AMR Review: Luxury Going Down Market
What I'd like to talk to you about today is something that is hotly contested in the marketing world. The issue is whether a niche player can move outside of their niche, or expand their niche without destroying their brand in the process. The players in question are Audi, BMW and Mercedes, the German trifecta of luxury players. These are the leaders of the luxury automobile world, playing mainly in the $30-$100k price range. They have been imitated by nearly every car maker in the world, and entire brands have been created strictly to take the Germans on (Lexus, Acura and Infiniti). The issue these top brands have is that it takes quite a bit of dough to buy one of their products, making it hard to capture customers. Audi can at least start a customer off with VW, and then move them to the Audi brand. The issue there is VW's recent move up-market, and how this takes away the brand progression VWAG had previously established. The answer, at least at the current moment, is to move the luxury brands down-market with cheaper products. The products in question are the Audi A3, BMW 1-Series and Mercedes C230 Sport-coupe.
As a former marketing strategist (whatever that means), this is something very close to my professional passion. While the benefit is that these brands can potentially capture buyers when they are younger, and thus extend the total value of a customer. The idea is best shown in an example: if you were going to become a BMW buyer, and own 5 BMWs in your life, you could now start sooner, and own 6 or 7 in total. While that's a clear benefit, the downside is what happens to the image of the rest of your brand. Does someone buying an S600 really want a little four-cylinder C230 sedan being mistaken for his car from afar? Certainly not. One could argue that Acura has never been able to market a large V8 sedan like Lexus could because of the Integra/RSX in their lineup. Now, I would say, "You can't say that since they never tried," but I'd be surprised if Honda didn't consider it at times (in fact, they did have a large, V8 concept car on display a couple of years before the 3.5RL debuted in the late 90s). This issue of brand dilution is less serious for some of these Germans than others, but it's an issue nonetheless.
Beyond just brand dilution, though, is the threat that your low-end vehicle simply won't sell. BMW failed miserably in the US with the 318ti, and consequently never brought the Compact to this country (the 318ti's replacement). Mercedes hasn't done as well with the C230 Sport-coupe as they had hoped. And we can look to Toyota, a master of manufacturing and marketing, having created the top selling luxury brand in the US out of thin air. They knew that, when developing the LS400 to launch Lexus, people simply would not take the Toyota name to mean the benchmark of luxury. Toyota realized that their image was not consistent with young, sporty or fun, and thus created Scion. They knew that the Celica would never truly thrive under the image of a family sedan purveyor, nor would the quirky xA or xB. Well, maybe the same can be said of thinking of German luxury carmakers and the view of them as purveyors of high-value, lower cost cars. Then again, we're a very image-conscious country, so maybe they can make it this time. Let's look at each brand, one at a time.
The Ultimately Affordable Driving Machine
I don't know what to make of the 1-Series. Mechanically, it's quite a great car. It has a solid mix of engines, with some amazing 6-cylinders on the way thanks to a new engine development project at BMW. It rides on a modified version of the new 3-Series platform, and early drives of the car in Europe have been very favorable. To me, though, this is possibly the ugliest car on the market (OK, if you ignore the Kia Amanti), and I'd still say that even if the Pontiac Aztek was still for sale. The lines are unattractive to me. I am just not a fan of recent BMW design for the most part, and I truly think this is the worst effort to date. It has many design cues of the Z4 in its deeply cut sides, sharp creases and odd cut lines. The front end is sort of a mix of the new 3-Series and the X3. I just plain don't like this car. I actually think the look makes it look cheaper than it is or deserves to look. For me, buying this would be a huge mistake. I think an Acura TSX would be a far better choice, as would a Lexus IS300.
So, what about the benefits and dangers for BMW? Well, the 318ti bombed, and I just don't see this doing much better. They are improving on several issues that the 318ti suffered from (engine choices and packaging), and the current plan of offering different body styles (hatch, coupe, convertible, the last two possible called the 2-series in keeping with the new naming convention at BMW) may help the situation. I just don't think this car looks good enough to sell. As for its threat to the brand, I think this is a tough call. The 318ti didn't do much to BMW's image, but it wasn't really in the spot light at all. Here, BMW isn't launching a version of the 3-Series, but is introducing a whole new line with various incarnations. If this fails, it will be harder to hide from.
Also, one has to wonder what made BMW decide to relaunch Mini. Why would they feel they needed another brand to launch, sporty-handing hatch? Granted, there's a lot of value in the Mini name, but there was a reason why BMW didn't just create such a car for their own brand. It surely would have been cheaper than launching a whole new brand. No, they clearly felt that such a car would not sell as well with the blue and white propeller on its hood due to the association with larger, German, sports sedans. The question is whether the image includes size, or merely the traits of being German and engineered for driving. If size isn't part of the public image of BMW, this may well work. Now, will the 1-Series, combined with the new 3-Series, be able to make up 50% of the company's sales? That I'm not so sure of. I think the new 3 will succeed as all 3s have, but the 1 just doesn't look right to me at all.
The Three-Pointed Star for The Price of Two Points
Here's an interesting car to evaluate because it's been available for a few years. I don't actually think this car has hurt Mercedes' image at all. Instead, I think the fact that the C and S-Class sedans (and now the E) look so similar is more detrimental. Speaking to a former S-Class owner who opted for an Audi A8 this time around, he said that a big factor for him was that a $30k C230 looked, "So damn similar to the S-Class I was about to pay three times as much for." Apparently, he had never seen an A4 and A8 side by side, but I hear his point loud and clear. That said, Mercedes sales have been fine for a product that is getting as old as the S-Class. The E has also done well. The C sells very well, but, alas, it's smaller Coupe sibling hasn't faired so well. Luckily for Mercedes, buyers of the C-Coupe are primarily future E, S and M-Class owners starting with the brand early on (just look at who drives this coupe). A risk is that they would end up getting people who could never afford a 'real' Mercedes, and thus don't really grow the brand's appeal at all. Luckily for Merc, this hasn't seem to be the case.
3 < 4 and > 4
OK, so I'm playing on Audi's new ad campaign for the A6 in this title (6 > 5), but it's very true. The A3 is less than the A4 in many ways (namely size and price), and actually more in others. The interior is a generation beyond the A4's with its navigation system (optional, with included MMI), and general design. Even with its facelift for 2005, the A4 still seems behind the A3 in interior design. The A3 is also a tight fit like the A4, but it seems more appropriate. I always find myself let down with the space in an A4, whereas I would expect the A3 to be small inside. It is, after all, a modified Golf (it rides on the now Golf's MKV platform). What you get, at least in the version coming to the US, is a mini-wagon of sort, with sporty handling, crisp styling, and a pretty good price tag (around $25k for starters). Engines will be the 2.0TFSI four or, eventually, a 3.2L narrow-angle V6 (from the R32 and Audi TT 3.2). The 2.0T is the replacement for VWAG's venerable 1.8 liter turbo-four. It moves up in power and displacement, and adds gasoline direct injection while trading in one of the 1.8T's valves per cylinder (moving from a 20V to a 16V). Transmission choices are great, with a 6-speed manual option, or a 6-speed DSG semi-automatic (like in the TT). The dual-clutch system is a gem. If you've heard good things about BMW's SMG, you've heard better things about DSG (BMW is working on a competing system called ZSG which features one centralized clutch that's always engaged for seamless shifts). Of yeah, there's also talk of an S3 coming to the states.
The big win in the A3 is what it does right. It's well packaged, to say the least. Power is good, ergonomics and materials quality is high. But, it's small. A mistake would have been to create a small sedan or coupe in this space (like Mercedes), so Audi went with the wagon style. This allows flexibility for a young professional who likes to go skiing or something, while not needing to move to an SUV, or having to give up their luxury dreams. And, for a wagon, the A3 looks sporty. The BMW is more 'dumpy four-door hatch' than sportwagon. Audi's designers did well on this one.
The Final Review
To me, the A3 is the safest bet of the three. It's more flexibly packaged than the Mercedes, and looks terrific, either next to the grotesque BMW or alone. Where this car stands to do better is really in Audi's position in the market. Audi is considered the step-sibling to the big Germans, and hasn't really built an image on the A8. Mercedes is seen as the S-Class (at least to many), and BMW is seen for the 5-Series and M3. The A4 and, to an extent, A6 carry and create Audi's image. The A3 isn't so far off from those cars (especially the A4), so it won't be a big stretch for buyers to consider the A3, nor will it likely cause any defectors from the ranks of A8 buyers. If an A8 buyer was that worried about image, they'd buy a Mercedes S-Class, BMW 7-Series or perhaps a Jaguar XJ-8. What VWAG should really worry about is how their two main brands are going to war with each other. Passats and Phaetons taking on the A6 and A8, while the A3 moves into rival the Golf and Jetta.
Ah, the joys of brand management.