Tuesday, October 13, 2009

Chrysler Joins the Up-market Movement

Here we go again… Chrysler wants to become a luxury brand. Fiat is seeing the Chrysler brand “competing in the luxury space,” according to a recent article in US News & World Report.

This isn’t the first time, nor the last time, that a non-luxury brand will try to move into the luxury segment. Volkswagen was the most recent example of a brand that wanted to move up-market by bringing products like the VW Phaeton to dealerships that also served the needs of Beatle and Golf owners. VW’s former CEO Ferdinand Piech wanted to bring VW into the luxury segment with the Phaeton. The Phaeton, a $70-$100k boat of a sedan, left the States after two years of dismal sales; though, there are some rumors VW is going to try it again.

One of the big lessons VW gave the industry is that luxury isn’t about wood grain trim and chrome rings around every dial. No, luxury is about cache and service two things VW lacked. Sure a Jetta has some cache for a recent college graduate, but when you are 40 years old and still driving a Jetta it doesn’t exactly scream you are a successful business tycoon.

Please don’t get me wrong the Jetta is an excellent car and what you drive has little do with your success, for example Jeff Bezos CEO of Amazon drives an old Honda Accord. My point is more about the perceived lift a luxury brand gives its consumer and while pulling up in VW is nothing to be ashamed of it doesn’t carry the same social obnoxiousness of pulling up in a Mercedes, an obnoxiousness people will pay a premium for.

The problem brands like VW and Chrysler have with trying to become a luxury brand is that they see their products as having similar attributes of luxury cars: wood grain, premium leather, and advanced technologies all the things that a BMW or Mercedes is doing with their products. And while the gap of what makes a luxury car luxury is certainly diminished today, the whole perception issue has more to do with luxury than a car’s materials or wiring.

Part of the confusion is how far mass market cars have come in only a few short years. Take for instance the photo at right showing the 2002 Lexus GS and 2010 Ford Taurus interiors. Which one is the luxury car and which isn’t? The Taurus looks far more upscale than the Lexus from only a few years ago, but no one would consider Ford a luxury brand.

Whether a brand deserves to be luxury or not is irrelevant. Exclusivity is a big part of being a luxury brand and a lot of that has to do with higher pricing which by definition excludes others from purchase. But you just can’t slap a $5,000 increase on the sticker and say you’re luxury. If it only it were that simple.

“Perceived value—through quality of design, materials, and manufacture—is another key component of the luxury goods equation,” writes Harvard Business School’s Julia Hanna whose article “Luxury Isn’t What It Used to Be” describes luxury’s changing landscape. The key word here is “perceived” and changing people’s minds to perceive your brand as luxury can waste a considerable amount of marketing dollars, product ideas and time. Chrysler might have an easier time convincing Boston Red Sox fans to root for the Yankees, than trying to take their brand "a notch above Lincoln, a notch above Cadillac.”

It will be interesting to see how Chrysler goes about pulling this off. Another mass-market brand, Hyundai, will be trying the same thing at the same time as they introduce a $60k plus car, the Equus in 2010.

Hyundai, which is becoming a formidable competitor to Toyota (read the Auto Extremist for more on that), has definitely improved its product line with the recent Genesis sedan and coupe, but the Equus will be the ultimate test at redefining the Hyundai brand.

One issue Hyundai and Chrysler will both have to consider is the importance service has on luxury automotive branding. VW had a big issue meeting the needs of Phaeton consumers who had to share service bays with lower end consumers and a VW service staff that wasn’t used to meeting the expectations of luxury owners.

As a personal anecdote, I used to own a Chrysler and can attest it will take a large investment to bring my local Chrysler dealership up to the same standards as the Lexus and BMW dealerships I now frequent. Service waiting area, dealership showroom and most importantly the service employees’ customer attention all need addressing. All of this is part of becoming a luxury brand and before any brand perception can change, customer service needs to be a cornerstone of the transition, more than body panel fit and finish.

Chrysler may be sourcing some products from the European Lancia brand as part of their relationship with Fiat. Lancia is a virtually unknown brand in the States and not a luxury brand in Europe, but the Lancias are seen as a more premium line in the Fiat family. Perhaps Chrysler can convince U.S. consumers that these new European products are luxury models that deserve luxury cache and hopefully luxury price tags.

We shall learn more come November 4 when Chrysler will announce its Five-Year Business Plan. Until then, Chrysler will continue to be a mass-market brand ready to leap into the challenges of brand reconstruction. Good luck.

1 comment:

Anonymous said...

John Wolkonowicz, mentioned in the "Taking Chrysler Upscale" is the genius who predicted a 75% chance that Chrysler would file bankruptcy in 2009 (wrong), and that Chrysler has never had a luxury identity (wrong - Imperial anyone?)

Not a man I'd go to for reliable forecasting for strategic thoughts.