The idea of marketing is to create, communicate and deliver a perceived value of a product or service to a target market; with the overall goal of making a profit on the merchandise (Dibb, et al, 2005). This report will focus specifically on the role of product strategy within the luxury car industry, and aim to critically discuss the emphasis of strategic marketing and product differentiation on competitive advantage.
On a global scale, the luxury market is experiencing growth regardless of the economic climate, with cars contributing exponentially to the €850 billion market 2014. The luxury car industry itself is increasingly lucrative, with the demand for high end vehicles rocketing since 2012 and a significant 10% increase from 2013 (D’arpizio, et al, 2014). This incline is a result of budding markets in newly developed geographical locations, thus boosting the global luxury car market to approximately €405 billion by 2015 (Statista, 2017). Kapferer & Bastien, (2012) define “luxury” with the application of six criteria questioning whether the product is: unique, self-indulgent and superior, of a high price and quality, with aesthetical assets and portrays exceptional and symbolic meaning. The six criteria make a Luxury product however depending on the sector, the weight of each is subject to change to create a competitive advantage (Heine, et al 2011).
With consideration for the five constraints of marketing, an industry can respond via the four parameters. Once this link is established - appropriate segmentation, targeting and positioning can occur. Product is an item or service of value to impending consumers, and luxury cars provide both physical goods and experiences with the aim to distribute high-quality cars to a copious market.
The luxury car industry is often seen as a grey area, with the top of the range ‘super cars’ being at the top of the hierarchy. This sector is highly exclusive, therefore their sales are relatively less than more ‘affordable’ luxury cars for example: BMW, Audi and Mercedes Benz who dominate the sector with an enormous 80% share between them. Taking popularity into account and realistic target markets, this report will discuss the more “affordable” sector of luxury car industry.
All three levels of the product strategy must be considered: the core product, actual product and augmented product. The luxury car itself is the core product with the actual product being a contribution of its brand name, features and design, for example – Mercedes is one of the most acclaimed brands in the world; this is a major asset to the success of their products. In addition, luxury car brands focus on their ability to market their well-known logos and taglines on their products for extra publicity. Marketing strategies which create an association to logos, allows for added exposure and enhanced visibility thus more people can become familiar with the brand whilst maintaining exclusivity of their high-quality cars. Again, using Mercedes as an example - their familiar three pointed star symbol combined with “The Best or Nothing” slogan is a depiction of their high end, lavish products (Mercedes-Benz, 2017). When combined with aesthetics; symbolism and the brand reputation can have a positive effect on competitive advantage, especially when used in conjunction to consumer tastes. Heine, K. and Phan, M., (2011) have identified that luxury car owners prioritise their “feelings” towards a car, although the special features add to the extravagance of a vehicle – the reputation portrayed by the brand also adds to product value in terms of experience. The augmented product refers to customer service, warranty and after-sales (AS) support etc. which are also part of the luxury car experience and contribute to a product’s competitive advantage. When used as a method of differentiation, augmented product adds to customer satisfaction and consequently customer loyalty. With a highly-reputed car, it is important that the whole process is up to the standard of their upper-class target market, hence the ambiance of their mono-brand showrooms reflecting the exclusiveness of their product. According to Gaiardelli et al., (2006) AS service is a profitable long term asset in a competitive industry, with the AS aspect of the luxury car buying process adding to the experience. Some brands have experienced negative customer retention as a result of poor after AS which emphasises the importance of the quality of provision at the augmented product level (Truong,et al, 2008). Yet there are other factors that competitors may incorporate to achieve and enhance a competitive advantage such as product leadership or quality (Baines, et al, 2007).
The product itself is pivotal within such a competitive industry, with customers building perceptions of brands based on their encounters with the cars. Brand loyalty generally insinuates that consumers are unlikely to be manipulated by changes in price however, progression in terms of product innovation may boost market share. Suggesting the positive correlation between appropriate marketing and a superior product.
Product leaders must stimulate and ignite enthusiasm in their buyers towards their creation (Treacy, & Wiersema, 1993). The luxury car industry must therefore produce vehicles that appeal on many levels in line with the luxury criteria to customers. For example, BMW – who started out in the 1900s specialising in building motorcycle and aeroplane parts is a fore runner in the car industry. They have been able to generate a consumer base running from affordable cars to top end luxury vehicles that appeal to the upper class, this is a combination of their exceptional brand pull and range of product. BMW have gradually worked their way towards excellence whilst maintaining a loyal customer base through advanced engineering, their current models are a depiction of robust engines and speed with safety and reliability guaranteed (BMW, 2017). Unlike Audi and Mercedes who are linked to other companies, BMW are independent and are not restricted in terms of sourcing their parts which allows them to use the most up to date parts to produce unrivalled cars. This level of customisation for the different models of car is beneficial and helps to build a positive customer perception, and in terms of product; a premium car manufactured by a well reputed brand provides incentive to pay more for a superior and innovative car.
In an aging industry, it is increasingly important to create innovative products as part of a bid to increase market share. The Product Life Cycle (PLC) refers to the process that, in this case, a car goes through from creation to the end of its life. As depreciating assets, luxury cars begin their progression through the PLC at their highest cost, and as more people buy them and newer models are introduced, their value and consequently, price decreases (Nadeau & Casselman, 2008).
Figure 1. Rogers Everett, M., 1995. Diffusion of innovations. New York, 12. the PLC in terms of consumer response.
The Luxury goods industry is highly aesthetically motivated and therefore newer, more upscale models and shapes tend to be successful. Consumer trends are also noted, as the extremely high end cars such as Bentley and Ferrari are using leather interior the lower-tier cars are mirroring progress as an attempt to appeal to more exclusive buyers (Heine, & Phan, 2011). In more extreme attempts to achieve competitive advantage, companies such as BMW are innovating brand new models to appeal to upper class segments in the market. For example, the BMW i8 ($150,000) appealed to buyers seeking a top-end car allowing them to compete within the luxury sector and BMW’s investments towards innovative technology gives them a competitive advantage (BMW, 2017).
Product differentiation is also created through unique selling points (USP), this is more difficult for luxury brand who’s manufacturing costs are inflated to ensure quality – meaning higher selling price is required to make a profit (Kapferer & Bastien, 2012). A simple example would be the difference between the production processes of a Rolls Royce and a lower Tier BMW with the Rolls Royce being much more time consuming and costly, therefore increasing its selling price without having a negative effect on potential consumers. Ferrari products are different to other luxury brands, their competitive advantage is their personality and ‘flaws’. Ferraris provide the opposite of a smooth, modest and relaxing driving experience, which is often why they appeal to luxury car buyers who enjoy the fast pace and showy characteristics (Ferrari, 2017). These associations to the car will differentiate between thrill seekers and people who prefer the more classical and sophisticated style of driving cars such as a Rolls Royce Ghost (Kapferer & Bastien, 2012).
The luxury car industry predominantly uses the ‘skimming strategy’ when applying the Diffusion theory, however more recently, there has been evidence of the use of the ‘penetration strategy’. Both methods are effective, with skimming being the idea of introducing a high-priced product to a ready formed market and the ‘penetration strategy’ referring to a concept whereby a product will tap into a newer segment to appeal to buyers that may not have typically wanted to buy the more expensive product e.g. the Audi A1. Such transitions prove lucrative to brands by allowing them range to tap into different demographics, although it may take away from their exclusivity which could be of importance to their loyal, high-end customers. There has also been research carried out that a reduction of product assortment can significantly increase sales and reduce inventory (Dass, Kumar, & Peev, 2013).
Top-end Luxury brands typically focus their efforts on narrow product width and short product length, as they specialize in high quality, exclusive automobiles. E.g. the Rolls Royce produce only cars, in four model variations, the Dawn, Wraith, Ghost and Phantom giving them a shorter product line (Rolls Royce, 2017). Their products boast attributes such as “sensuous styling” and “contemporary finesse” which directly target a market with a lavish lifestyle. The Dawn model is described as “Effortless yet Exhilarating” with its state of the art engineering and “Uncompromised Comfort” enforcing the additional, over the top features for it to qualify as a luxury car (Rolls Royce, 2017). Their distribution in their own mono-brand showrooms highlights the exclusivity and enhances the customers’ perception of the product, service and overall brand reputation (Baines, et al, 2007).
The affordable Luxury cars, have a larger product length and appeal to a larger range of consumers allowing for immunity to economic oscillations. Referring to BMW, after their transition to cars in the early 1900s, they have produced a large range of models that target consumers of utility cars, all the way to the high-end cars that compete with the ‘supercars’. Today, their range includes a variety of cars in the 1, 3, 5 and 7 series as well as the X class and several other variations – each of which provide a different driving experience as well as their own characteristics to suit the tastes of demographics. The exposure and marketing of such qualities provide discussion points amongst enthusiasts allowing them to feel further engaged and associated with the products. Competitors such as Mercedes have attempted to capitalize on this initiative however their excess assortment has created signs of Self-cannibalization’ as their sales for particular models are decreasing (Boatwright & Nunes, 2001). This could also be partially due to feature fatigue due to excessive customizations, a new element to a car requires new learning and too much of this can have a negative effect on consumers (Thompson, Hamilton, & Rust, 2005).
BMW MERCEDES AUDI ROLLS ROYCE BENTLEY
PRODUCT LENGTH 2016
Figure 2. Product length of luxury car brands in the upper tier and “affordable” sector relative to their official sites 2016.
To conclude, the concept of product strategy in the luxury car industry is extremely important. Buyers invest in such products for a sense of superiority and for its hedonistic value, however these products cannot sell themselves. This highlights the need for appropriate marketing to inform and expose the cars by portraying them in the best way in terms of value, quality, aesthetics and engineering to give them a competitive advantage. When considering product marketing however it is still important to consider and combine all four parameters and positioning as without these, the marketing will not target the correct demographics.
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