I think most BMW customers don't want a luxury car. What has traditionally been the trade mark from BMW, is that it gives a more involving driving experience than competing brands. That is why so many BMW enthusiasts are upset about BMW making a FWD car. What I (and most of my friends) want from a BMW, is very quick and accurate response from the pedals and steering. It should be practical like a family car, but feel like a sports car to drive. For the last 40 years, BMW has been the best brand to provide this type of car, but the competitors are catching up.
I think a further move towards more luxury would allow other brands to take the role of being the leading sporty family cars.