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The perils of trading down

December 28, 2004

BMW’s strategy of trading its brand down and introducing a lower-cost 1 Series has been known for sometime. The case became well-known when it was used in the book “Trading Up” , authored by two consultants at the Boston Consulting Group. The authors singled out BMW’s strategy as a smart one.

However, there was always the danger that this brand extension could harm the prestigious German brand.

BMW launched the series in various markets during the Fall of 04. One market was the UK, where a recent driving review in The Times newspaper did little to flatter, it warned, “The 1-series will be the ruination of the BMW brand. Of that I have no doubt.”

On the desired effect of parking one in your neighborhood, “Park one of these on your drive and the neighbours will not think, “Hmm, that’s an expensive car. He must be doing well.” They’ll think, “Hmm, that’s an expensive car. He must be off his rocker.” You can have a Golf GTI for less, and that, in almost every single way, is a better car.”

Clearly this is a UK perspective, a market where BMW faces a lot of competition in the small car category, which is not the case in the US.

However, there’s a lesson here for all luxury brands thinking of trading down, today, name alone is not enough. The products have to compete with the best in their class and be able deliver the expected brand equities.

As its been said through the course of 2004 by Influx and many others, trading on one’s reputation is no longer enough, brands now simply have to exceed consumer expectations.

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