Jaguar is the focus of a debate currently occupying auto enthusiasts which has wider implications for brand management. At issue is the question of how far One can extend a range of prestige cars down without damaging its image at the luxury top end. Has Ford, in an effort to secure greater volume for its subsidiary, irretrievably devalued this respected brand? Report by Bert Wyatt.
Ford, it will be recalled, was roundly criticised for paying over the odds for Jaguar. What is beyond doubt is that it has since done an exemplary job in building on Jaguar’s unique standing in the public’s mind, surmounting that long history of indifferent quality and primitive production facilities. Given over to Ford’s professionalism, a root and branch overhaul was done with commendable speed and thoroughness.
Not that observers didn’t raise eyebrows when Ford proclaimed that world-wide Jaguar sales were to be dramatically increased to 200,000, by the addition of a midsize saloon (the ‘S’) and a compact (the ‘X’). This ambitious programme was to be facilitated by the use of existing platforms, the S sharing with the Lincoln LS, the X with the Mondeo. Extending a luxury brand downward is always a delicate exercise, but Ford’s reputation was such, and its determination so clear, that it was given the benefit of the doubt.
With the sophisticated tools at their disposal, Ford’s marketing men must have appreciated that some cannibalisation between the models might result – S could steal some of the traditional XJ business, and could itself be eroded by X buyers. The degree to which this would occur was one for conjecture, but clearly the overall benefit was considered worth the risk.
The introduction of the S midway through year 2000 saw total US sales shoot up to 35,000 from a fairly static 22,000 over previous years, only modestly harming XJ sales. Coming on to the US market barely a year later in mid-2001, however, the X immediately upset the apple cart. Despite being launched with a fanfare of trumpets, initial response was extremely disappointing. Its 9,000-odd sales were largely achieved at the expense of the other two models – a drop of 5,000 S sales and 2,000 XJ sales, and total sales no more than the previous year (see table below).
|**January to August (8 months) only|
Of course, this would not be the first time that a completely new model was slow to get off the ground, but one senses that Ford’s reaction was less than wise. Within only a few weeks of the X-Type’s launch, Ford hit the panic button, mounting a heavy discount campaign, centred on giveaway lease rates more suited to a Ford Focus than a prestige car.
Consequently, Jaguar is now achieving its X sales target in 2002, but at heavy cost in both dollars and reputation. Incentive spending is running at almost $4,000 per car sold, against an average of $1,500 by competitive brands. It gets worse. In order to make monthly lease rates as attractive as possible, residuals have been inflated. To break even, returned cars will have to make around 50% of original sticker price at the end of three years, against a forecast of 43-45% by Automotive Lease Consultants, a shortfall of $2,400.
So the X stands to take the blame for harming the whole range, leaving Ford in a serious predicament. However attractive its styling and performance, it bears little resemblance to the classic, sporty lines of any other Jaguar model, a difference accentuated by its incongruous use of all-wheel drive. One can almost hear long-term XJ owners sniffing “They (X buyers) are not real Jaguar people”. One is tempted to add that the X is not a real Jaguar.
Professor Jim Twitchell, who specialises in automotive affairs at the University of Florida, says scathingly: “Jaguar saw quick money to be made from diluting the brand, without seeing a long-term problem. They’re taking a great brand story and squandering it… bending over a dollar to pick up a dime.”
In an unusual but typically American move to quantify the dollar cost of this alleged mis-step, FutureBrand, a respected brand consultancy, estimates that the X has erased $637m, or 17.5%, off the $3.635 billion the brand was worth pre-X. Quite how they arrive at that number may well be a mystery, but one cannot argue with them when they say: ”To do proper brand management, you have to do the product right, but there’s no excitement about the X.”
Coming to Jaguar’s defence, Vic Doolan, the executive responsible for Ford’s luxury strategy, claims that the X “fully reflects Jaguar’s core values and is positioned just where it should be”. But with a certain ambivalence he acknowledges the dangers of over-exposing the car, commenting: “There is a point of diminishing returns and the industry is flirting with that point right now. Our products are now appealing to younger people. Nine out of ten X-Type customers are new to the Jaguar brand. We’re democratising luxury.”
But the erosion of the luxury XJ and S highlights the difficulties manufacturers face in ‘going small’. Sales of the S are down 20% this year so far. Some opinion polls suggest that, perhaps because of its chequered history, Jaguar does not yet have the comfort of such a committed set of loyal owners as, for instance, Mercedes and BMW.
Nearly all the luxury brands have dipped down into the lower pricing range to take advantage of their image. Mercedes introduced the C230, which at $25,000 is priced at least $5,000 lower than the Jaguar X. The difference is that, unlike Jaguar, Mercedes restricted the market to only 18,000 a year. Further, one suspects that the similarity of the C230 to its stable companions makes it an ideal entry to the whole Mercedes range.
How, then, does that square with BMW’s outstandingly successful 3 series, selling around 500,000 worldwide? The answer is firstly that this volume has been built up over many years (significantly, BMW is restricting supplies of the Mini Cooper to let it grow gradually), and secondly that the 3 is unmistakably from the same family as the 5 and 7 series.
Immediately upon its acquisition of Chrysler, Mercedes hastened to tell the world that there would be no commonisation of platforms. Ford on the other hand has made little secret of its use of that expedient, so the tendency is to bracket Jaguar and Ford, to the detriment of Jaguar.
The pity is that the Jaguar X is an attractive, stylish car in its own right, and a credit to Ford. Sold as a quality compact for the discerning buyer it has great appeal, but it is no Jaguar. One hopes it will find itself a niche in the marketplace and justify the substantial investment it represents. At this stage in Ford’s post-Nasser corporate recovery programme, it cannot afford further mistakes.