Thursday, May 13, 2010

Segmentation Part 2 - Acura needs a true flagship

Our first installment in this series introducing luxury branding and segmentation, presented the A8 flagship as a key component in Audi's turnaround, as well as a critical piece of the segmentation puzzle. I'd like to look at the Acura brand through the lens of segmentation to reveal the not-so-hidden fundamentals that provide a constructive answer to the question "why isn't Acura - with all its technical and engineering quality - more recognized as a luxury brand?" I'm not even going to entertain discussion of "near luxury" as a segment (does Honda really need an entirely new brand to compete with a Chrysler 300 or a Buick or a Nissan Maxima? I don't think so either).

Let me mention a bit of a disclaimer - I am a big fan of Acura and Honda engineering. Anyone who knows me knows my opinion - the best money you can spend on a car, short of German engineering, is on a Honda/Acura product. But, there's more. I also have working experience with the brand - my first three cars were Honda products. Wait, there's more. I also did some work for them - albeit at arm's length - over a five year period. So I'm biased. I've driven Honda, I've worked for Honda, I have a soft spot for Honda. I can unequivocally assure you, however, that my opinions are absolutely my own, and there is nothing in my opinions that was born of any inside knowledge of the company's forecasts, projections or plans. My limited scope precluded any opportunity for me to learn anything from a strategic standpoint, that's for sure. I've had these ideas in my mind for years, and nothing has changed these views. As mentioned in the previous post, it was the announcement of the new A8 that reminded me about these ideas and, free of concerns of conflict of interest, I decided it was time to share them.

I hope Honda continues to have confidence in its strengths and address whatever weaknesses it may have in its model mix so that more people can enjoy what it has to offer. Having said that, no brand is perfect, and an opportunity to improve is there for the taking. Let's look at it.

What is a flagship?
I'm going to break down a review of the Mercedes-Benz S-Class on, just to show that I'm not making this stuff up.

"The Mercedes-Benz S-Class is as synonymous with state-of-the-art luxury and safety features as it is with country club prestige. As Mercedes' largest sedan, the S-Class offers the most room for rear-seat passengers, making it a favorite of wealthy dads and heads of state alike."

First of all, notice that there are two components of this model: not only state-of-the-art luxury and safety features, but also country club prestige. In that previous article, I mentioned that the standard for luxury has been set and includes both performance as well as image.

Notice also that the S-Class is Mercedes-Benz' "largest sedan", offering the most room for rear-seat passengers, and that these features - state-of-the-art technology, size and image - make it attractive to particular consumer types - "wealthy dads" and heads of state.

In my previous article I mentioned what I call "conveyance" - the idea that if the "dad" (not just an adult male, but an adult male with other people to think about) buys into the brand, he's more likely to buy through the brand (an E-Class wagon for "the wife", etc.). This is more than just the concept of loyalty - the idea is that, having come to the brand family through the flagship, one might be propelled into other models in the family by choice, as opposed to, say, offering loyalty incentives without which a customer might stray to the competition. It is not by accident that the Edmunds review mentions "dads" - Mercedez-Benz built the S-Class with this specific consumer in mind. Heads of state too - the S-Class is regal, royal, at the highest levels of society. That's an image they want to associate with their brand, and the model, so that people who want to "feel like a million bucks" think about this brand/model.

And, let's be clear - "coming to the brand" is not about buying the flagship itself: it's more about using the flagship as a showcase for all the brand stands for. As the article continues:

"Mercedes has used its flagship sedan to pioneer many modern technologies, such as airbags, antilock brakes and stability control. And though the most popular versions like the S430, S500 and S550 have been powered by V8s, some of the earlier cars could be had with six-cylinder and diesel engines as well. Since the '90s, Mercedes has also offered the V12-powered S600."

So, again, the flagship is where new things happen first, where a brand makes a splash and says "hey world, here's what we're up to, come check us out."

Notice, also, the choice in power plants - people spending over $100,000 are people who lead people, make decisions, and expect to get what they want. A car maker who wants to say "we have a model for you", must be willing to listen to what they want, rather than presume to tell them what they're going to get; in the luxury flagship segment, people want size and power. The S-Class has offered the choice of a V6, V8, diesel, and a V12.

Now, check out this next paragraph:

"Before the 1990s, the S-Class' chief competition was the BMW 7 Series sedan, which like the Benz could be had with six- or eight-cylinder power and also offered standard and long-wheelbase variants. Now the big Mercedes faces rivals from Audi, Jaguar and Lexus as well, all of which offer powerful, long-wheelbase flagships stocked with every conceivable luxury feature. In spite of pressure from these worthy opponents, the finely engineered and crafted Mercedes-Benz S-Class still stands as a solid choice in this lofty segment."

From the 7 Series to the Audi (A8 as discussed in the previous post), Jaguar, and Lexus as well. No Acura? No. Why? These brands "all offer powerful, long-wheelbase flagships stocked with every conceivable luxury feature." Acura simply has no model that can compete in this space. Its top vehicle, the RL, is about the physical size of the mid-size models from the luxury brands - Mercedes-Benz E-Class, BMW 5-Series, Audi A6. When someone goes to test drive a flagship, they make a list of who offers what, and Acura has nothing to say "hey, we're here too."

Note the language in the final sentence: "...S-Class still stands as a solid choice in this lofty segment." Lofty segment. It's the segment that creates dreams, that raises the bar, that makes people look upwards at the brand. As long as Acura has no entrant in this space, it is sending a message to those looking for luxury that it, as a brand, is not a player.

The Missing Ps

Marketing 101 talked about the four Ps of marketing - product, place, price and promotion. A flagship speaks to all four of these Ps, and Acura - with no true flagship - speaks to none of them.

In terms of product, Acura has fabulous technology. From an engineering standpoint, Acura products are excellent, the driving experience is wonderful. If you don't believe me, go drive one. But that's not enough for the luxury segment. The RL platform isn't big enough to be a showcase. But "the product" also includes the intangible "image factor".

Price is a part of the product. If someone is looking to spend $125,000 on a big car that says "I've made it", there is no value in saying "hey, I saved $50,000 by buying an RL". For someone who gets a vehicle allowance as a perk of their job, there's no incentive in coming back to the executive committee and saying "I don't really need $3,500/mth in vehicle allowance."

Place speaks to how the product is both positioned as well as distributed. Forget about the dealership experience for now, or even an ad in a business newspaper - just look at the article itself! Notice how BMW and Audi and Jaguar and Lexus get free advertising in a Mercedes-Benz article? That is product placement - just by being competitive in the segment, the competing models get face time, are included in the conversation, are confirmed and endorsed as "worthy alternatives", are placed where the target market will see them. I can't emphasize this enough - do an internet search for any of the models we've been talking about - 7 Series, S-Class or A8 - and see for yourself how they are seen in the public space, see how they all keep coming up. Once in a while, someone will mention the Porsche Panamera, or a Maserati Quattroporte, or even Lexus, as we've already mentioned...this is, for all practical purposes, telling people straight, "hey, if you're in the market for an X, you might want to also check out the Y." Anyway you slice it, Acura is continually left out. It's not on the playing field at all, technology notwithstanding.

Promotion, again, is not just about an ad for some lease incentive. A flagship unveiling at an auto show that shouts out about the newest technology and features is not doable when it flies below the standard of the competition. By standards, I'm not talking about technology alone, but the package standards - if the vehicle isn't big enough, or powerful enough, or filled with competitive creature comforts, then there's nothing to promote, relative to the competition, thus there is no effective promotion.

Forgotten pioneer

It must be recognized that Acura was the first luxury division of a Japanese automaker, introduced by Honda in North American in 1986. The other Japanese manufacturers took a wait-and-see stance, and what they saw was success - it could be done, and they soon followed with their interpretations of Japanese luxury entrants, Lexus from Toyota and Infiniti from Nissan.

Even from these early days, the futures seemed set when Acura offered the small Integra and the mid-size 6-cylinder Legend coupe and sedan...but no big car; while Toyota's Lexus first came to market with a flagship LS. While I wasn't there when they decided what to name it, LS looks a lot like "Lexus S-Class" to me. Back in those days, if you saw one on the road, you'd do a double-take when your first reaction was that it was some new kind of Mercedes, only to discover that in fact it was a Lexus. Not only the name, but the very design was intended specifically to associate this flagship with other luxury flagships, and send the clear message, "hey world, we're here, and we're competitive." They even copied the use of numbers to class the brands - LS 400, ES 300, etc... (the mid-size Lexus ES is similar to the mid-size Mercedes-Benz E-Class - not identical, but subliminally, it might evoke the same emotional response; it just can't be a coincidence).

The point here is that Acura can be every bit a full luxury brand as any other Japanese or German brand. Acura had the gumption, the audacity, to even try luxury. Acura blazed the trail, lead while others followed, and has fallen by the wayside as others have sped by them. But Acura has not had any kind of PR nightmare that befell Audi in the late 80s and early 90s, so if Audi can turn things around as it has, there's no reason Acura can't (which is precisely why I lead this series on segmentation by talking about Audi).

Staking a claim in the luxury segment is best achieved with the offer of a competitive, fully appointed, true flagship.

The Acura SL

In terms of small, medium, and large, I'll save that assessment of Acura's mix for another post that will also speak to the issue of luxury vs volume. So, skipping CSX and TSX for now, let's start with the TL. I'd keep it, and let it run with the 3-Series/C-Class/A4 pack. The RL, currently Acura's top model, is a $70,000 car. That's not a flagship, that's a 5-Series/E-Class/A6. All three come in sedan AND WAGON configurations, so RL is still not doing what the luxury brands are doing in the segment, but in terms of a $60,000 - $70,000 car, we've got a platform. Fabulous car, just not a flagship.

I would introduce the Acura SL (nice, eh? LS, SL, S-Class, 7-Series...lots of S sounds in the flagship class. And yes, Audi does have an S8, though not a flagship, think of it as an M7 if there was such a thing or AMG S-Class). This car would be big, with a long wheelbase and generate at least 400 HP from a V8, or V10, and also offer a V12. Acura's SH-AWD interpretation of 4-wheel drive and its Variable Stability Assist make for an awesome amount of technology that translates to pure driving bliss, so anyone thinking of Audi's Quattro or Mercedes-Benz' 4Motion or BMW's xDrive have a comparative from Acura that sets a performance standard all its own.

The Honda brand is committed to "blue skies for our children", so naturally they would make these engines more efficient than any of the competition's segment entrants; whether using diesel (which all the competitors already offer), or hybrid technology (let's remember that Honda did it before Toyota, Insight came out ahead of Prius - again, just as with a luxury brand itself, Toyota watched as Honda lead, and then Toyota addressed shortcomings and came out after with a leading offering.), or even a a diesel-hybrid, Acura is capable. What about some new technological advance that would shake the auto industry, and make a great splash as a flagship unveiling at an auto show?

Big cabin, big engine, big power, big luxury...let's not forget big price. This vehicle cannot, in any way, shape or form, allow someone to glance over at the RL in the showroom. The jump has got to be big enough that it speaks to a totally new customer - the wealthy dad or head of state. So, this new big luxury flagship would have to start in the $109,000 range, well appointed (say, a rear-wheel drive base. Yes, rear-wheel drive - that's what this segment is), and go up to $125,000 for a fully loaded 12-cylinder SH-AWD top trim.

Stick to the fundamentals

But, how many would they sell? The question is not how many $125,000 flagships they could sell. The question is, how many more models throughout the model line would sell as a result of the impact a flagship can have? How much more inclusion would the Acura brand garner? Fundamentally, a flagship is not about unit sales for the flagship itself - the flagship is a strategic tool whose influence ripples throughout the brand. In other words, a true flagship would result in more sales of RL, TL and whatever else Acura makes, since a flagship puts the brand on the map and in front of the people who spend money on luxury vehicles and who most appreciate its finer qualities.

It's time the Acura brand take its rightful place at the luxury table. Acura was a leader, and can be a leader again. "Near luxury"? Bah!

Let's get started - give us a flagship.

Our final installment in this series, Segmentation 3: Cleaning up Acura, looks at Acura's entire line-up in the context of luxury segmentation as has been defined by the players in the marketplace.

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