Q3.

CEO of Mercedes Benz is concerned with increasing competition in the Indian market and as India
Head has tasked you with reviewing the Channel issues and come up with an integrated channel
strategy within the framework of the key areas of interface of logistics with the channel. (CO3/ RBT
L4)

Answer –

Some of the channel issues faced by BMW which requires an integrated channel strategy are –

1. Increase in Dealer inventories, as BMW would manufacture automobiles ahead of time and
place them in the dealer inventories, which ultimately increases the inventory carrying cost and
rebates offered to clear any existing car which is not selling.
2. The popularity of leasing new luxury cars instead of buying them creates a huge quantity of
preowned late model cars when the lease expires after two to three years. The challenge arises
for BMW and its dealers on how to sell this inventory of off-lease BMW’s efficiently and
profitably.
3. The COVID-19 pandemic greatly affected the automobile sales, and saw a decline which
company never saw since inception. In some cases, booked vehicles were cancelled by the
buyers due to the uncertainty involved with the pandemic. While some customers were afraid in
taking deliveries in person.

A new Integrated Channel strategy that will help in catering above mentioned issues –

1. BMW needs to revolutionize the way its automobiles are distributed. BMW made a strategic
decision of custom-building cars to order for each customer. This custom-made distribution
strategy will not only save BMW and its dealers a great deal of money by reducing inventory
carrying costs and rebates on cars that are not selling, will result in more satisfied and loyal
customers as well.
At present, custom-ordered cars only account for 15% of BMW’s sales in the US and this can be
stretched up to 45%. Since BMW is the only car maker who has taken this giant step to make it a
core strategy of the company. If successful, BMW’s innovative distribution strategy will provide
a key competitive advantage over other luxury brands by creating winners at all levels of the
channel. BMW will build only cars that customers have committed to, dealers will reduce their
costs and customers will get exactly the cars they want.
In order to get more customers to buy their cars via customer orders, BMW will offer them a
unique choice of features and accessories and provide a video link of their cars “being born” at
the factory.
2. Another innovative distribution programming approach was needed with its independent auto
dealers to meet the challenge of selling the large numbers of used BMW’s on dealers’ lots.
BMW’s answer was the development of the “Certified Preowned” used vehicle program, a
programmed approach to recycle these cars so that BMW, its dealers, and consumers are all
happy with the arrangements. BMW’s special efforts including TV Advertising, special financing
arrangements, meticulous mechanical inspections of each vehicle by the dealers to BMW’s
specifications, special warranty provisions covering consumers for six years or 100,00 miles, was
added in the Certified Preowned Program. This helped BMW dealers selling off-lease cars
 because BMW’s distribution programming approach has worked out all the strategy and tactics
down to the last detail.
3. COVID-19 pandemic forced BMW to make changes to the existing channel sales, which in return
helped BMW in launching Online Retail Sales Platform. From searching vehicles, scanning
interiors using 360 images, emulate latest features, booking a test drive online, and end-to-end
online car purchase process is steadily pulling BMW back to the expected sales.