Every Tier 2 brand aspires to be in Tier 1.  Audi set the target years ago to become a Tier 1 brand and some would say that it has achieved that goal.  More recently Cadillac has made no bones about the fact that it wants to be a Tier 1 brand and has set it sights on BMW.  Infiniti is striving to make it into Tier 1 and Jaguar would like to return.  The fact remains that only Mercedes-Benz, BMW and Lexus have achieved the volume, credibility and prestige to be true Tier 1, everyone else is Tier 2:

That said, I think the goal of becoming a Tier 1 brand may be a fool’s errand in today’s luxury segment.  It made sense almost 20 years ago when Audi set that as the target but does it really make sense today?

Tier 1 is full of accepted conventions that must be present in order for the brand to be truly Tier 1.  For example, in the Tier 1 world, all dealerships must be exclusive and should be Taj Mahals built to reflect the prestige and loftiness of the brand they represent.  In these Taj Mahal dealerships, customers must be served lattes, have a customer experience befitting their level of success and certainly not have that experience sullied by the presence of mass market product or customers.  In Tier 1, as defined today, manufacturers must offer three sizes of sedans, at least two cross-overs, a sports car as well as a tuner division that churns out high performance model variants.  In traditional Tier 1, it is essential to have a D-segment (think MB S-Class, BMW 7-Series, Audi A8) sedan that represents the brand’s ultimate execution of a luxury vehicle.  It’s pretty rarified air up in Tier 1, but if you can get there, profits and volumes are huge.

Here’s the rub, the whole Tier 1 paradigm has been built around the baby boomer generation and I can’t help but wonder if the conventional thinking about Tier 1 runs the risk of taking a manufacturer down a path that will be less relevant in the future.  There’s a new generation of luxury car buyers coming into the market that are forming their own opinions about what “luxury” means, what connotes prestige and what brands they will value.

What’s interesting about the new generation (call them Millennials if you like, they’re the children of the boomers) is that their view of luxury is being shaped by experience that has included the Great Recession and its re-jiggering of peoples’ sensibilities, high unemployment particularly for their age group, the broken promise that they will do at least as well as their parents not to mention technologies that are changing the way they communicate, collaborate, research and ultimately act as consumers.

All luxury brands recognize that their future depends on younger upcoming luxury car buyers, but the goal of Tier 1 and its conventions risk throwing them off track.  This new generation of luxury car buyers may not need a Taj Mahal dealership or even a latte. They’ll need a product and experience that fits their sensibilities, not their parents’.

I think the future of luxury rests with the next generation and if I were introducing a new luxury entrant or re-building a luxury brand I would focus all of my energy on understanding how Millenials will define luxury and what I need to do to satisfy their requirements.

The luxury segment is going to go through a transformation and becoming a “Tier 1” brand with all its trappings represents “old luxury.”  The long-term winners will figure out how to become the new generation’s luxury brand without losing their existing customer base.  Fortunately, boomers are consumed with the need to be perceived as youthful and forward looking, so chances are if their kids think something is cool, they will too.

The naysayers (me included) were wrong. The Cayenne has gone on to be the brand’s biggest seller and I think it’s fair to say that the 911 just keeps cruising along as one of the world’s premier sports cars. One of the reasons that the Cayenne did not damage the Porsche brand was that Stuttgart was incredibly clear that the Cayenne would be the “Porsche of SUVs,” in other words, a high performance SUV. Jeff Zwart (a Porsche factory driver as well as commercial director) directed, participated in and produced this Cayenne introductory video for Porsche:

Road to Cayenne

Obviously, the sole purpose of this video was to establish the Cayenne’s performance credentials and lineage.  Porsche successfully expanded volume by introducing a product true to the brand’s core values and marketed it successfully based on those values.  In fact you could argue that Porsche is doing exactly the same thing with the Panamera (introducing the “Porsche of four door sedans”).  We could debate whether the world needs another high performance sedan given Audi’s S models, BMW’s M series and Mercedes-Benz AMG models, but so far Porsche Panamera sales indicate that from a product point of view, Porsche judged the market well.

Porsche has successfully proven that it can expand volume by carefully developing line extensions that reflect the brand’s core value of performance.

So why, would they allow their latest marketing campaign to go so far afield?  What would possess them to feature the iconic 911 and the very successful  Cayman in communications designed to demonstrate that they are not “just” high performance sports cars, rather they are excellent everyday drivers:

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Do the marketing folks at Porsche really think that a perception of a lack of everyday utility is holding back sales of 911s? Really?

Sounds like research run amok.

I hate to clue the marketing guys in, but the 911 and Cayman are not good everyday drivers. They’re not great in the snow, they don’t offer much room for luggage or bags of cement, nor do I envy that child that had to get in the back seat of the “school bus.” I will give them “getaway car,” after a long day at the office driving home in a Porsche would be sweet.

Seems to me that the designers and the engineers have done a very good job of defining the 911 and the Cayman. To quote an old BMW headline, the 911 and the Cayman are “The epitome of truth in packaging.”  They are not particuallry utile but they are great looking and big fun to drive.

The essence of clear positioning is knowing not only what you “are” but knowing what you “are not.”  The 911 and the Cayman “are not” good everyday drivers and they are not particularly utile.  They “are” however, high performance machines that offer a very special driving experience.

I do recognize that a lack of utility prevents people from buying 911s and Caymans, but that’s the way it should be and marketing shouldn’t be trying to change it.

In the never-ending quest for volume, they may squeeze a few more units out of the 911 and the Cayman.  The real question is, will it be worth it?

* Schedule subject to change.

For more information about the Auto Show, go to www.autoshowNY.com.

Fair enough, but let’s face it, the promise to the consumer is an interesting story about an entrepreneur and secondarily a bit of information about Cadillac.

The two available videos (at cnnmoney.com) illustrate the difficulty of finding the balance between providing the content that the consumer is promised versus the commercial message.

The first video is about a company called Wagic and I think does a pretty good job. The entrepreneurs, their business and products are interesting.  I felt as if I actually learned something about their business idea and how they succeeded.  There is only one moment where I felt the commercial interests intrude.  Toward the end, Hardwick asks shamelessly “how do you go from something like this (pointing to a Kiddalac riding toy) to something like this (pointing to a Cadillac CTS).”  That then leads one of the entrepreneurs to say, “they (Cadillac) started from scratch, that’s what we would do if we were going to make a revolutionary car.” I don’t mind the opening and closing visuals of the car that Hardwick is driving, but forcing the brand strategy into the conversation was a bit over the top and left me a little frustrated.

Unfortunately, the commercial nature is even more overt in the second episode… which is about a company called Crushpad.  Again an interesting company and business model that I enjoyed learning about.  The entrepreneur was not as comfortable on camera as the fellows from Wagic, but that’s OK.  Where things got bad was when they got in the Cadillac to ostensibly go on a tour of the Napa Valley. First we have to shamelessly consult the navigation system (so the viewer can see it) and then while driving Hardwick says, even more shamelessly, “because I don’t live in Napa, could I start a vineyard in this car?” to which our entrepreneur replies “it’s big enough, big sunroof as well.”

At that point I felt violated.  It wasn’t clever or funny. It was the product’s strategy showing in a place that I had been led to believe would be about “Daring stories from the road to success.”  Oh I get it, nudge, nudge, the road to success.

It demonstrates what a fine line it is between providing content that’s interesting and shameless efforts to insert the brand’s commercial message.  I certainly don’t mind Hardwick driving a Cadillac or using the technology available in it, if it makes sense. I wouldn’t even mind the video bookended by commercial messages.  But to thrust stupid dialogue in the middle of the video to make a product point, i.e.: ”could I start a vineyard in this car?…it’s big enough, big sunroof as well” destroys the integrity of video from a consumer’s point of view.

This is not a new issue, for years magazine publishers have talked about the importance of “church and state.”  What they mean is that the commercial interests of the magazine are separate from the editorial, otherwise there is the possibility that advertisers might influence the editorial content, compromise the integrity of the edit staff and the relationship with their readers who are ostensibly looking for objective reporting.  Even when special advertiser supported sections that look like edit are included in a magazine they are identified as “Advertising Supplements” to make sure readers are not confused and the implicit “promise” of objective edit is not broken.

I recognize that there are all sorts of grey areas in this discussion and that serving the commercial interests of an enterprise while not breaking the trust of the consumer is particularly hard as marketers are increasingly content providers.  As if that’s not difficult enough, social media is blurring the distinctions even further.

I think a good rule of thumb is to err on the side of separating the commercial message from the content.  If you are concerned that a piece of content is becoming too commercial, then it probably is, and you should back off.

Consumers understand that marketers need to sell products and accept it, but if you are a content provider “poseur” then you are implicitly breaking a promise to your audience and that’s the kiss of death.

Mercedes-Benz has been in the process of re-building their brand’s core values (see earlier post) and recently has been focusing on safety. Mercedes-Benz’ use of real people to make their case for safety results in a very compelling campaign. Here’s a recent television commercial:

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” The accidents changed their lives, the films could change yours.” While the television commercial is nice, the real power comes if you visit the website.  There you can select from a whole range of films and hear each person’s or family’s story. Here are a couple of examples:

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What joins these stories and people together is that each experienced a horrific automobile accident and believe that they would have died or been terribly injured if they had been in anything other than a Mercedes-Benz. Frankly, that’s no real surprise, as a viewer you know where the films are going, but what’s engaging are the details and the people themselves telling their story.  Ordinary people whom are sharing an experience that could happen to any of us.  The emotion is real and the stories are often riveting.

What’s artful is the way that Mercedes-Benz lets the videos tell the story of the people and they use the post video “learn more about this story” link to provide more information about the accident, the car, the technology and the engineering that enabled the happy outcome, without “selling” anything.

All in all, beautifully done. Makes both the emotional and rational case for Mercedes-Benz as the safest and best engineered vehicles without ever claiming it.

Professionally, I know there are other equally safe vehicles available, but I must admit that the stories of these real people have me thinking that perhaps my family has an edge, if the unthinkable happens, and they happen to be in a Mercedes-Benz.

Well done.

More at:  http://www.mbusa.com/impact

Obviously this idea shares some genes with the original and iconic VW Bus which many of us associate with the ’60′s, hippies and perhaps a simpler time:

The VW Bus has such a deep connection with the ’60′s, the counter culture and baby boomers, that a tearful one was used in an ad by VW to commemorate Jerry Garcia’s death in 1995:

So a reincarnation of the iconic VW Bus is inherently exciting and interesting to many Americans.  The Bulli concept seems to be creating the kind of interest in Geneva that has everyone hoping that VW will decide to put it into production.

Unfortunately, we’ve been here before.  At the Detroit auto show in 2001, VW showed another Microbus concept that got tongues wagging:

This concept was beautiful and even more closely linked to the ’60s original.  At the time everyone was hopeful that VW would decide to build this vehicle and we spent quite a bit of time at the show wondering how true to the concept the final production version would be.  Unfortunately further analysis in Wolfsburg resulted in the demise of the idea as unaffordable.  What a drag.

So now we have the Bulli and people are again excited about a contemporary version of an the ’60s icon.  Will we be disappointed again?  VW’s quest to sell 600,000 units (800M including Audi) in the US argues for a large capacity vehicle in the company’s line up.  The company’s lack of success with the Chrysler minivan based “Routan” supports the idea of a people mover with genuine Volkswagen character.

Seem like good reasons the build the Bulli.  What’s hard to know is the impact of VW’s desire to “mainstream” the brand in the US to increase volumes.  Based on the new 2012 Jetta’s plain vanilla design, it’s hard to imagine that much of the Bulli concept’s character will survive the mainstreaming process.

I for one, would rather experience “deja vu all over again” and be disappointed, than have VW build a vehicle that ends up being more minivan than Volkswagen.  We don’t need more minivans, but a new VW bus, that would be cool.

Here is a link to more pictures of the Bulli and a video from Edmund’s Inside Line.

In USA Today’s Ad Meter, this commercial finished in the top third at 19th.  Of automotive commercials in the Super Bowl it was ranked 4th of 18.  Not a bad showing for the brand but it certainly isn’t getting talked about the way Chrysler’s “Imported from Detroit” spot or VW’s “The Force” commercial is.

I must admit, I felt a little let down.  The Super Bowl is such a huge platform and it demands that you have something important to say and that you do it in a different way. Chrysler understood this and is reaping the benefits.  Mercedes-Benz basically said that they have been building cars for 125 years and the newest ones are now available. Really?  Puff Daddy was enough to get noticed and for the car wonks among us there were lots of wonderful old MBs in the ad but that’s the best they good do with $6MM in airtime on the Super Bowl?

I’m sure the Super Bowl commercial reflects the push and pull of all the various constituents.  The agency folks want the message to be simple and easily understood, the company marketing people want it to be differentiating (125 years) and the dealers want to see product.  Check, check and check.

On balance, the commercial was solid, certainly nothing wrong with it, but it could have been so much more powerful.  Last year I came across some terrific videos from Mercedes-Benz that I think give a glimmer of what could have been:

Admittedly these are long form videos and it would be prohibitively expensive to run them on the Super Bowl as is, but with judicious editing you could easily make a :90 or a :60 that would have been much more impactful. Let’s see…125 years of company heritage and Puff Daddy… or the incredibly emotional true stories of people who believe that a Mercedes-Benz saved their lives.

The resulting commercial would not have met everyone’s requirements; you’d see only damaged product, and there are certainly other safe cars out there but the message would have been simple…Mercedes-Benzes save the lives of people like me.

Pretty powerful stuff.

See more of these “Impact” videos at Mercedes-Benz’ website.

VW followed that up with a second commercial that took the 12th spot (#2 for autos). A pretty good showing for the VW guys and their agency, Deutsch LA.

After that things began to slip pretty badly for the auto industry according to USA TODAY.  The chart below details each of the eighteen automotive spots and shows how they ranked in the automotive category and among all the ads in the Super Bowl:

So again, despite having 18 commercials in the big game this year, the auto manufacturers were mostly average at best.  Mini even tried puerile humor, which in the Super Bowl is usually a guarantee of good results, but even “Cram it in the boot” didn’t get it done.

Another year, another set of mostly average commercials, another disappointing showing in USA TODAY.

Except that one auto manufacturer demonstrated that the Super Bowl ad beauty contest truly is just that, a thin veneer that looks great but has little substance.

Chrysler demonstrated in one fell swoop why having something important to say and saying it an unconventional way trumps winning the ad contest any day:

Despite being big, emotional, engaging, and important, not to mention beautifully produced and edited, as well as the first time Eminem’s “Lose Yourself” was used in a commercial, this Chrysler commercial ranked 44th of all ads and 12th of auto ads in the Super Bowl according to USA TODAY.

A beauty contest loser, but in the real world where people buy cars, this commercial made people sit up, pay attention, think and then they started talking.  If you doubt the veracity of this statement check out the change in consideration level reported on Edmunds Auto Observer, a week after the game:

A week later, Chrysler’s consideration is still up 87%, no one else is even close.  We all knew this intuitively; chances are if you were speaking to anyone about the Super Bowl advertising, you ended up talking about Chrysler’s ad.

In some circles, concerns were raised.  Will it work? Will it sell cars? Did it show enough car?  Does “Imported from Detroit” make sense? Will only people in Detroit care?  What about Eminem?  Is he good for Chrysler’s image?

All the reasons “why not.”

Fortunately the people at Chrysler and their agency, Wieden & Kennedy had the courage to ignore all the reasons “why not.”

Their reward; 6,966,893 YouTube views (as of this moment), unimaginable news coverage, countless consumer conversations, and 87% higher consideration.

Not bad for an ad.  Exactly what you need to do if you want to take advantage  of the Super Bowl and relaunch your brand.

Audi’s terrific A3 TDI commercial led the automotive pack, ranked 6th of 65 by USAToday but all the others were also-rans. Here’s how the automotive participants ranked in last year’s advertising beauty contest:

A dismal showing by the auto industry.  Despite being one of the highest interest product categories with some often fantastic products, we seem to be unable to captivate the Super Bowl audience.

To be clear, getting highly ranked in USAToday’s poll has nothing to do with judging a TV commercial’s effectiveness, it simply is a measure of a panel of consumers’ reactions and “how much they liked each ad.”  But it is without question, ‘the game within the game.’  As a Super Bowl advertiser you spend $3MM or so for 30 seconds and the chance to get noticed and liked. It’s an opportunity to get tongues around the world wagging about your ad, your brand and maybe even your products.

But to make that happen, you have to do something amazing. Something funny, something out of the ordinary, something really worth watching and paying attention to.  Historically the automotive advertisers have been unwilling to step up to the Super Bowl plate and swing for the fences creatively (to shamelessly incorporate a baseball metaphor into a piece about a football game).

Last year Audi and its agency did a nice job using the “Green Police” to start a conversation about clean diesel technology.  Funny, interesting, different and informative got Audi into the top 10.

This year automotive participation is at it highest level in recent memory and perhaps for all time.  Audi, BMW, Chevrolet, Dodge, Jeep, Hyundai, Kia, Mercedes-Benz and Volkswagen are all participating. Some of the most creative agencies in the business are creating work for the big game: Wieden (Chrysler), Venables Bell and Partners (Audi), Goodby (Chevrolet), David & Goliath (Kia), Deutsch LA (VW).

Great brands, great products, great agencies and lots of consumer interest. Maybe this will be the year that automotive dominates the game within the game with ideas that get people talking.

If not, it won’t be a complete loss; the football game should be great.

If you happened to be watching the Rose Bowl on New Year’s Day, you may have seen Cadillac’s new campaign, its first from new agency Fallon.  The new campaign is the first for Cadillac under the aegis of Joel Ewanick who gave the business to Fallon shortly after his arrival last year.  The campaign seeks to clearly position the brand by “taking hold of red blooded luxury” according to Don Butler, VP Marketing, Cadillac.  Mr. Butler went on to define red blooded luxury as “dramatic, passionate, glamorous, daring, a whole new approach to the luxury category.”

Here’s the introductory commercial:

Strategically, I think this work is smart.  I like the idea of setting up the other Tier 1 luxury marques as “blue-blooded” (cold, aloof, distant, rational) and juxtaposing Cadillac’s “red blooded luxury” (passionate, glamorous, dramatic, daring).  What this very effectively does is take the traditional Tier 1 luxury marques’ reputation for prestige and turns it against them.  Who wants to drive the same car as that couple “celebrating” their anniversary!

I also think the execution hits on a “truth.”  The Tier 1 luxury segment competitors have lost their personality and charisma.  BMW, Mercedes-Benz and Lexus seem less exclusive, more ordinary and alike than ever before.  The luxury segment buyer is ready for something new and different.  To an extent, Audi is capitalizing on this opportunity, but they are walking a fine line because they desperately want to be a blue blood too.

Cadillac seems to be willing to thumb its nose at the traditional notion of Tier 1 luxury and not worry if it ever passes the “country club test” (What will they say at the club when I drive up in a Cadillac?).  Good for Cadillac.   There’s a whole new generation of luxury car buyers coming into the segment, who look at the current Tier 1 brands and don’t want any part of them.  That’s Cadillac’s opportunity (see my earlier post on this topic).

Here are a couple of the introductory print executions:

All in all, I like the “red blooded luxury” positioning and the campaign.  The product photography is beautiful and takes full advantage of one of the most dramatic designs in the business.  This all bodes well for the Cadillac brand.

The only risk that I see is that it will be easy to allow the “red blooded” positioning to turn into a performance story.  If it becomes only about performance then I think Cadillac will have missed the opportunity to separate itself from its Tier 1 competition.  For example, this commercial is also part of Cadillac’s new campaign:

What happened to the “passionate, glamorous, daring” part of the red blooded luxury positioning?  What I see is a nicely executed performance spot. Without the “passionate, glamorous, daring” part of the positioning, “red blooded” could easily become a performance focused idea that makes Cadillac just another high performance luxury segment entrant.

The campaign has only just launched so it will be fascinating to see where Cadillac and Fallon go from here.  I hope they succeed in telling the whole “red blooded” story because with the “passionate, glamorous, daring” piece, Cadillac could become “The New Standard of the World.”   Without it, Cadillac will be just another performance footnote in the history of a segment that has repeatedly raised the performance bar.

When General Motors was going through bankruptcy many industry observers were surprised that Buick would be one of the four brands that would be part of the new company (along with Chevrolet, Cadillac and GMC). The explanation was that the Buick brand was very successful and respected in China. What was left in the “un-said” was that Buick was a basket case in the United States.

Since coming out of bankruptcy there has been lots of discussion and coverage regarding Chevrolet and Cadillac but relatively little about Buick.  Chevy represents 70% of the company’s business and certainly warrants attention.  No one was really surprised that shortly after arriving, Joel Ewanick hired Goodby, Silverstein & Partners to help re-build the Chevy brand.  Cadillac, the company’s luxury brand also seems to garner a lot of attention.  With bold designs, terrific new products, another new agency (Fallon), the folks at Cadillac believe that they are in a position to finally break into the Tier 1 portion of the luxury segment.  Marketing for Chevy and Cadillac has been stepped up and through November sales are up 18% for Chevrolet and 38% for Cadillac.  All good.  There’s also quite a bit of anticipation for the Superbowl as one or both of these brands will launch new campaigns in the big game.

While Chevrolet and Cadillac seem to grab the headlines, Buick has been quietly going about its business and making unexpected progress in the US market.  In fact, Buick is the fastest growing GM brand; it is also the fastest growing automotive brand in the United States with sales +54% year to date.

It would be easy to attribute Buick’s success entirely to product, after all the new Lacrosse and Regal are pretty darned impressive (see my earlier blog post) but that would be unfair to the marketers.  The folks responsible for marketing at Buick continue to find interesting ways to let us know our expectations of Buick are misplaced and that we should think of the brand differently.

This starts with the television advertising that clearly establishes an unexpected competitive set for Buick:

A Buick that looks like that and is competitive with the Tier 1 luxury brands is certainly unexpected, even if the executions are pretty standard fare for the industry. I also find the tag line  ”Its the new class of world class” a bit ham-fisted, but it’s on-point.  That may be the best part of this TV it’s on-point.

On the “more interesting” side of the ledger is Buick’s Moment of Truth website for the Regal.  In the spirit of creating a conversation around the Regal, Buick has created a website that sources consumers, enthusiasts, critics and anyone else who comments on the Regal and publishes what they say both good and bad.  The result is a website that is full of good information and leaves you with the sense that Buick is operating in a very transparent fashion.  I give the folks at Buick high marks (see earlier blog post) for being willing to accept the “risk” that they might be criticized in favor of presenting an objective view.

Most recently, Buick has embarked on another interesting marketing approach. Yesterday the New York Times reported that Buick has partnered with MSN to underwrite “a new Web-only travel series on MSN that promises to give an insider perspective on American cities” called “Re: Discover.”  It would be easy to dismiss this as just another product placement effort, but that would sell it short.

Re: Discover is all about really good and interesting content, not Buick.  Local people from a number of cities (LA, Chicago, New York , Miami so far and more to come) talk about their city, their favorite places to go, things to do and why they love living there.  The videos are interesting, fun to watch and I’m sure that a number of local businesses are going to find their customer base growing. Obviously, Buick is hoping that target consumers will enjoy the content and appreciate that Buick made it possible.

Who would ever have expected Buick to compare itself to the best manufacturers in the business, or create a website where critical comments are published or form a partnership with a media outlet where the car is not the star?

Of course, no one expected Buick to be the fastest growing automotive brand in the United States either.

Sales have been improving.  November was strong with most companies showing significant gains and one, Hyundai, blowing past everyone else with a +46% increase over same period year ago.  Some marques like Audi are predicting that they will achieve new sales records in 2010 and break the 100,000 unit mark for the first time.  It looks like we’ll finish the year at about 11.5MM units, up about a million over 2009.  Next year sales are expected to improve to 12.8MM.

The LA Auto Show was up beat; there were a number of new and exciting products shown (my personal favorite was the Audi quattro concept).  The sense of the industry moving forward was palpable; it was good to be there.  Then of course there’s GM’s successful IPO, where investor interest was so strong that the share price exceeded everyone’s expectations.

Even more important, the industry has made important progress during the worst recession within memory.  Given the widely held view in 2008 that we were entering a “new normal” with significantly lower industry sales, manufacturers took steps (some with taxpayer help) to reduce production capacity, which has led to dramatically lower inventories at the dealer level.  In turn, lower inventories combined with better product quality have led to lower incentives and higher margins.  Some manufacturers (BMW, Fiat) are even attempting to encourage consumers to order cars and wait for delivery as Americans become accustom to lower inventory levels and the idea that the car they want won’t be on the lot.

Sales on the rise, higher margins, lower inventories, Americans ordering cars, what’s not to like?  Nothing, all good news, until…

Last Thursday when Michael Robinet of IHS Automotive predicted that:  ”U.S. automotive industry sales could top 17 million by 2015.”

I couldn’t help but think of the current Bud Lite campaign, the one where guys are behaving in a relatively reasonable fashion until they are confronted with a quantity of Bud Lite:

17 million sales!?… Here we go.  Here we go as an industry, losing our minds and acting irrationally.  Using the MDIBTYD method of sales forecasting.  VW has made no bones about its goal of being the largest global manufacturer and I’m certain others would like to prevent that from happening.

We all know what happens.  Sales forecasts increase, production is increased, inventories increase, use of incentives increase and margins decrease.  The real shame is that all the progress that the industry has made in the last couple of years could easily be erased if we chase volume.

I understand the importance of volume given high fixed costs.  I also recognize that predicting sales and production is a high wire act and I don’t mean to diminish the difficulty of those deliberations.

But it does seem to me, that the industry’s default position has been to chase volume.  I hope that this time we restrain ourselves and consider the possibility that slower more deliberate growth, will result in stronger higher margin businesses that are better prepared for the next downturn.  Another happy outcome would be stronger brands and a customer base that is not built on the backs of the bottom feeders looking for commodity pricing.

Let’s hope that when the MDIBTYD forecasting method is being used, that cooler heads prevail.  Here we go….

As we watched Laura Soave, Fiat’s head of marketing, introduce the Fiat 500, I couldn’t help but lean over to a colleague and say “Fiat is taking Volkswagen’s US positioning.”  The presentation was full of “Italian passion” which might have been code for a youthful, fun, engaged approach to driving.  Here’s a video/ad:

“Fiat. Life is best when driven.”  Wow, that sounds an awful lot like “On the road of life, there are passengers and there are drivers. Drivers wanted:”

I recognize that there are differences between the two, for example VW hung its hat on German engineering to support “Drivers wanted.” We don’t know what Fiat will do from here, but it is clear that they are positioning the 500 as fun, young at heart and for those engaged in life and driving, the core elements of VW’s past positioning.

Good for Fiat.  It’s a good positioning and it’s available!

VW has forsaken a strong brand positioning in favor of “mainstreaming” their brand so they can chase volume in their quest to become the largest global manufacturer. Read my earlier post on this topic.

VW’s loss may prove to be Fiat’s gain.

“The company plans to triple annual U.S. sales of VW, Audi and Bentley models to 1 million units annually by 2018 as part CEO Martin Winterkorn’s drive to overtake Toyota Motor Corp. and General Motors Co. and become the world’s largest automaker.”  Automotive News 9/18/09

Based on the VW brand’s 2009 sales (213,454), volume in the US will almost quadruple: “By 2018, VW wants to sell 800,000.”  Automotive News 1/19/09

800, 000 is a heck of a lot of cars for VW.  Especially considering that VW’s biggest volume year in recent memory was 2001, when it sold 355,648 units (in the 1970′s VW did sell roughly 500,000 units).  Many industry experts have questioned the wisdom and even the possibility that VW might sell 800,000 units in the US.

Volkswagen believes that it can sell 800,000 cars in the US by specifically developing vehicles to meet Americans’ tastes: “VW has concluded that price-sensitive U.S. consumers simply aren’t willing to pay for the extras found in a mass-market European sedan.” Automotive News 7/5/10

Consequently, the “new mid-sized sedan, which will be built in Chattanooga, Tenn., is supposed to be bigger and cheaper than the Passat that it replaces… VW wants to make its Passat replacement competitive with the mid-sized segment stalwarts — the Toyota Camry, Honda Accord and Ford Fusion — and thereby boost sales sharply.” Automotive News 7/5/10

This strategy is also evident in the new 2011 Jetta, which has been de-contented to make it price competitive with the Japanese.  The 2011 US version of the Jetta will have drum brakes in the rear and a torsion bar rear suspension.  The interior has also been cheapened to enable it to reach a competitive price point.  The European Jetta has been dumbed down to meet the needs of the “price sensitive” US customer: “European buyers will get a more costly and more upscale version of Volkswagen’s new Jetta sedan than North American customers.” Automotive News 11/1/10

This approach is being mirrored in the Company’s US marketing. When recently searching for a new advertising agency, the VW CMO offered the following rationale: “The Volkswagen brand needs to inspire our base of enthusiasts as well as reach out and captivate those in mainstream America.”  Automotive News 8/18/09

So, Volkswagens will be more mainstream in the US, larger, less expensive and less European, more price competitive with the Japanese marques.  While I am tempted to go on a rant about the dilution of the VW brand and the dangers of chasing volume (see my earlier blog post), let’s skip all that, and ask a simple question:

Why buy a Volkswagen that is designed to be competitive with the Japanese when you can buy the more reliable, better built products from Japan (or Korea or the US)?

Below is the latest JD Power IQS study results:

Note that Volkswagen is third from the bottom, ranked 31st out of 33 marques. Honda is 6th,  Nissan is 15th, Mazda is 19th, and even after everything it has been through Toyota is 21st, well ahead of VW.  A customer could also look at Ford (5th) and Chevrolet (14th).

Of course part of VW’s answer to the question is that the VW brand has a certain cachet that the Japanese or US brands do not.  I think that this has been true, customers (me for one) have been willing to overlook the quality issues which have plagued VW for years because they thought they were getting something special, a German engineered driver’s car.  Customers have also paid a premium for the privilege.

But now we learn that US customers are getting the de-tuned versions of the European products.  American VWs are tuned to American drivers’ tastes, rather than the more demanding European “standard.”

This “mainstreaming” of the VW brand may lead to increased volumes for VW but it will also result in increased commoditization, the Jetta’s loss of independent suspension and disc brakes may seem wonky to some, but those technologies dramatically effect how the car handles. If my new Jetta handles just like the Civic and the Corolla, I might as well buy either of them; after all they’re better built than the Jetta.

In the final analysis, this does come down to the brand and what the brand stands for, what its promise to its customers is. “Mainstreaming” the VW brand may generate volume but it will inevitably weaken the brand.

I recognize that ad campaigns come and go, but a brand’s positioning should be consistent.  In 1995, VW’s US management and their agency perfectly captured the core of the brand when they said:

“On the road of life there are passengers and drivers.  Drivers wanted.”

Not so much anymore.  Not mainstream enough.

THURSDAY, NOVEMBER 18, 2010

Source: LA Auto Show website

Here’s the first commercial:

Already the pundits are criticizing the campaign.  Advertising Age has an article headlined “Criticism of the new Chevy theme runs deep” which does a very nice job of  chronicling the pundits’ negative opinions and I’m sure by tomorrow morning there will be more.

Much of the criticism stems from the idea that Chevy is trying to capitalize on “patriotism” or “American heritage.”  Other folks are implying that there is nothing new here, that in fact Campbell Ewald did this sort of work for Chevy for years and reference “Like a Rock” and “Heartbeat of America” as proof points.

Got it.  It’s true, the advertising is referencing the fact that the Chevy brand has long been a part of the fabric of America.  Indeed, many new babies came home in Chevrolets, many folks’ first cars were Chevys and yes, here in North Carolina I still see dogs riding in the back of Chevy pick-up trucks almost every day.  Is this “new,” no, but neither is Chevrolet.  Why is it that people, supposed experts, seem to think that Chevy needs to be re-invented, that it must be all new?

Chevrolet is an iconic American brand and what I see in this advertising is the brand trying to replace it’s stake in the ground.  It’s trying to remind us why it’s important and why so many of us care about it and feel connected to it.  It’s an effort to jump start the brand and it’s starting where it left off.

The real issue will be where they go from here with Chevrolet, because you can’t rest on your laurels or live in the past.

In the meantime, I think this campaign is a good start to re-establishing a great American brand.

Here’s the rest of the ads, I’d love to know you think.

“The annual global industry sales leader for 76 years.”

Headline on GM’s website

“Toyota ends GM’s reign as leader in global sales”

New York Times, April 24, 2007

“VW Group has declared its intention to become the global leader, overtaking Toyota by 2018”

Fortune 10/11/10

GM may have been the leader for 76 years, but we all know how that worked out.  The quest to be the global leader in sales drove Toyota to the breaking point where it lost its legendary focus on quality and reliability.  The result?  The biggest series of product recalls in history, allegations of unintended acceleration, thousands of lawsuits, and a decline in brand perception that will take years to recover.  Now Volkswagen has set its sights on the global sales crown and some are questioning the wisdom of the company’s leadership.

You can’t spend much time working in or around the automobile industry without feeling the relentless pressure of needing to sell more.

The problem that auto manufacturers face is that their business has extremely high fixed costs.   Unlike “variable” costs that go up and down based on the amount of vehicles produced, fixed costs remain the same regardless of volume.  Fixed costs include all the developmental investments, labor expenses and the costs of the factories themselves.  With such high fixed costs, the more vehicles the manufacturer can produce, the lower the cost per unit and the better the margin.  In short, higher volumes equal higher profits.

So bigger is better?  Maybe.

The performance of the automotive brands in Interbrand’s “Best Global Brands 2010” study might lead to another conclusion.  Interbrand’s study uses 10 principles to assess “brand strength” and ultimately places a “value” on the brand.  Ten automotive brands made the list of the top 100:

What’s interesting is that the brands that made the list fall into two distinct camps; big volume global brands and relatively small global brands.  Brands with 3.5MM or more in unit sales: Honda, Volkswagen, Ford, Hyundai, Toyota.  Brands with less than 1.3MM in unit sales:  Ferrari, Porsche, Audi, Mercedes-Benz, BMW.

Particularly interesting is that while the biggest volume brand, Toyota, is the most valuable automotive brand, the second and the third most valuable are from the small volume group (Mercedes-Benz and BMW).  Obviously there is more to an automotive brand than just volume.

Another way to look at the brands is assess their level of “definition” versus one another as well as volume:

One thing that the “small” brands have in common is that they are among the most well-defined and understood automotive brands.  Consumers clearly know what to expect from BMW, Mercedes-Benz, Porsche, Ferrari and Audi.  They are also specialty manufacturers, all in the luxury segment with relatively clearly defined target customers.  The strength of their brand definition makes up for what they lack in volume.

In contrast, the big volume, mass market, brands are not as tightly defined.  They market an exhaustive range of vehicles in multiple categories to virtually every customer segment imaginable.  These brands are “big tents” that by virtue of their broad range of vehicles and customers, are very difficult to tightly define.  What these brands lack in definition they make up for with volume.

So both approaches can result in strong, valuable brands.

But despite this fact, the pressure to increase volume is relentless on all manufacturers and often results in decisions that inevitably undermine the credibility of their brands.

For the smaller more tightly defined brands the desire to increase volume tests the brands’ elasticity.  For example, Volkswagen, having purchased Porsche wants to dramatically increase sales by expanding the product line to include smaller cross-overs and more affordable sports cars.  At what point is Porsche, no longer Porsche?  BMW has recently said that it will develop and produce front wheel drive cars.  After 35 years of teaching us that The Ultimate Driving Machine means rear wheel drive, the opportunity to enter new segments and expand volume (while also helping to meet CAFE standards) is just too hard to resist.

The high volume brands have a different set of issues.  Incentives are the bane of the volume brands.  Over the last decade, we have taught consumers to “buy the deal.”  The need to drive volume led to prolific use of incentives on an on-going basis that in turn led consumers to buy based on price…the ultimate commodity market behavior.  Lack of brand differentiation and increasing recognition that today’s vehicles are consistently high in quality will inevitably lead to lower margins and profits as every manufacturer competes on price.

Despite the “proof” offered by Interbrand’s study, that brand value is not solely dependent on volume, and that brand building does matter, the industry seems to chase volume at all costs.  Has anyone ever been present in a meeting where the decision was made to reduce incentives and shift the money to brand building?

What’s an automotive marketer to do?  Here are a few suggestions.

If you happen to have a relatively small volume but well-developed brand recognize that:

• You shouldn’t chase volume for volume’s sake.  Your brand’s value derives from the fact that it clearly stands for something, not simply volume.
• Your brand does not have limitless elasticity.  At some point you will stray too far and reduce your brand’s leverage (BMW and Porsche need to be careful).
• Taking care of your brand’s clear positioning is every bit as important as increasing volume and it will require on-going investment.
• You can’t rest on your laurels, you must continually re-educate consumers as to your brand’s values (Mercedes-Benz has obviously learned this lesson, all of its current communications are reaffirming the brand’s core values).

For those who have large volume brands that are less clearly defined:

• Recognize that building your brand is essential if you are to break free of the commodity like behaviors of the competition and command respect.
• A stronger brand identity will increase your leverage, margins, and ultimately sales.  Despite all Toyota’s recent troubles, it still commands higher margins and customer loyalty than its competitors.
• Figure out what you stand for and stand for it. Don’t excuse a lack of brand definition by saying that you compete in too many segments and have multiple customer types.   Unlikely that you will be the only company that offers something, but you could be the only one that stands for it (other companies offer quality and reliability, but Toyota stands for it).
• Invest in brand development. Consider the possibility that investing in your brand may make more sense than throwing more money at incentives.

As an industry we need stronger, better defined brands to push back against our self-inflicted commoditization.  In the “new normal” automobile market, the best brands win.  With Toyota and Honda slipping, Ford and Hyundai could very well be the next industry juggernauts if they can tighten up their brand identities.

By the way, if you ever have been part of a meeting where it was agreed to reduce the incentive budget and increase the brand-building budget, I’d love to hear from you!

Here’s the issue.  Tier 1 is funded by the manufacturer and is often referred to as the “brand” communications.  Tier 3 is the communications funded and executed at the local level by individual dealers.  Tier 2 is caught betwixt and between.

Funded in part by the manufacturer and in part by the local market dealer groups.  Tier 2 must serve two masters.  The manufacturer wants to be sure that the work reflects the brand and makes the doors swing whereas the dealers are understandably concerned with just making the doors swing.  Just to make it more difficult, the manufacturer’s marketing team and the dealers often have a different points-of-view about what will make the doors swing.

Tier 2 is where the brand versus retail discussion often gets very heated.   It is very tough to find a balance between the brand and retail messages.  More often than not, you end up erring toward the retail.  We all know what this formula looks like.  The TV commercials are visuals of the vehicle on the road, held together by a litany of product features in the copy and you tie it up with a bow…the deal.  The newsprint is a visual of the car, a couple of sentences covering key features, the deal and some legal disclaimers.

This leads to a sea of sameness when it comes to Tier 2 communications.

But it doesn’t have to be that way.  Tier 2 communications can represent the brand and the retail message successfully and powerfully.

That’s exactly what Ford and its agency Retail First (part of Team Detroit) have done with their campaign using Mike Rowe of “Dirtiest Jobs” fame.  Here’s one of their early commercials:

This is a solid piece of work and I think Mike Rowe does a good job, but what’s really interesting is how Ford and their agency, over-time, improved the advertising.  According to Matt Van Dyke and Dave Rivers of Ford who are responsible for this work, the early work with Mike Rowe was tightly scripted and used actors.  No surprise here, that’s what most companies and agencies, would do.

But look what happens when Retail First and Ford decide to loose the reigns on Rowe by giving him “talking points” and real consumers to interact with:

Here’s another:

Obviously, what makes this work really strong is the use of Mike Rowe, but what a difference when they let him go and just talk to people.  He’s even more genuine, likable, friendly, warm, trustworthy and credible.  Every time he makes someone smile or laugh, you like him even more.  Mike Rowe makes this work stand out and work that much harder (if you doubt Mike’s effectiveness, compare these ads to Chevy’s with Howie Long).

I think this work leaves the consumer feeling positively toward the Ford brand but it also does not shrink from the retail message.  That’s one of the terrific things about Mike Rowe; he can deliver a pretty hard-edged message about product and price without sounding like a shill.

I’m not privy to Ford’s corporate strategy but it is a big brand that covers lots of segments and customers so it needs to be a lot of things to a lot of people.  I would suspect that Ford would be very pleased if “genuine, likable, friendly, warm, trustworthy and credible” washed over their brand from Mike Rowe.  But importantly, based on recent sales, this Tier 2 advertising is also “making the doors swing.”

Finally, here’s my favorite Ford/Mike Rowe ad:

“There’s Max sittin’ in a Mustang, there’s Max sittin’ in an Accord.  What’s cooler?”

Got it.

Please let me know what you think.

This is a wonderful commercial, it’s big, emotional and engaging. Before seeing it, I was certain that I didn’t want an EV, now I’m less certain, and I know for sure that I want to help that polar bear.  I admit that this commercial makes me think about Nissan a little differently; I’m not yet convinced that the company stands for “Innovation for all” but it’s a start.

Nissan has struggled over the years to establish a brand identity for itself. Automotive marketing history buffs can probably trace the issue back to the decision to change Datsun to Nissan in 1981.  In 1986, after a transition period, the brand was officially Nissan.

Since that time Nissan has struggled in the shadow of Toyota.  While Toyota steadily built a reputation for quality and reliability and smashed sales records, Nissan labored as the number two Japanese brand.  Nissan’s brand identity has never been clear and I suspect for many people it’s an simply an alternative to the better established Toyota.

The manufacturers in the vast middle of the market struggle with brand identity partially because they offer vehicles in so many different segments for so many different target customers.  The brands in the vast middle (Toyota, Nissan, Ford, Chevrolet) find it difficult to define themselves because they must appeal so broadly. It’s tough to have a strong focused differentiating brand identity when you must appeal to everyone.

This lack of brand identity didn’t seem like a huge issue when the automobile business was selling 17 million units a year and Detroit was consistently on its heels with lousy products (relative to the Japanese) and uncompetitive pricing.  Even if Nissan didn’t get as many customers as Toyota, they got enough.

But the “new normal” sales level is in 11-13MM unit range.  Ford and Chevrolet are offering terrific products at competitive prices.  Hyundai and Kia have come out of the recession on tear, offering more terrific products, excellent pricing and growing reputations.  The fact is, it’s hard to buy a bad car in today’s market at any price point. So, if quality isn’t much of a differentiator anymore, what is?  Pricing? Potentially, but no one wants to put the incentive needle in again.

Design and styling will always be a one of the differentiators, although many would argue that in the “vast middle of the market” designs are pretty conservative because they have to appeal broadly (there’s that broad appeal problem again).  If not design and styling, what?

In the “new normal” market for vehicles; brand identity and marketing are the essential differentiators.  Creating leverage for your brand is critical in this hyper competitive marketplace.  Nissan clearly recognizes the importance of creating brand leverage, Jon Brancheau, VP Marketing,  said in Automotive News that they were:

“trying to figure out an intelligent way to consistently express the brand.  We have focused on individual models…But it hasn’t laddered up to help halo the Nissan brand. So strategically, we’re headed down a path to come up with a way to express ourselves and the Nissan brand in a consitent method.  The idea revolves around innovation…Innovation has always been what the Nissan brand is about.”

So Nissan is putting a stake in the ground, they’re going to stand for “innovation.” Here is the first commercial in the campaign, as well as a few others:

I admire Nissan for having the courage to stand for something.  If the Nissan brand can stand for “innovation” then they will have a leg up on their competition.  After all, Toyota has taken a hit from allegations of unintended acceleration and no other player in the vast middle of the market has a very well defined brand.

I’m not sure that consumers will give them credit for innovation at first, it seems like a bit of a leap. But over time, if they are consistent in their communications and show us why they are an innovative company our opinions will change.  I know that my opinion of Nissan has already shifted a bit based on that polar bear.

Nissan recognizes the potential of a strong differentiated brand and has obviously invested heavily in its new campaign, but more than anything, brand building requires time and commitment.  It will be interesting to see if they see it though.