Wednesday, September 26, 2012

BMW opens new chapter in Korea

This is the first in an eight-part series highlighting BMW Korea’s success story here. The Korea Times has selected eight key success factors and analyzed these based on interviews with company executives and industry experts to understand its strategies and knowhow. — ED

These days, luxury is a term used indiscriminately across the retail, manufacturing and service sectors. Indeed, the term is in danger of losing its meaning because almost everything is promoted as luxury goods.

Jean-Noel Kapferer, author of “The Luxury Strategy,” argues there is confusion today about what really constitutes a luxury product, a luxury brand or a luxury company.

In the book, Kapferer analyzes in depth the essence of luxury, highlights its managerial implications and clarifies the difference between “premium,” “fashion,” and “luxury.”

He uses the example of BMW because it has successfully confirmed its position as the leading luxury brand in the world.

But it would have been better if he had chosen BMW Korea because it would have been an even better example for his analysis of luxury marketing, because the local unit has become a benchmark operation for the German-based automaker due to its unprecedented success.

BMW Korea’s annual sales were only 833 in 1999 but this figure jumped 14-fold to 23,293 last year, putting the company in poll position in the imported car market. It has differentiated itself from other foreign brands in its growth rate, both in terms of sales and its customer base.

The Korean arm of the German auto giant has been studied by the company’s strategic analysts in order to share its growth story with other overseas outlets. The case provides insight, not only for foreign companies seeking to gain a foothold in Korea, but also for Korean firms aiming for global success.

German automaker's local unit creates its own customers

BMW Korea is very clear about its targeting and has successfully created its own loyal customers.

BMW only targets the premium-priced car market, which means it does not strive to compete in every sector of the auto industry. But what makes BMW Korea stand out among other luxury car brands is that it breaks down consumer demographics to formulate tailored marketing campaigns for target groups.

BMW is well known for its excellent consumer research, but its Korean unit focuses more on the characteristics of local consumers and their needs.

“One of the key factors behind the success of BMW Korea is its tailored marketing campaigns,” said Ko Young-suk, partner and managing director at the Boston Consulting Group.

BMW Korea has launched about 60 models ranging from the Mini Series to BMW 7 Series with prices ranging from 37 million won to 185 million won.

But Ko said BMW Korea has successfully diversified marketing strategies for customers who buy different cars across different model ranges.

As a result, it succeeds in targeting a wider-range of customers including younger customers and female drivers, as until the 1990s, high-income male customers in their 40s and 50s were the mainstream customers.

In fact, the ratio of young customers to total buyers of imported cars has surged by over 10 percent in six years.

According to the Korea Automobile Importers and Distributors Association, the number of buyers of foreign-made cars in their 20s and 30s accounted for about 25 percent of customers in 2012, compared to 12 percent in 2006.

The proportion of young customers in the import automobile market, which stayed below 10 percent 10 years ago, continued to increase to 17.6 percent in 2009 and 20.3 percent in 2010.

While other premium carmakers only emphasized status, practicality or safety as the main selling points, BMW Korea has given the brand a new dynamic, sporty and young image.

The brand image has become younger as owners of BMW became associated with such words as leaders, who work and play hard, or early achievers, who are actively engaged in sports,

It has also held various fun marketing events to appeal to young customers. Since 2004, BMW Korea has promoted sales of the British designed car in a variety of unique and interesting ways. For example, it suspended a Mini from a huge commercial balloon over Seoul and modified another as an amphibious vehicle which crossed the Han River.

As a result, various versions of the Mini and the 3 Series became a mega hit here among young customers, even though their price tags start at over 30 million won.

Ko said young owners of the Mini or 3 Series are likely to own upper end models such as the 5 or 7 Series after being fully satisfied with their current cars.

Additionally, BMW Korea has avoided alienating older consumers by maintaining its core premium image with high-end models such as the 7 Series.

It has offered more luxury and exclusive marketing for higher-end customers such as for the 7 Series.

BMW Korea has opened the BMW 7 Series Mobility Lounge, an exclusive showroom for VIP customers in Choengdam-dong, southern Seoul, when it launched the latest 7 Series on Sept. 6.

The BMW 7 Series Mobility Lounge is now used to provide the utmost customer care and differentiated lounge services for high-end customers.

“It’s true that BMW is considered as more luxurious than Mercedes-Benz here, different from other overseas markets,” said Kim Pil-soo, a professor of automotive studies at Daelim University. “Everyone dreams of driving a premium car and BMW Korea helped people’s dream come true by offering a range of different premium cars in various sectors.”

As part of attracting new customers, BMW Korea also started to come up with new strategies for promoting affordable premium models.

After the free trade agreement (FTA) between Korea and the EU went into effect in July, tariffs began to go down and European carmakers are now able to cut their prices. The FTA allows BMW Korea to become more competitive.

But BMW Korea did not give up its luxury image by maintaining premium features.

“Many imported automakers cut their prices thanks to the FTA but they also reduced many premium features as well,” Ko said. “But BMW Korea is one of a few automakers that maintains premium features to meet the needs of customer who experience real premium cars.”

He also said that BMW Korea helped imported automakers lower their prices and local manufacturers such as Hyundai and Kia improve the quality of their vehicles.

In Korea, high-end customers are also very sensitive about fuel efficiency, which led to the diesel sedan fever here.

The 520d and 320d are the most popular models that BMW sell.

For those with fuel-efficiency in mind but want to drive a premium car, the two models are a perfect solution and limit concerns over fuel prices.

“High-end customers here want to make sure that their car is fuel-efficient,” Professor Kim said. “That’s why BMW’s 520d and 320d are so popular here.”

To better understand various demands of customers and broaden customer scope, BMW Korea did not just depend on surveys.

In a recent interview with The Korea Times, BMW Korea CEO Kim Hyo-joon said he tried to meet and listen to customers when he was appointed to lead the Korean unit.

“After taking charge, I visited the showrooms of BMW Korea without revealing who I am. For about half a year, I met around 350 people and concluded that premium services were the answer,” Kim recalled.

BMW Korea therefore increased the number of repair shops, and the move broadened the scope of BMW customers, who tend to want premium services for their premium cars.

Experts also point out that BMW Korea also helps drivers take pride in owning a premium car through its corporate social responsibility (CRS) programs).

BMW Korea has been making contributions to society by selling luxury cars, and at the same time it allows customers to join their program and feel pride when driving their premium cars.

The company’s CSR arm, the BMW Korea Future Fund requests customers to donate 30,000 won to charity when they buy a vehicle from BMW Korea.

When the buyer accepts this, the dealer in charge of the sales and BMW Korea pay the same amount apiece so the total contribution is 90,000 won. If they embrace a financing format, BMW Financial Service will also offer an additional 30,000 won.

“By helping customers make contributions to the poor, BMW Korea also allows them to have more pride in owing a BMW car,” Professor Kim said. “That is a very unique marketing strategy to encourage customer loyalty to the brand.” 

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