Desperate to counter falling prices, carmakers are looking to differentiate their products through image building which involves – in some cases – extending their brand beyond established consumer perceptions. But the exercise is fraught with danger, and it’s argued that it offers no benefits to car buyers anyway. Report by Chris Phillips.

Not content with sweating their assets, auto makers are heavily into another area of business aerobics known as ‘brand stretch’.

Though this particular work-out has been prompted in large measure by toughening price competition, it’s by no means a case of everyone doing identical exercises.

Contrast Mercedes, stretching down to the A-Class, with Skoda – rejuvenated under Volkswagen – stretching up into Mondeo territory with Octavia. The Vauxhall badge, hitherto confined to the family and fleet sector, has been stretched to take in the VX220 roadster, while Porsche, the embodiment of sleek, road-going performance, prepares to extend its brand into the rugged Sport Utility Vehicle sector.

BMW, meanwhile, has decided that knees bend goes no further than its 3 Series compact, with MINI retaining its identity, while arms up under the oval badge stops at the Mondeo. Ford’s five prestige marques, though corralled in the Premier Automotive Group, all retain their separate brand names. Though it may be superficially attractive for a manufacturer to strengthen and broaden its brand, industry sceptic Professor Garel Rhys argues that it’s a way of introducing a market imperfection.

companies are now scrutinised for brand value.

“It’s an attempt by manufacturers to insulate themselves from the full blast of competition where prices are mainly ‘made’ by the market and not by an individual supplier.” Rhys, professor of motor industry economics at Cardiff Business School, added: “The reason for the current frantic interest in brand is simple – the ability to ‘make’ prices is being eroded and carmakers are desperate to prevent the loss of net revenue that the more competitive market is bringing.”

Given that most products – whether they be cars, mobile phones or washing machines – have much the same functionality, irrespective of their maker, it’s not surprising that the logos attached to them have assumed an almost deified role, says John Williamson, a partner with brand consultancy Wolff Olins. Where companies were once assessed on the basis of traditional assets like factories and inventories, they are now scrutinised for brand value. Even that phrase beloved of company chairman – “our greatest asset is our people” – was being subjugated by brand.

But how do you put a price on something that, as Williamson describes it, “is the intangible, emotional embodiment of a rich mixture of ideas, propositions, personality, vision and values”?

Another consultancy, Interbrand, in conjunction with Citibank, has taken that rich mixture to compile the World’s Most Valuable Brands survey. US companies, led by Coca Cola and Microsoft, dominate the rankings, accounting for 42 of the top 75 places. But while Ford, in 7th position, is the auto leader, it’s the only US carmaker to feature in the latest list. Mercedes occupies 12th position, followed by Toyota (15), Honda (20), BMW (23) and Volkswagen (31). As part of the exercise, brand value is calculated as a percentage of market capitalisation. In Ford’s case, it works out at whopping 75 per cent, just behind Heinz.

Commented Interbrand president Martyn Straw: “Translating brand power into economic value begins and ends with a focus on brands as corporate assets. Companies that outperform their peers in brand value creation understand this well and proactively manage their brands as they would other key strategic assets of the company…..”

Brand care was likened by the marketing director of one car manufacturer to handling of a camp fire in the middle of winter: “It takes a lot of time and patience to get the fire established and only a little neglect to see it go out.”

Attempting to stretch a brand beyond its established consumer perceptions, then, could be akin to lighting that fire with green logs. Witness Virgin, emboldened by its step from records into airlines, wandering off into the quicksand of soft drinks and trains. Or MARKS AND SPENCER, struggling to get back into shape after St Michael was stretched from clothing into financial services, food and furnishings.

Steve Saxty, automotive practice leader at the FutureBrand consultancy, says that while these are cautionary examples, the risk is even greater for carmakers. “The investment is higher, not just in financial terms up front, but also the long term pay-off. None of the ‘new’ or stretched brands will see effective returns inside the first model cycle. This implies that it is better to concentrate on servicing the core brand first – as Mercedes has done – before branching out.”

Skoda stretching up with Octavia • VW stretching up (with Passat) and down (with Lupo), with Golf as ‘the centre of gravity’ • Corralled within Ford’s Premier Automotive Group but without the blue oval brand… the Aston Martin Vanquish • Smart product without the 3-pointed star

According to industry consultant Mike Banks, a former marketing director at Fiat UK, carmakers stretching down are on safer ground than those stretching up. “I can’t think of a case where a manufacturer has successfully moved a brand above a point where the consumer has identified it,” said Banks. “Nissan, under Octav Botnar (the colourful boss of the UK import business until Nissan took control of its own distribution), established a reputation for a marque which was not very exciting but offered value for money.

“Then a more orthodox management took over and attempted to move the brand more upmarket. Since then Nissan’s UK market share has more than halved. Financial people think they can achieve economies of scale by pushing different market sector products through the same distribution channels, but it’s not as simple as that, and there’s always a danger of over ambitious market positioning.” Steve Saxty tends to agree with the stretch down safety principle, but what really interests him is the emergence of ‘new’ brands at the top of a manufacturer’s portfolio (VW/Bentley) and at the bottom (DaimlerChrysler/Smart, BMW/Mini).

Volkswagen’s clutch of brands is becoming reminiscent of badge engineering during the BL era in the 1970s

“It shows that core brands are no longer being stretched to their previous extent. The next A-class is more B-class, so Mercedes probably stretched down too far – A-class would have been better sold under Smart,” said Saxty. Mike Banks believes that Volkswagen’s clutch of brands is becoming reminiscent of badge engineering during the BL era in the 1970s. Matthew Draper, a director of marketing services company Total Research, hinted at the same thing on a personal level when he remarked: “I drive a Passat estate with Audi rings under the bonnet!”

Chris Craft, Volkswagen head of marketing, brushed aside Banks’ disquiet by pointing to growth in all the company’s sectors. “With Golf the centre of gravity, we have stretched up and down. Our brand is not about overt status, it’s a statement about product excellence,” he said.

Where experts do tend to agree is on the deftness of brand management by Ford. Commented Matthew Draper: “Granada and then Scorpio in the premium sector and models like the Cougar were clearly not cutting the mustard and Ford recognised that there were limits to the oval badge.”

Mike Banks added: “Ford were right to acquire a clutch of up-market brands and not overtly bring them under their brand.” He also says the company’s move to display these brands under one roof is acknowledgment of a long-overdue reform at point of sale. “Manufacturers’ franchised showrooms are not related to consumer needs. The customer wants to see a choice of makes and models of a particular type within a particular price range.”

Two contrasting approaches to brand management are provided by BMW with Mini and Porsche with its impending Cayenne SUV.

“BMW is perceived as a serious business car with good, solid values, whereas the Mini is a fun car, reminiscent of the swinging 60s,” said Matthew Draper of Total Research. “Given these differences, it is probably wise of BMW to distance themselves from the Mini, brand-wise, in case the venture doesn’t work out.”

Porsche, according to Steve Saxty, is especially interesting because it’s seeking “to jump an entire brand segment”. As he explained: “Porsche messaging for the Cayenne is aimed at people in their 40s who should have a conventional Porsche but family circumstances dictate otherwise. If this gets generally understood, then it will be cool to have a Cayenne as a smarter option to the Mercedes M-class or BMW X5.

“The risk, however, is product weakness because of Porsche’s inexperience in selling in that sector – it becomes tarnished in the old segment and less than credible in the new.”

According to Garel Rhys, no brand is strong enough now to surmount market forces. “The likes of BMW and Mercedes cannot charge the price premium against their rivals that they did 10 years ago. So they are trying to put in place cost structures that will allow them to survive whatever the market throws at them. In other words, survival will be based on economies of scale from consolidation and not on product differentiation.”

“For manufacturers, a strong brand will allow them to survive in a competitive market without having to cut prices to unviable levels.”

Mike Banks says that with price reform, brands that have earned a living out of a 1 per cent or so market share are not going to survive. “Their demise is probably 3 to 4 years away when the industry – having passed its amalgamation and rationalisation periods – goes through its consolidation phase,” he commented.

Steve Saxty agrees with the time forecast and cites such brands as Daewoo, Rover, Vauxhall and Mazda as particularly vulnerable. Matthew Draper of Total Research believed BMW were on to a loser from the outset with Rover. “It just has such a negative image of being middle-aged and middle class.”

Garel Rhys says a strong brand is built on heritage, huge financial resources and product differentiation. “Sometimes, two of these attributes can offset weakness in the third, but not often.”

Though manufacturers may be preoccupied with brand building and stretching, Rhys argues that the entire exercise offers no benefit for the consumer and is fraught with risk for manufacturers. “If vehicle buyers learn that car producers are attempting to increase their brand values, they should head for the hills. This is not being done for their benefit, no matter what arguments are used about stronger residual values.

“For manufacturers, a strong brand will allow them to survive in a competitive market without having to cut prices to unviable levels. That is all. Attempts to exploit a brand will be the road to over-pricing, consumer resistance and ruin.”

To view related research reports, please follow the links below:-

Automotive Branding – Developing competitive strategies for the next marketing evolution

Global Car Forecasts to 2005