BMW has also maintained, besides its technical and luxury features, the category of its automobiles, which are the larger luxury sedans. It has carefully avoided the smaller car market. However this is where BMW has made a break from the past. It has opted to diversify its range to include the small to medium sized cars market.

Such diversification will give BMW an opportunity to reach a much wider customer base. It gives the manufacturer the opportunity tap into a new market and have ready a hedge should it face possible competitive pressures or problems in its traditional category.

The cornerstone of this strategy is that it does not call for down grading of any of the BMW features in its smaller versions. The standards would be religiously and uncompromisingly adhered to. And neither is BMW going to dilute its return on investments on the smaller cars. It aims to keep the profit margins intact by creating real product differentiation.

On the face of it this looks to be a reasonably safe venture. It makes perfectly good sense to own a smaller car in view of the rising fuel costs. After all Ford, Chrysler and General Motors have come up with their smaller cars. And done well at that. However it is slightly different with BMW. Its image, appeal and halo have included its size as well. A fundamental change may result in loss of identity for a segment of its loyal customers. It can be put this way: whoever will look at a mini Rolls Royce with the same degree of veneration! There are some things that are taboo, just not done.

And yet the decision has been made and the strategy has been implemented. So it is reasonable to assume that all risk factors have been factored into the new strategy. The BMW Chief Executive Helmut Panke has aired his views and it will be enlightening to know these. Says he:

On developing smaller cars:
” The product initiative allows us to be focused on market segments that we see developing in the future. Tastes are changing. Customers are slicing the market into more focused pieces. It's becoming more differentiated.”

On the risks involved:
“Satisfying the market's demand for new niche products is a strategic risk anyone in the industry has to take. To be successful, you have to fulfill 100% percent of customers”.

On profit margins:
”All our cars are developed with the same target for return on investment (ROI)…. Mini delivers better performance and quality than volume-market cars. Customers are willing to pay for that”

On the size of cars:
We're making cars in the premium segment. And premium does not depend on the size of a car”.
On decentralization Within BMW organization:
“Department managers have the ability to decide without a committee… “

On employee motivation:
“Rule 7 states that it's the responsibility of any manager to create an atmosphere of fun in the organization. I make a personal point of this. I believe in it -- it makes me tick. When people work in a fun atmosphere it's very motivating. I love my job.” ( BW Online | June 9, 2003 | BMW's Shifting Strategy 2003)