Wednesday, 27 July 2011

Luxury without a luxury brand : Hyundai

Quick, what comes to mind when you think “Hyundai“? Cheap, entry level small cars from South Korea? Good answer. Except that you’d be utterly wrong. Because Hyundai’s biggest achievement since first hitting U.S. shores in 1986 — and being constantly ridiculed — has been to redefine what a luxury car can be.

It’s all about the features — and the price

While Toyota (TM), Honda, and Nissan, respectively, created Lexus, Acura, and Infiniti to take on the luxury market, Hyundai did something entirely different. It developed a luxury vehicle, loaded with all the features found on much more prestigious cars, and priced it to move.

The result, the Genesis, put Hyundai on the luxury map. It was showered with media accolades after its debut in 2009, and even notched quite a few fans holding the absurdly exclusive American Express Black Card. The follow-up Equus was equally well-received.

What Hyundai achieved was the assembly of a luxury package, minus the luxury brand separation. When Toyota and Honda went upscale in the 1980s, they were concerned that their reputations for solid little cars wouldn’t fly among BMW and Mercedes owners. Hyundai proved that, a few decades later, luxury buyers were so well-educated that they didn’t need the separate brand.

Luxury as information

This is actually a pretty radical accomplishment. Prior to the emergence of the Genesis, luxury was about the perception of a package, with a fine example being the famous Lexus tagline, the “relentless pursuit of perfection.”

By 2009, however, luxury buyers didn’t need taglines to summarize a potential luxury experience. The Internet provided so much information on demand that they could see luxury as content. If it was there, the brand packaging didn’t matter.

Something similar is actually happening among traditional luxury carmakers. Both BMW and Mercedes are pushing their brands lower on the value chain, building and marketing smaller cars, at lower price points, that still have all manner of luxury features.

Contrast this with Toyota, which followed the same branding playbook when it created Scion, its youth brand, as it did when it concocted Lexus.

South Korean Leadership

As old-school car companies like General Motors (GM) have learned, it’s much easier — and more cost-effective —  to market one brand than it is to market five, six, or seven (GM shed Pontiac, Saturn, Saab, and Hummer when it exited Chapter 11 in 2009).

So rather than have Hyundai dealers pass luxury buyers off to the luxury division, they can now sell them a car that has the luxury “content” luxury buyers demand. The $60,000 Equus can live on the same sales floor as the $15,000 Accent. Simple.

Product versus brands

I think this trend represent a new high point in the transition from brands to products. It parallels Apple’s (AAPL) operation in consumer tech: cheap iPod Nanos share floor space in Apple stores with powerful desktop work stations.

What matters is that all the products are excellent. This is what the educated consumer demands. Because simply saying a car is luxurious just because it’s a Mercedes or a Cadillac, doesn’t fly anymore. The luxury customer knows what he wants. And if he can get it for $50,000 in a great product, the allure of the $90,000 vehicle from the established brand falls away fast.


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