Hawaii Pacific University

A Case Analysis – Exploring Customer Attitudes on BMW

by

Marion Weiler

Master of Business Administration

Fall 2004

Abstract

Giving the powerful means of branding and brand-based differentiation for creating and sustaining a competitive advantage especially in highly competitive markets such as the automobile market, this study explores brand attitudes of existing and potential customers towards the brand BMW. Moreover, this study analyzes the level and source of customer satisfaction as well as the level and source of customer loyalty of existing and potential customers. While this study considers five different factors for the degree of customer satisfaction, there is only one factor considered for the degree of brand loyalty. The factors considered for customer satisfaction are perceived customer service, perceived quality, perceived innovation, perceived technology and perceived price, while the factor considered for brand loyalty is customer satisfaction itself. The analysis of brand loyalty distinguishes between repurchase loyalty and attitudinal loyalty, former being analyzed for existing customers and latter being analyzed for potential customers.

The results indicate that (1) BMW has a high level of awareness, both in recognition and recall, (2) the image of BMW is favorable, strong and relevant, and (3) BMW is mainly associated with performance and style by existing customers and status by potential customers. Despite these overall positive results, weaknesses were identified, that contain opportunities for BMW. The regression analysis indicated that there is a strong positive correlation between customer satisfaction and perceived customer service and perceived innovation for existing customers and a strong positive correlation between customer satisfaction and perceived customer service, perceived innovation and perceived price for potential customers. Furthermore, the regression analyses indicated that there is a strong positive correlation between customer satisfaction and brand loyalty, both in form of repurchase as well as attitudinal loyalty.

Executive Summary

Branding has been around for centuries as a means to distinguish the goods of one producer from those of another. More and more companies have come to the realization that one of their most valuable assets is the brand name associated with their products. Highly competitive markets like the automotive market make powerful brands essential to accomplishing growth. By using the underlying concept of brand equity, this paper investigates in which areas brand equity has been created for the brand BMW. Brand tools and knowledge structure of the brand BMW are uncovered using quantitative research methods. A survey was given to 151 current and potential customers and analyzed based on the brand equity framework. Furthermore, customer satisfaction and brand loyalty was tested using regression analysis.

The researcher finds that the level of awareness in form of brand recognition is with quite high for potential customers, while a higher percentage recalls BMW from their memory as a luxury brand rather than a performance brand. These results indicate an overall high level of awareness for the brand. Furthermore, results showed a desire for owning a BMW. However, distinguished by gender, female potential customers show a higher desire for competitive brands for both, as a luxury as well as a performance brand, while male potential customers show surprisingly a higher desire for competitive brands when it comes to performance cars.

The brand image of BMW is favourable and strong. BMW reflects mostly style, high quality, up-to-date engineering and high performance to a target audience of highly brand-aware individuals. Results showed that for the majority of existing as well as potential customers it is important that BMW shows the quality label “Made in Germany” since Germany is known for quality-engineering. Especially production in low-cost countries is linked negatively with lower quality and would lead to loss of the worthiness of the premium price perceived by customers. Furthermore, the brand image is not only strong and favourable, but also relevant, since respondents consider a BMW a safe car.

The regression analysis showed that customer satisfaction is positively correlated with perceived customer service and perceived innovation for existing customers and with perceived customer service, perceived innovation and perceived price for potential customers. Furthermore, the regression analysis in form of repurchase loyalty as dependent variable for analysing loyalty for existing customers and attitudinal loyalty as the dependent variable for analysing loyalty for potential customers used customer satisfaction for both as the independent variable. Results of the second regression analyses show that repurchase as well as attitudinal loyalty is positively correlated with the level of customer satisfaction. However, customer satisfaction explains repurchase loyalty only by 59.10 percent, and attitudinal loyalty with an even lower percentage of 38.91 percent, which indicates that there must be other factors important to explain brand loyalty.

The survey indicates potential in targeting customer groups that are not or not primarily targeted by BMW yet, but are interested in the brand and have high buying potential in BMW’s products currently or in the near future. These groups include students and women, with students becoming part of the target market with the start of their careers, and women providing sales opportunities due to increasingly higher level of completed education as well as higher paid jobs compared to a decade ago. In order to not fall behind, BMW should invest in innovation and use the potential in optimizing the product line. Finally, BMW should carefully consider aspects of producing outside of Germany since it has potential to diminish the brand equity by diluting secondary associations.

Table of Contents

Lists of Appendices ... vii
Lists of Tables ... viii
Lists of Figures ... ix
Acknowledgement ... xi

I. Introduction ... 1
1.1 Objective of the Study ... 2
1.2 Purpose of the study ... 3

II. Background of Study ... 5
2.1 Conceptual Framework ... 5
2.2 Theoretical Foundation ... 6
2.3 Development of Research Questions ... 13
2.4 Hypotheses Development ... 14

III. Research Methodology ... 17
3.1 Information Needs and Data Collection Methods ... 17
3.2 Development of Questionnaire ... 20
3.3 Sample Design ... 21

IV. Data Analysis and Findings ... 25
4.1 Descriptive Statistics ... 25
4.2 Results from Quantitative Research ... 28
4.3 Other Findings ... 60

V. Conclusion ... 64
5.1 Discussion ... 64
5.2 Limitation of Study ... 73
5.3 Future Research ... 74

References ... 75

Appendices ... 77

I. Introduction

“Building a brand is both an art and a science. It is the strategic mix of focus and risk that gives a brand its meaning in people’s lives (Dolan, 2003)”. Branding has been around for centuries as a means to distinguish the goods of one producer from those of another. Brand elements identify and differentiate the brand. However, many practicing managers refer to a brand as more than that. They define a brand in terms of having actually created a certain amount of awareness and reputation in the marketplace, which distinguishes a small brand from a big brand. Especially strong brands have a number of different types of intangible image associations that link customers emotionally to the brand. Prior research has explored differences in customer perception and evaluation of brands for example through investigating brand equity. More recent research has found out that customers differ not only in their perception of brands but also in how they relate to brands. This suggests that people sometimes even form a relationship with a specific brand (Aggarwal, 2004).

Branding and brand-based differentiation are powerful means for creating and sustaining competitive advantage (Aggarwal, 2004). Highly competitive markets like the automotive market make powerful, strong brands essential to accomplishing growth. According to Agarwal, Dahlhoff & Rao (2004), companies create brand equity by delivering quality products and by creating strong, unique and favorable brand associations. Customer loyalty, larger margins, brand extension opportunities, enhanced perceptions of product performance, and increased marketing effectiveness and efficiency among other things are possible benefits of building up brand equity.

This research paper will look at the brand BMW. BMW, which stands for “Bayerische Motoren Werke”, is a major European manufacturer of luxury cars. The headquarters of the multinational corporation BMW Group is in Munich, Germany. The company has built substantial brand equity over the years through the continuous branding efforts for high quality products. The luxury car category includes both traditional and functional luxury cars. U.S. manufacturers mainly produce traditional luxury cars, while functional luxury cars are represented primarily by European manufacturers such as BMW (Bernhardt & Kinnear, 1994).

BMW has to face a high level of competition in the markets they are present. Direct competitors for BMW include luxury car manufacturers from Japan, the U.S., and other European countries. In the US, BMW’s biggest competitor brands are Ford, Cadillac, Lincoln, Buick, and Chrysler. Japanese competitor brands include Lexus and Honda. Furthermore, BMW competes locally in Germany and globally with other European companies such as Mercedes Benz, Audi and Jaguar.

1.1 Objective of the Studies

The objective of this research paper is to find out attitudes of US consumers towards the brand BMW. Specifically, the objective is to uncover associations and attitudes of existing and potential customers towards the brand BMW. Furthermore, the objective of this study is to explore customer satisfaction and brand loyalty for existing customers, while to investigate willingness to purchase, expected satisfaction and attitudinal loyalty for potential customers. This paper will begin by introducing the concept of brand equity and what makes a strong brand. Furthermore, the researcher will discuss why building a strong brand equity is a competitive advantage in the marketplace, especially in highly competitive markets like the automotive markets.

First, this paper will explore each dimension that possibly contributes to building brand equity. These areas include the so-called brand tools, which consist of brand elements, marketing program and secondary associations, as well as the knowledge structure of the brand. The knowledge structure on the other hand includes brand awareness, brand image or also called brand associations, and brand attitudes. Some of the brand tools, and all areas of the knowledge structure of the brand BMW will be investigated from this study. Based on the findings from the survey, the objective is to find out the degree of customer satisfaction as well as the degree of customer loyalty. The degree of customer satisfaction of existing customers as well as the willingness of potential customers to purchase a BMW is used as criteria to measure the strength of the BMW brand equity. Statistical analysis, such as regression analysis will be used to measure the level of customer satisfaction and loyalty. This form of analysis will uncover a possible correlation between the level of customer satisfaction and loyalty and independent variables like customer service, price, product performance, product design, customization or the company website.

These findings will be used to build an underlying basis for recommendations of how to manage the brand BMW over time and across geographic boundaries. The objective then will be how BMW can gain and sustain a competitive advantage within the automotive industry. The researcher will form suggestions and recommendations regarding potential adjustment to the current branding strategy of BMW in order to further strengthen the brand equity.

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