VERITAS For the exclusive use of S. Alrubayyi, 2024. | BUSINESS SCHOOL HARVARD VARD SUSAN FOURNIER ROBERT J. DOLAN Launching the BMW Z3 Roadster 9-597-002 REV: JANUARY 8, 2002 January

1996 marked the beginning of Phase II of BMW of North America Inc.'s Z3 roadster introduction. Phase I had centered on the placement of the new $28,750 two-seat convertible in the James Bond hit movie, GoldenEye, which premiered several months earlier. While not yet critically evaluated, results of the "out-of-the-box” pre-launch campaign appeared very positive: word-of- mouth concerning the Z3 and the James Bond cross-promotion were favorable, and product orders far exceeded BMW's initial expectations. The challenge now was to design a marketing program that would sustain product excitement until dealer product availability beginning in March. Phase II planning had to be undertaken within the context of other important events in the BMW product family: (1) the April launch of the redesigned 5-Series; and (2) the company's role as "official international automotive sponsor" of the 1996 Atlanta Summer Games, which would begin in earnest with the Olympic Torch Relay 5-Series event in June. While these other elements of the BMW product family clearly impacted the Z3, the marketing approach and ultimate results for the Z3 would influence the whole BMW operation in the United States. Dr. Helmut Panke, Chairman and CEO of BMW (U.S.) Holding Corp. since 1993, noted that the Z3 was destined to be “the first BMW not made by mythical little creatures in the Bavarian woods. This car will be made in Spartanburg, South Carolina. Some people think BMW means German-made. With the Z3, we must show we can be successful as a global company, manufacturing at strategic locations even if not in Bavaria. Assembling of cars in the United States requires BMW to replace 'Made in Germany' as a symbol of quality with 'Made by BMW'." As Brandweek put it, Panke was "saddled with the task of exporting BMW's mystique from the Bavarian hills to the fields of South Carolina." Industry commentators characterized the Z3 as "the new standard bearer for a line that had relied on German engineering as its point of difference," and wondered whether "the mystique of the BMW brand, so closely interwoven with its Munich parentage, could survive and even thrive after a surgical transplant to South Carolina." Panke and his team were aware of the new era BMW was entering and of the "new and unique" challenges this presented. Meeting the unique challenges was the prime responsibility of Victor Doolan, President of BMW North America. Project leadership for the Z3 launch in the United States was the job of James McDowell, BMW's Marketing Vice President. The objectives of the roadster launch were two-fold: (1) to use the roadster to motivate and stimulate the dealer network to meet higher standards to qualify for the roadster; and (2) to build an order bank to enable the new Spartanburg plant to build to the specifications of BMW customers. To this point in the Z3 launch, BMW had been quite innovative in addressing their marketing goals, using for example the Bond film placement as a centerpiece of the marketing plan. Professors Susan Fournier and Robert J. Dolan prepared this case. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright © 1997 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means-electronic, mechanical, photocopying, recording, or otherwise-without the permission of Harvard Business School. This document is authorized for use only by Saleh Alrubayyi in MBA 724 Integrative Marketing Communications Spring 2024 taught by Joseph Jones, North Dakota State University from Jan 2024 to Jul 2024. 597-002 Background For the exclusive use of S. Alrubayyi, 2024. Now Doolan and McDowell had to put the rest of the program in place to make sure the new "Made in the USA" Z3 was successful, in its own right and for the BMW franchise as a whole. Launching the BMW Z3 Roadster BMW Business Strategy BMW was a global company with a significant position in the luxury/ performance segment of the U.S. automotive market, having rebounded considerably from setbacks imposed by Lexus, Acura, and Infiniti in the mid-to late-1980s (see Exhibit 1). The company reversed the sales decline beginning in 1992 with a program that included a repositioning of the brand from “Yuppie Status Symbol" to the more quality-oriented “Ultimate Driving Machine.” At the same time, BMW adjusted model prices as necessary in light of the new competitive situation, improved the dealer network to bring the consumer buying experience in line with evolved expectations for service, and made significant improvements to the product line. All the while, the company's overall business strategy remained the same: To provide the world market with luxury/ performance vehicles that were each “the best in its class, with a unique and definitive positioning in the marketplace." While focused on being “the best" rather than the "biggest," BMW wanted to position itself to attain an annual unit sales volume near 100,000 units in the United States as this was a mark that identified major players in the global automotive marketplace and permitted operation at an efficient scale. Franchise expansion into more youthful targets seemed the most promising way to add incremental sales to the brand. Related recommendations included an updating of the corporate image and a new product development program capable of sustaining that image. As Adweek¹ put it: "BMW needs to be perceived as a little less serious and tradition-bound... they need to preserve their reputation for driving performance but reposition their German-made cars as being stylish and fun to drive as well." The BMW Z3 Roadster New Product Initiative As related by Bert Holland, BMW's Series Manager of the Special Projects Group, the development process that led to the identification of the roadster concept all started in 1992 with the decline of the worldwide motorcycle market. This sparked an internal effort to identify product concepts that were capable of addressing the same feelings, emotions, and fantasies that motorcycles had satisfied. Several alternative platforms on which to execute the “emotional fantasy theme" were developed: race cars, dune buggies, sport utility-vehicles, roadsters. The roadster sportscar concept was adopted because it fit best with the overall BMW positioning of driving excitement, evoked BMW's heritage as a producer of roadsters in years past, embodied the spirit of the company, and captured the essence of the BMW brand. Also, while the concept reflected a niche opportunity, it fit the corporate goal of being the best, not the biggest. No products on the market at the time delivered against this positioning. However, other luxury car import manufacturers (e.g., Porsche, Mercedes) were rumored to have similar concepts under development, so BMW had to move quickly to secure competitive advantage. The roadster product concept was refined over the next two years. The two-seater convertible Z3 would use the same 1.9 liter 4-cylinder engine as currently used in some 3-series models. The base 1 Source: Adweek Eastern Edition, September 11, 1995, p. 7. 2 This document is authorized for use only by Saleh Alrubayyi in MBA 724 Integrative Marketing Communications Spring 2024 taught by Joseph Jones, North Dakota State University from Jan 2024 to Jul 2024. Launching the BMW Z3 Roadster For the exclusive use of S. Alrubayyi, 2024. 597-002 model would include a six-speaker sound system, power windows and seats, fog lights, cruise control, and air conditioning. Leatherette upholstery would be standard, with upgrades to leather available. Concept tests revealed high interest across a number of lifestage-defined segment, e.g. Generation Xers interested in unique image statements, men and women in their 40s who expressed a desire "to have that roadster I've been dreaming of all my life,” and nostalgic late-Baby Boomers yearning for roadsters of yesteryear. Common across these diverse demographic groups was a "lover of life" mindset and a propensity to seek unique expressions of individuality indicating a target market defined in psychographic versus demographic terms. Being the first BMW vehicle from the company's new Spartanburg, South Carolina manufacturing plant, and its first 100% “Made in America” offering from the German engineering leader, the Z3 roadster project assumed strategic importance beyond its franchise-expanding mission. Other German manufacturers were already trying to promote skepticism among consumers regarding BMW's impending U.S-manufactured cars. Helmut Panke explained the strategic significance of the Z3: Spartanburg is much more than simply escaping Germany's high cost environment. Yes, the plant will cushion BMW against international monetary fluctuations. More importantly, though, Spartanburg demonstrates that we are firmly committed to the U.S. market and rededicated to the performance values that made BMW a cult here in the 1980s. The investment tally at Spartanburg is $600 million dollars and growing. The plant can build 250 to 300 cars a day and production is set up to be flexible so that it can produce several models on the same line in random sequence. The plant currently employs 1,500 people and the plan is to grow to 2,000 by the end of this decade. This is our first auto plant outside Europe. This is a chance for BMW to take a step away from being a German car manufacturer towards its long- term goal of becoming a truly global brand. Spartanburg can really change what BMW stands for. Victor Doolan commented on the system-wide implications of the Z3 launch: Spartanburg offers us the opportunity to develop a new set of relationships in North America. With news of our commitment in Spartanburg, our dealers have gotten serious about this franchise again, and have begun to reinvest in facilities, equipment, and manpower. You can see a complete rejuvenation in enthusiasm for the brand and our products. Dealers are ecstatic about this plant. And that enthusiasm carries into the marketplace. The Roadster Introductory Marketing Plan Setting the Preliminary Marketing Platform In early spring 1994, the launch team led by James McDowell, Vice President of Marketing, articulated a preliminary marketing platform for the Z3 introduction. As one BMW manager put it, the central goal of the launch was "to expand the BMW franchise and further the rejuvenation of the BMW brand by positioning the Z3 squarely in American culture and settling into the hearts and minds of the American public." Managers talked of "weaving the car into the fabric of the American experience," "putting it in the American landscape," "aligning it with everyday experience," and “establishing the vehicle as a cultural icon.” According to James McDowell: This document is authorized for use only by Saleh Alrubayyi in MBA 724 Integrative Marketing Communications Spring 2024 taught by Joseph Jones, North Dakota State University from Jan 2024 to Jul 2024. 597-002 For the exclusive use of S. Alrubayyi, 2024. Launching the BMW Z3 Roadster The intent was get people to talk about the roadster in the course of normal daily events: in essence, to get the car on people's conversational agenda. The plan was to leverage the excitement and enthusiasm of the core customer base in a way that would draw broader attention and interest to the brand. Management referred to this as 'leveraging the buzz.' Given this intent, the launch team focused on "nontraditional” marketing methods believing them more effective than the standard fare of television and print advertising. 4 The strategic import of the launch dictated the need for something quite different, attention getting. (Bert Holland, Product Advocate) It's a unique vehicle, so we were looking for unconventional ways to introduce it. (Tom McGurn, Corporate Communications Manager) By their very nature, nontraditional media are inherently more capable of leveraging the buzz. (James McDowell, Vice President Marketing) Nontraditional media give you more exposure. (Carol Burrows, Advertising Manager) Given our psychographic segmentation, nontraditional media are more cost efficient per dollar spent. Traditional media are sold more on demographics. Nontraditional delivers a broader base, something we found especially valuable in light of our goal of getting into the hearts and minds of a large group of publics. (George Neill, Consumer Communications Manager) BMW also wished to be “multi-media" in its communications strategy. As one executive put it: We wanted consumers to experience the message in many media, to hear it in many voices. This was a philosophy directly opposed to the repetition philosophy governing traditional advertising thought. This idea operated more along the lines of a 'choir' but we recognized that literal ties and threads must be evident across the disparate message elements and that all elements must strengthen and reinforce each other. This would require agencies willing to integrate across each other in an atypical team environment. In June 1994, requests for proposals were sent to a broad collection of 30 advertising, public relations, and promotional agencies believed capable of mounting an unconventional campaign to achieve company goals. BMW pursued serious discussions with ten of those agencies based on mutual interests and relevant prior experience. Agencies were prepped with a stock footage video expressing the basic concept of the car. They also received input concerning BMW's view of what types of elements qualified as “nontraditional,” and preliminary opinions regarding nontraditional marketing tools that might be especially effective. Ideas for a product placement in a premier film, a TV show sponsorship, and a fashion world tie-in ranked among BMW's top choices though agencies were encouraged to come up with their own recommendations. Based on a review of solicited proposals, seven agencies were invited to make presentations at BMW. Many elements were selected from a proposal by Dick Clark Corporate Productions, a leading Hollywood-based promotional agency known for its experiences in the entertainment industry. These were added to a framework of core events and programs that BMW had developed internally including an aggressive program of dealer facility upgrading, staff training, and the production of 150 pre-production cars for use in pre-selling promotions at the time of the product launch. A corporate switch from Mullen Advertising to Fallon McElligott was also instituted at this time. Mullen, a small creative shop in Wenham Massachusetts, had been retained in February 1993 to This document is authorized for use only by Saleh Alrubayyi in MBA 724 Integrative Marketing Communications Spring 2024 taught by Joseph Jones, North Dakota State University from Jan 2024 to Jul 2024. Launching the BMW Z3 Roadster For the exclusive use of S. Alrubayyi, 2024. reposition BMW beyond its Yuppie image. Fallon was selected based on their proven experience in integrated and electronic marketing-key skills for a nontraditional launch. Fixing the First Marketing Element: The GoldenEye Product Placement BMW's predisposition toward movie placements in fact reflected a broader industry trend toward the addition of product placements into the marketing mix.² For film producers, manufacturers' branded products added authenticity and realism to settings and aided in character development through the provision of instantly-recognized symbols. Payments and free merchandise also helped defray costs in an increasingly expensive production and marketing environment.³ Manufacturers who offered their brands for placement sought many rewards beyond exposure and visibility through their Hollywood alliances. The trade press commented on these benefits to corporate partners: 597-002 4 It's a great way to build brand equity.4 In this increasingly fragmented world, advertisers are forced to go to great lengths to reach their audiences. When we [the viewers] can zap a commercial out and move on, they have to find new ways to reach us. This is a more subtle way for advertisers to reach us.5 In general, fees for movie placement deals ranged from nothing to several million dollars, with an average fee of $40,0007 for a highly-visible placement in which the star actor actually used the product (an "impact placement,” in industry terms).8 Many placements were conducted on a quid pro quo basis, however, with manufacturers receiving product visibility in exchange for providing movie producers with product-related cost savings.⁹ BMW, as a matter of policy, does not pay for movie placements. In addition to a dollop of glamour, movies give marketers access to two audiences that are hard-to-reach through network TV or print: foreign viewers and young people.6 In a newspaper interview, Norm Marshall, a long-standing consultant to BMW, commented on the uncertainty of movie product placement effects: 9 2 Source: "Planning for a Market Fall,” Brandweek, July 22, 1996, pp. 32-39. 3 Source: "Now It's the Cars that Make the Characters Go," The New York Times, April 21, 1996, section 2, p. 13. Source: "Casting Call Goes Out Products Play Major Roles in Movies," Marketing News, July 31, 1995, p. 1. 5 Source: "Movie 4 Sale!," The Courier-Journal, May 30, 1996, p. 1C. 6 Source: "Cue the Soda Can," Business Week, June 24, 1996, pp. 64, 66. 7 Why don't companies have to pay big bucks to get their goods in a picture? In some cases we do. But the counter balance against that is that they can't guarantee anything as they can when you buy an ad. And you never know if it is going to be in the movie or not. And even if it is, you don't know if the movie is going to bomb or not. The reality is, the vast majority of Source: "It's a Wrap (But Not Plain): From Budweiser to BMW, Brand Names Are Popping Up More and More On Screen," The Los Angeles Times, September 3, 1995, p. 4. 8 Source: "Junior Mints: I'm Gonna Make You A Star," Forbes, November 6, 1995, P. 90. Source: "Product Placement: How It Began, How It's Grown," St. Louis Dispatch, April 8, 1995, p. 4D. 5 This document is authorized for use only by Saleh Alrubayyi in MBA 724 Integrative Marketing Communications Spring 2024 taught by Joseph Jones, North Dakota State University from Jan 2024 to Jul 2024./n