Topic: Luxury brands - at what point does sales success hurt the brand?

[SaskSpecV]

Interesting article from Bloomberg regarding the decreasing exclusivity of German luxury vehicles, and whether or not it is in the brand's long term interest to broaden its market appeal.

http://www.bloomberg.com/news/articles/2015-04-14/is-germany-making-too-many-luxury-cars-

What do the forum members think about this?  I'm especially interested in the marketing folks on the forum.  There's absolutely no question the luxury brands are immensely profitable right now - but is this short-term gain only?  Or is it sustainable?  Can the Germans continue to charge premium prices without the "exclusivity" factor?

I think this is where Porsche has done a great job (business-wise) - sure, they "diluted" the sports car brand with the Cayenne, Panamera, Macan. But while they dramatically increased sales, I don' think they diluted the exclusivity all that much because they kept the prices out of reach of most (especially with their options).

IMO, a potentially bigger long-term risk to the luxury companies is that their "brand" won't stand for anything in the future (think of BMW as the "ultimate driving machine").  Which is fine if they want to become mass-market MNFRs, but not if they want to remain luxury goods. Other opinions?

[Noto]

BMW and MB immediately came to mind; the latter more-so than the former.

MB has created a dichotomy of its vehicles, to the point that soon the 'lesser' Benzes won't be considered "actual" MBs, but almost competing with Toyota/Honda/Nissan within the same brand name. 

It's also not unlike how Buick has been retooled to be lesser than Cadillac, but greater than Chevrolet, leaving it squarely against the likes of rebadged Civics (ahem, Verano = ILX).

I think Subaru, in following market trends, has made its cars less desirable to many folks, too.  However, I think that move will prove immensely successful as it doesn't have the 'luxury' brand cachet from the get-go.

But the CLA/GLA, especially as a partnered platform with Nissan, will not likely be good for the long term cachet.  Sales, yes, cachet, no.

VW is likely going to be the first to dilute itself, though.

[Sir Osis of Liver]

It's the kind of thing that's difficult to see beforehand. Even in retrospect it's difficult to pinpoint when a brand no longer "has it".

As I pointed out in another thread, the top Cadillac in 1957 was more expensive than a Rolls Royce Silver Cloud. From pretty much then onwards, MSRPs started slipping along with quality, and eventually the brand was seen as hopelessly out of date by the early 1980s.

A similar arc happened to Packard, Studebaker, and a lot of very high end automakers that were killed off in the depression of the 1930s.

[OliverD]

I think we as North Americans have somewhat unrealistically placed the German luxury brands on a pedestal for a few decades now. When those brands came to our shores they were relatively expensive and exclusive but in their home market they were more accessible and mainstream. In those days the global market was a lot smaller as well so some of the exclusivity came from the fact that the products were only widely available in a relative handful of markets.

The entire industry has also grown its products over the years and it's only natural that this opens up room in the model lineups for smaller models – which are still much bigger than their predecessors. Brand loyalty is also a key metric and the sooner you can get a customer into the brand, the longer they can remain a customer.

Even brands like Bentley and Rolls-Royce are nowhere near as exclusive as they used to be so this phenomenon isn't limited to BMW, Mercedes, etc.

I think Subaru, in following market trends, has made its cars less desirable to many folks, too.  However, I think that move will prove immensely successful as it doesn't have the 'luxury' brand cachet from the get-go.

They may have made themselves less desirable to some buyers (myself included) but they are one of the fast growing brands in North America (if not the fastest). They've gone from being from sort of quirky and niche to relatively mainstream in a hurry while still being AWD-only. And even that feature is relatively new to the brand. They offered FWD cars into the late '90s.

[johngenx]

Mercedes and BMW long sold "normal" cars in Yurp.  They had "stripper" versions with few amenities and small engines - but they were still built like tanks, designed to last a long time with minimal long term costs.

They had a different strategy for North America.  They only brought expensive products here and created a "premium" brand image.  This just wasn't so in most markets.

[Fobroader]

Mercedes and BMW long sold "normal" cars in Yurp.  They had "stripper" versions with few amenities and small engines - but they were still built like tanks, designed to last a long time with minimal long term costs.

They had a different strategy for North America.  They only brought expensive products here and created a "premium" brand image.  This just wasn't so in most markets.

Also anyone who has been an MB C230 or BMW 318/320 can tell you that they are not nice places to be.

Sent from my Galaxy S3

[Northernridge]

Page 1 of every branding text book says dilute your brand at your peril.

Meanwhile, every corporate board meeting ends with a directive to the CEO to maximize shareholder value, and leveraging the brand (or extending it) is an effective short term way of doing so.

I've spent 20 years helping companies in this regard and believe that it (overextending the brand) ultimately ends in tears – though it may take a while...and there are exceptions.

Another way of doing it...Lexus is a case study in marketing text books. The story goes like this: Toyota wanted to go up market but didn't think it could with the Toyota brand so it invented Lexus to fight at the higher end of the spectrum – Success. Another sector...Black & Decker wanted to gain more market share of the professional contractor segment but those guys didn't want to use B&D tools so they invented Dewalt. One last one...The Gap (clothing) was facing competitive pressure a the top AND bottom of the market so they launch Old Navy and Banana Republic respectively to protect it's upper-mid-market brand (Gap).

We see Kia and Hyundai trying to do the opposite of Mercedes and extend up market.

It's a crazy world that only makes sense when you remember...maximize shareholder value.

[SaskSpecV]

It's a crazy world that only makes sense when you remember...maximize shareholder value.

ABsolutely NR, and thanks for the insight.  But as to your last statement - OVER WHAT TIME FRAME?  As you mentioned, if you want maximum shareholder value next quarter - sell more of the product today!  Who cares about diluting the brand in 10 or 20 years?  But how do the "luxury" marquees maximize sales (and profit, and thus shareholder value) TODAY,  without stripping away their exclusivity - and thus the ability to charge premium prices (and profitability) TOMORROW?

It would be interesting to be a fly on the wall during some of these board discussions.  How much money are you willing to leave on the table - today - in order to protect your brand image?

[Arthur Dent]

Its a balancing act for sure. Apple seems to somehow be one of the very few that can be an inspiration luxury brand and at the same time sell a bucket load of those devices to the average consumer without eroding the large margins.

[Ex-airbalancer]

. Another sector...Black & Decker wanted to gain more market share of the professional contractor segment but those guys didn't want to use B&D tools so they invented Dewalt. One last [/i]

Say what 
B&d did not invent Dewalt they bought , Dewalt was start in 1936

http://www.dewalt.com/Company-Information.aspx#tabs-3

[Northernridge]

. Another sector...Black & Decker wanted to gain more market share of the professional contractor segment but those guys didn't want to use B&D tools so they invented Dewalt. One last [/i]

Say what 
B&d did not invent Dewalt they bought , Dewalt was start in 1936

http://www.dewalt.com/Company-Information.aspx#tabs-3

OK, redeployed. Same purpose, same difference. The B&D boss said he was copying the "Acura" effect and that the most important thing about Dewalt was that it wasn't called Black & Decker. So they really did invent the brand, if not the name.

[tooscoops]

yeah, they just used a name they owned... same diff...

i fell these brands are killing long term brand value. as soon as i saw them going for big lots and huge inventory (like the burlington mercedes store) it just saddens me how willing they are to drop residual value and long term profitability for the sake of numbers this quarter...

keep stock, and you have to discount it to sell it (whether it be because you have to incentivize to buy from the lot, because you have to give away options the customers don't want, or you get stuck with cars past the model year)... all those do is lower average transaction prices when new, which in turn, lowers transaction prices on used or the residual... over time, it eats away at both profitability and brand value.

seems so simple, but as northern mentions... it's all about increasing shareholder value NOW.

never understood with chrysler... they always tried to push their plans of #1 in sales volume to me.... who the hell cares about how many cars you sell? what ever happened to working smarter not harder?

[Ex-airbalancer]

. Another sector...Black & Decker wanted to gain more market share of the professional contractor segment but those guys didn't want to use B&D tools so they invented Dewalt. One last [/i]

Say what 
B&d did not invent Dewalt they bought , Dewalt was start in 1936

http://www.dewalt.com/Company-Information.aspx#tabs-3

OK, redeployed. Same purpose, same difference. The B&D boss said he was copying the "Acura" effect and that the most important thing about Dewalt was that it wasn't called Black & Decker. So they really did invent the brand, if not the name.

The funny thing they could used the Stanley name as it was considered to be a professional brand

[Snowman]

Perception is everything.

[sailor723]

Perception is everything.

I agree. I guess the question is..."How long until perception and reality merge?" In the case of MB I think we are moving towards that quite rapidly as they introduce more and more down market product.

[mmret]

Hard to say in the case of MB though, and BMW as well, since they still make some really nice, fancy stuff. MB especially which has plenty of 100k+ models and several 200k+.

Is anyone really going to thumb their nose at an S class the way they might at an Equus....

[EV-Light]

I think this isn't anything new...in the 2000s, MB tried to expand down market with the C coupe, and smaller engines in the C class...they just didn't get there. I think they have a much better shot now, and honestly I am yet to hear anyone saying a CLA is a cheap MB. Just the other day I heard someone talking in the office on how the CLA looks better than the A4 and they were seriously considering one!!!!!

See how normal people shop for cars? Lol


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[mmret]

Odd as the CLA is constantly ridiculed here.

[johngenx]

It depends on the brand identity.  Mercedes sold de-contented cars with small engines and manual transmissions is most other world markets - BUT, even those cars represented the brand in terms of superb build quality and longevity.  The brand identity wasn't truly diluted by those models - as the core of Mercedes' identity wasn't based on price or luxury gadgets.  It was based on solid bodies and robust interiors and unbreakable drivelines.

Also anyone who has been an MB C230 or BMW 318/320 can tell you that they are not nice places to be.

Completely disagree.  Our W202 C230 was not a powerhouse, but had all the goodness of our E-Class.  The interior materials were much the same, the doors closed like vault doors, the car was easy to drive at it's top speed all day, etc, etc.

I think what dilutes brands today aren't necessarily entries into different price segments, it's straying from their core values.

[mmret]

I think what dilutes brands today aren't necessarily entries into different price segments, it's straying from their core values.

I'd generally agree with that, which is why I think BMW is at much greater risk of dilution than Mercedes is. Their value is supposedly the "Ultimate Driving Machine" but they have become softer and have gorged on "SAV" profits and expensive option packages with fancy wheels.

As for Audi, it was a marketing exercise from birth. I'm not sure what their core values are other than a showcase for VWAG technology.