Running head: BMW Mass Customization

BMW Mass Customization

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American Public University
BUSN620 Strategic Management
4/10/2016

BMW Mass Customization

Abstract
Beginning with model year 2010, in an attempt to reverse declining sales, luxury car
manufacturer BMW embarked on a new customization program referred to as Dream It. Build
It. Drive It. The program was supported by a marketing program fostering an online
engagement with customers being able to choose from millions of different possible vehicle
combinations while watching the completion of their chosen vehicle via live video streaming.
The program brought many challenges to the supply chain and manufacturing process and was
limited to the 2010 X3 model manufactured at BMW North Americas plant in Spartanburg,
South Carolina. The case study BMW of North America: Dream It. Build It. Drive It. prepared
in 2012 for the Thunderbird School of Management addresses the challenges the company faced
when forced to completely alter the production system while taking into account the nuances of
consumer behavior. The case study also explored the choices the company faces in deciding
whether to roll out the program to other BMW vehicles.

BMW Mass Customization

1. What is fueling BMWs growth?

After suffering through a sales decline year over year from 2008 to 2009, BMW of North
America unveiled a novel way to select a personalized vehicle. The company sought to connect
with customers and build brand loyalty by focusing on customization. The program was
marketed as Dream It. Build It. Drive It. and created a completely new way to connect with
customers. (Alenuskin, 2012) Because American consumers were used to having vehicles
available immediately on dealer lots, this process required massively decreasing delivery times
of custom vehicles by reworking the companys production and assembly line in Spartanburg,
SC. The company ultimately succeeded in being able to offer the customer the ability to create a
truly custom vehicle while ensuring delivery within a few weeks. Additionally, the program
engaged consumers in the selection process like never before, creating the process where they
could first dream about the car, then on to customization or the build of the car, and finally the
delivery where the customer took delivery and drove their customized vehicle. The result was
that by 2011, the X3 was one of the best-selling models for the company. (Alenuskin, 2012)

2. How is BMW doing in the US? Compare the following 3 years (2012, 2013, & 2014) in
terms of annual revenue, car sales, gross margins and year end stock sales.
As of the most recent model year, BMW holds a slim lead over rival Mercedes Benz in
delivery of premium vehicles, with three of the best-selling models in the United States BMW
models. (JD Power, 2015) The following statistics were taking from BMWs annual reports:

BMW Mass Customization

BMW Group Revenue:

2012: 76,848 (million euros)
2013: 76,058 (million euros)
2014: 80,401 (million euros)
Sales Volume for U.S.:
2012: 348,500 units
2013: 376,636 units
2014: 396,961 units
Gross Margins:
2012: 19.5%
2013: 18.2%
2014: 18.6%
The North American market has shown steady gains in units sold growing from 348,500 vehicles
in 2012 to 396,961 in 2014. This is a gain of 13.9% over that time frame. The gross margins
have held steady over the three years, while revenue for BMW Group, after staying flat from
2012 to 2013, increased 5.7% to 80,401 (million euros) in 2014. Share capital was increased
422,845 euros in 2012, 665,000 euros in 2013, and 239,757 euros in 2014. (BMW, 2012),
(BMW, 2013), (BMW 2014)
3. Is the Dream It. Build It. program a sustainable advantage in the long term? Do you
see any room for improvement?

BMW Mass Customization

The success of program is well documented, and BMW currently holds an advantage over
competitors Audi and Mercedes Benz as their delivery times have averaged 8 to 16 weeks.
(Alenuskin, 2012) Over the long term, if the company does not continue to improve processes,
the current competitive advantage will begin to fade. The program has created a new way to buy
a vehicle and simultaneously engaged with the consumer in a way forces competitors to play
catch up. The gap should continue to close, and the company should leverage the relationships to
build brand loyalty and unique experiences that the digital interactive marketplace provides. The
competencies the company has developed over the years in developing the program give the
company a position of leadership, but improvements in delivery times and customer engagement
must continue improve and evolve. The Ikea furniture company has an extensive customization
process when consumers order furniture. One of the more interesting options, due to the
sectional nature of their furniture in the Stuva series, allows for parents to exchange parts of the
furniture as their children grow. This is a continual customization process that generates
additional sales over time, and BMW could offer the same as options and add-ons to vehicles
previously purchased.
4. Do you think customers really need millions of combinations for their car? Can they
be happy with available standard options? What are the downsides of mass customization?
I dont feel that there is a need for the amount of choices that BMWs program offers, but
the perception and engagement that the program fosters is valuable. The availability of choices
empowers the consumer even if the vast majority of choice combinations is never actually
produced. The intent of the program was to engage the consumer and increase sales, which they
have accomplished.

BMW Mass Customization

Customers could be happy with limited options if other manufacturers limited the
availability of choice as well, but competitors would seek advantage, and if there is potential to
acquire market share by offering customization then it is reasonable to assume the company
offering only standard options would suffer.
Even as mass customization empowers the consumer with a wide breadth of
product options, it can create problems in the supply and manufacturing arena. This could result
in operational inefficiencies and possible margin deterioration. Another consideration is that the
anxiety of buyers is higher with a greater number of choices. This is explained in The Paradox
of Choice-Why More is Less by Barry Schwartz. (Thunderbird, n.d.)
5. How does this case study link to the topics presented in Chap. 1, Chap. 2 & Chapt 3?
The case study considers the possibility of BMW North America rolling out the
customization program to other models. Specifically mentioned is BMWs X3 product manager
Joseph Wierda and his pending proposal to the CEO of BMW North America on whether the
program should be extended across all BMW product lines. (Alenuskin, 2012) This is an
example of what the text refers to as levels of strategy, consisting of the corporate level, the
business level, and the functional level. The success of the current program at the functional
level will have a direct impact on the decision to make the expansion recommendation from the
business to corporate level. (Pearce, 2015)
Additionally, the companys decision to roll out the mass customization program was a
strategic decision that aligned the companys mission of increasing sales by ultimately satisfying
consumer demand. The company recognized the importance of consumer behavior in buying

BMW Mass Customization

decisions and offered a new way to select an X3 model that satisfied customer needs and
subsequently increased sales. If ultimately successful, the companys actions adhere to its social
responsibility by serving society by improving the car buying process as well as serving its
economic responsibilities with improved sales that maximize shareholder wealth. (Pearce, 2015)

References
Alenuskin, D., Schotter A., (2012), BMW of North America: Dream It. Build It. Drive It.
Thunderbird School of Global Management.
BMW 2012, (n.d.). BMW 2012 Annual Report. Retrieved April 10, 2016 from: http://annualreport2012.bmwgroup.com/bmwgroup/annual/2012/gb/English/pdf/report2012.pdf
BMW 2013, (n.d.). BMW 2013 Annual Report. Retrieved April 10, 2016 from:
https://www.bmwgroup.com/content/dam/bmw-groupwebsites/bmwgroup_com/ir/downloads/en/2013/report2013.pdf
BMW 2014, (n.d.). BMW 2014 Annual Report. Retrieved April 10, 2016 from:
https://www.bmwgroup.com/content/dam/bmw-groupwebsites/bmwgroup_com/ir/downloads/en/2014/12507_GB_2014_en_Finanzbericht_Online.pdf
JD Power, (April 20, 2015). BMW, Mercedes Vie for US Sales Crown. Retrieved April 10, 2016
from: http://www.jdpower.com/cars/articles/auto-sales/bmw-mercedes-vie-us-sales-crownupbeat-premium-car-market

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Pearce, J. A., & Robinson, R. B. 1. (2015). Strategic Management: Planning for Domestic &
Global Competition (14th ed.). New York: McGraw-Hill/Irwin.
Thunderbird, (n.d.). Thunderbird.edu. Retrieved April 10, 2016 from:
http://caseseries.thunderbird.edu/case/bmw-north-america-dream-it-build-it-drive-it