Blog: Dave LeggettFiat's bold 500

Dave Leggett | 6 July 2007

Did you hear about the recent fuss over the launch of Apple’s iPhone in the US? Some people camped outside stores for days to be at the head of the queues. And, to put it in perspective, we are talking about a phone here. I know it may well be a great design that comes with all sorts of fancy peripherals, but there’s no escaping the fact that it is basically a mobile/cell phone. It’s still going to be mainly used as a phone, for most people, most of the time.

But you have to hand it to Apple and the way the Apple brand works. The iPod, in particular, has become a symbol of the age in which we live. I recently purchased an iPod for my eldest son, who is now a teenager. It had to be an iPod because an iPod is a cool thing to have – the image is right and kids everywhere buy into the brand values (iPod as a sub-brand, I think). Frankly, spec and functionality comparisons didn’t really come into it.

However, an iPhone isn’t cheap (and there are cheaper MP3 players than the iPod, too). People are prepared to pay a hefty premium to ‘enjoy’ the full-on authentic brand experience. The nuts and bolts of the product itself may be missing the point, so long as it meets a certain minimum threshold so that it can be labelled ‘innovative’.

Car companies also try and build a brand premium into their product, with varying degrees of success. All prestige brands are essentially succeeding at this when you consider what an automobile basically is and the huge margins at that end of the business. Sure, a Mercedes or BMW comes with bells and whistles, but the core of the product is not radically different from a much cheaper mass-market offering.

And these days, the mass-market products have really closed the gap on prestige brands in the executive segment. Yes, a BMW 3-Series may deliver a marginally better driving experience than a Ford Mondeo, but Joe Average might struggle to see where the difference is. Joe Average is primarily looking at the badge on the grille and that’s the important thing. The product performance gap may have closed, but that’s not the point.

Anyway, we all know how this stuff works. It’s the conventional wisdom and it helps to explain why BMW’s Munich HQ is a counting house at a time when many volume brands are struggling. In Europe and elsewhere, the market has been shifting towards premium brands. In Britain last year the BMW 3 Series outsold the Ford Mondeo.

So, what’s a volume brand to do, as it eyes a shrinking pie?

Well, last week we got an inkling of how Fiat is trying to rewrite the rulebook with its new 500 model. The car is a minnow to add to Fiat’s ample small car stable, but this one is different.

Fiat is not looking to bash out as many as possible in order to minimise unit costs and muster a sliver of profit. This one is supposed to work as a premium product in its class and raise the image of the whole Fiat brand. By the sound of it, the car hasn’t exactly been engineered for down to the bone cost. But here’s the real killer: Fiat is supposed to make money on this car on 120,000 units a year – less than half what it does on the Panda.

Think of it as Fiat’s answer, in marketing terms, to BMW’s Mini – a premium small car.

If Fiat succeeds in producing a microcar with a premium that can also turn a profit, it will be a quite monumental achievement. And, like the iPhone, the consumer has to get much more than simple utility from the 500 – it has to be an experience that the consumer will pay extra for. And you don’t build that in by letting the cost accountants rule the roost (and in spending more on the 500 than it normally would on a small car, Fiat must have been given some room for manoeuvre by doing the JV with Ford – clever).

Even more importantly, building the 500’s image and sub-brand to get the right perceptions out there will be crucial to the car’s prospects. A lavish launch party perhaps isn’t a bad place to start. Watch out for the marketing campaigns.

GOLDING’S TAKE: Small car, big bash, huge bill, gigantic forecasts


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