxury -car buyers were changing with more emphasis on family and leisure time. These new upscale consumers included aging baby boomers, yuppies who had started families, and liberal-minded wealthy professionals. Research indicated they would want more vehicle choices and more eye-catching designs to suit their changing lifestyles. With its future at stake, BMW made an ambitious gamble: It invested heavily on broadening its single, narrow product line into a whole spectrum of upscale cars. It also acquired Rolls Royce and re-launched the Mini, the British cult car of the „60s. It put the BMW brand on sport-utility vehicles, convertibles,roadsters and most recently, a compact car.

Launching of MINI COOPER

BMW is very clear about its targeting. It only targets the premium-priced cars and does not strive to compete in every segment of the auto industry. It avoids the high-volume market of middle-of-the-road vehicles and focuses strictly on the luxury sector. The Mini, for example, is smaller than a Honda Civic, but is priced at about Rs.26,00,000 more. This strategy has made BMW, despite its relatively small size, one of the world‟s most profitable car makers.

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Pricing Research SIGMA was the company charged with researching the market. Sigma a German research firm has pioneered a method of predicting shifts in consumer tastes. SIGMA looks beyond demographics such as age and income. It often interviews consumers for hours and even photographs their homes and offices to build a picture of the mindset of different consumers. Sigma predictions were that there would be significant expansion of the luxury car market. What Sigma‟s research found was the „I‟ve made it‟ attitude of the 1990s BMW driver, what they called the „social climbers‟ was now changing to a more family friendly group. They foresaw that as the yuppies declined, other groups with different upscale mindsets would increase in number. They suggested four segments going forward and BMW reacted to the new segments by introducing a car to match 3 of them: 1. “Upper liberals,” includes socially conscious, open-minded professionals often with families who were successful in the 90s. They were predominantly Volvos, Saabs and SUVs drivers What did BMW do? For upper liberals, BMW added the X5, which priced 50 to 70 lacks. This is a SUV that the company prefers to call a “sports activity vehicle,” in a bid to appeal to this group‟s active lifestyle. 2. “Post-moderns” are high-earning innovators like architects, entrepreneurs and artists. They are highly individualistic and gravitate toward headturners like convertibles and roadsters. 3. “Upper conservative” are wealthy, traditional thinkers. They‟ve never been that interested in driving sporty cars like BMWs, and consider luxury and comfort over driving performance. They would normally purchase the Mercedes S-class and Jaguar as they strive for elegance and sophistication. What did BMW do? BMW-developed the Rolls Royce Phantom, which sells for about 4 to 5 Crore conservatives.

and is intended for the very wealthiest upper

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4. “Modern mainstream.” These are family-oriented and active and normally purchase the near-premium brands like Honda or Volkswagen: BMWs were considered too expensive for them. But increasing numbers of them are looking to move up above the middle class and are open to luxury-brand cars. What did BMW do? In 2001, BMW launched the new Mini, aimed at upper-middleclass buyers who were not quite affluent enough to buy a real BMW. This group is also the target market for the new BMW compact, the 1 Series. The Mini brand provided the company with the opportunity to enter a very different segment of the automobile market whilst reducing the risk of affecting perceptions of their existing brand.

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Background of BMW Group BMW (Bayerische Motoren Werke) in English (Bavarian Motor Works) Group is the leading car manufacturer and seller in the world. BMW Group is a German company and manufacturers of automobiles and motorcycles. BMW Group is the parent company of BMW MINI and Rolls Royce car brands. BMW was founded by Karl Friedrich Rapp in 1913, under the name of BFW (Bayerische Flugzeug-Werke). But due to difficulties of over expansion, Rapp left and the company was owned by Franz Josef, an Austrian industrialist in 1917. The headquarters of BMW Group is in Munich, Germany, the famous four cylinder building which was developed in December 1971. BMW Group employs more than 1 million employees in more than 40 countries. BMW Group has worldwide subsidiaries and manufacturing plants in Germany, the UK, the USA, Egypt, China, South Africa, Brazil, South Africa etc.

The business strategy of BMW Group is based on having a powerful brand image. This strategy forms the foundation of the success of the BMW Group. BMW Group believes in maintain core values as technology, innovation, performance, quality, reliability, exclusivity and customer satisfaction. The company slogans of BMW Group in English i.e. “The Ultimate Driving Machine” and “Sheer Driving Pleasure” give us an overview of the marketing strategy it adopts. The strategy of BMW Group is clearly defined on the homepage of the company i.e. “Identify

potential

and

encouraging

growth.

Knowing

what

we

represent.

Recognizing where our strengths lie and making the best use of every opportunity. Goals we have attained are in essence the point of departure for new challenges”.

BMW Group mission statement is defined as “to be the most successful premium manufacturer in the car industry”.

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Positioning . Segmentation for BMW: BMW Group has a strategy of targeting their customers by using segmentation. Geographically, BMW Group targets the areas that are more industrialized like Europe, North America, some parts of Asia and Africa i.e. China and South Africa. More than 70% of sales of BMW cars are recorded in Europe and North America. BMW Targeting:

BMW Group targets people who are aged between 25 and 40 because these people have a successful image. By, these people have a clean modern look and a feel good factor. BMW Group focuses on being labeled as a “luxury car” and “a foreign or international car”, so BMW Group does not look to target one ethnicity or citizenship. The aim of BMW Group is to target customers that have an income of 25,000 Pounds. BMW Positioning:

There is a quotation on the website of the BMW Group, which says that “the image that BMW Group has positioned itself in exclusivity, performance, quality, technologically advanced producer in the world. The markets BMW position themselves are very competitive”. Most of the people value “a feeling of safety” while using BMW, which positions BMW Group ahead of its competitors in customer satisfaction.

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Marketing Mix Product:

BMW Group wants an efficient and dynamic look to their products. The major emphasis of BMW Group is on product innovation and development. The latest versions of BMW Group include BMW 1 Series, 3 Series, 5 Series, 6 Series and 7 Series, BMW Z4-Roadster etc. The most recent version of MINI includes the “MINI Countryman”. In recent times, BMW Group has started making smaller cars, which shows the company‟s innovative structure. Price:

The prices of BMW Group are based on a differentiated strategy. This means that they charge extra for premium quality. This difference in prices is due to each cars different engine size, gear levels, fuel consumption, sports version. Promotion:

The BMW Group uses different slogans and advertisements for the promotion of its products. WCRS has been the advertising agency of BMW Group since 1979. The company invests a large amount of money for their cars in films e.g. the film “The World Is Not Enough”. James Bond drove the new Z8 before the car was launched and in “Austin Powers 3-Goldmember” the MINI Cooper was used. These advertisement techniques have really helped BMW Group in their promotion of the cars. BMW Group also promotes its cars by using slogans such as “The Ultimate Driving Machine” and “Sheer Driving Pleasure”. Place & Distribution:

The website of BMW Group regarding Placement and Distribution say that “BMW have 156 dealers in the UK who are franchised to sell BMW cars, additionally 148 dealers are franchised to sell MINI Cooper. Worldwide BMW operate in 100 different countries with over 4.400 dealers which are authorized to sell both new and used cars, parts and after sales service products”. (www.bmwgroup.com) Pricing Strategy of BMW:

The pricing strategy that the BMW Group adopts is based on several key trends. One most important trend of BMW is labeled as “premium-tization”. Premium-tization trend of BMW causes polarization of markets. This trend triggers the consumers to demand and pay much higher prices for the perceived quality.

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Declaration I, undersigned, declare that the project title ― BMW pricing in partial fulfillment of subject: ―Adevertising in Marketing research is a record of work carried out by me under the guidance of Mr. Vijay Tondon

pricing strategy of BMW

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