Thursday, September 5, 2013

Ignore your brand at your own peril

Hyundai has hit a speed bump on its way to what it had hoped would be a sales leadership position in the United States auto market.

While Hyudai's sales were up 8.2% over the previous year last month, that lags the overall growth in the U.S. market, which expanded by more than 17%.

What's behind this slow down?

In my mind, a misguided strategy. Funny thing is, it's the same strategy that has hampered VWs growth for decades.

Like VW, Hyundai came into the U.S. market as a classic disruptor, with low-cost materials, basic design and just enough features to be attractive. But their cars were inexpensive, so they sold to those who wanted a new car and could afford nothing else. It was a strategy that helped them grab sales from Toyota, Chevrolet, Honda, Ford and other mainstream brands.

But then they altered their focus slightly, still offering a low price, but attempting to improve the perceived quality of their products by upgrading the materials and their styling. They also helped mitigate the perception of poor quality by offering a ten year 100,000 mile warranty. In addition when the economy went soft, they created their Assurance Program which allowed new buyers to return their cars with no hit to their credit if they lost their job. As they did this sales accelerated and the Elantra and Sonata both climbed the sales charts.

Not satisfied, however, to enjoy growing success at the lower end of the market where margins are thin, Hyundai decided they had the brand power to take on more entrenched and esteemed competition at the high end of the market in the states.

So just a two years after running commercials that were designed to teach people how to pronounce their brand name...

Hyundai introduced the $60,000 Equus in the U.S. adding Lexus, Audi, BMW and Mercedes to their competitive set.

VW made the same mistake in the early 2000s when they tried to move upscale by launching the Phaeton.

While the cars themselves might be fine, with luxurious appointments, acceptable power and everything else the leaders in this category offer, neither the VW nor Hyundai brand are able to support a credible competitor to Audi, Mercedes, Lexus and BMW.

If they really wanted to launch and upscale product, they only had to look at Toyota for a roadmap. Lexus was launched in the late 1980s because Toyota had taken a large chunk of the mainstream market and wanted to migrate into the luxury segment. They knew, however, Toyota wouldn't be relevant at the top end of the world's most important automotive market, so Lexus was born.

They didn't just build a new car, however. They built a whole new brand. With separate dealerships. Separate experiences. Separate promises. That's why they succeeded where VW and Hyundai seem to be falling short.

Hyundai can't compete at both ends of the market with one brand. Luxury buyers don't want the same badge on their car as one advertised by local dealers to the credit challenged. Nor do they want to be seen in the same dealership as consumers who aren't sure if they can even afford a new car.

The powers that be in Seoul need to let Hyundai be Hyundai. And, if they really must compete at the high end of the market, spend the money to create a new brand.

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