The premium brands are increasingly encroaching on other segments, taking a more important role than before.
The world’s hunger for premium brands does not seem to end. According to reputed auto analyst IHS, total premium sales are expected to grow by 7.6% annually until 2017, well above the expected average of 5.5% annual growth for the total auto market.
The three German premium brands, BMW, Mercedes-Benz and Audi (part of the VW group) are expected to grow sales by 6.5% annually until 2017. Similarly, Jaguar Land Rover, Volvo, Lexus, Acura and Infiniti are all expected to see annual growth ranging from 9% to 12.5%.
To achieve good results in the premium segment, the price, product and cost base have to be right.
Starting prices are often somewhat higher than for non-premium brands and interesting and expensive “must have” extra features drive profitability for the makers. Scale is essential for all OEMs, and costs are reduced by penetrating several markets, alliances and by platform sharing.
A good example is the new Audi A3 which uses the new MBQ-module also expected to be used in more than 30 other VW Group models.
After some difficult years, and despite the unrest in Europe, it seems that the recent success of Jaguar Land Rover (JLR) will not end. IHS predicts double digit annual growth rate for JLR until 2017. This means their total market share will increase 26% from 2011 to 2017. Since the late 1980s the Japanese OEMs have been present in the premium segment with the brands Lexus (Toyota), Acura (Honda) and Infiniti (Nissan). Their operational reliability and comfort have made the brands popular. About 60 % of Lexus, Acura and Infiniti volumes are sold in the US. In 2012 total global sales were 0.7 million and are expected to grow 12.3% annually to 1.2 million in 2017.
The premium brands won’t make it easier for the non-premium brands as they are expanding their range to cheaper entry level cars such as the Lexus CT 200h, Volvo V40, BMW’s MINI and 1-series, Mercedes-Benz’s A-Class, and Audi’s A1 and A3 models. Jaguar is planning a Cayenne-competitor SUV as well as a D-segment model, four-wheel-drive on several models and the XF estate is just about to arrive at dealership stores.
Thus, the premium brands are increasingly encroaching on other segments, taking a more important role than before.
Being regarded as a premium brand allows you to add a premium on the price tag. Opel, Ford, Hyundai and Mazda are all trying to get there. An example of chasing premium is Peugeot Citroën with its DS models setting up 30 dealership stores in China exclusively for the DS models. But premium is more than just building good cars with high power and material quality.
It is also about tradition, history and customer service which creates the “premium feeling”. Geely’s Volvo and the American brands like Ford’s Lincoln and GM’s Buick and Cadillac are all struggling to be in the exclusive premium club. But getting a full membership requires a lot of hard work over time.