Affordable luxury, or luxuriously affordable?
Lines blurring between entry-level and premium automobiles
2011 Murano CrossCabriolet, a luxurious four-seater convertible that Nissan refers to as its "segment buster," became available this spring with a price tag of $46,390, significantly higher than an entry-level Nissan Versa at $9,990. (May 6, 2011)
BMW says it has the largest program of this type among premium makes, delivering 140,000 certified pre-owned BMW vehicles a year to customers.
"And smaller doesn't necessarily mean entry level," Plucinsky says of the 1-Series. "The 1-Series is considered a performance series."
The (larger) BMW 3-Series is far and away the brand's most popular nameplate, selling about the same as the 1-, 5-, 6-, 7- and Z car lines together. It is the magnet that draws buyers into the BMW family and probably for that reason has the least expensive model: the The BMW 328i four-door sedan (around $33,000).
"Entry level means different things to different customers," said Plucinsky.
Steven Witten, head of J.D. Powers' global auto research in California, says recent studies show 27 percent of premium vehicle buyers considered non-premium brands at various dealerships.
Eleven percent of those who purchased non-premium brands looked at some premium makes. Witten says the primary reason given for not buying premium was the high price. They noted reliability concerns and fuel economy issues as well.
Nineteen percent of the premium consumers said the same thing (price too high) of the non-premiums they had inspected. They also commented on interior styling and design issues and said the non-premium vehicles didn't have all the features they wanted.
Witten, who owns a minivan and a luxury car, admits he likes the luxury dealership experience: "It's quieter and more efficient."
Perception vs. reality
Introducing a premium product to a brand may increase the average perceived value of products in the brand's portfolio, says Shashi Matta, a marketing professor at Ohio State University.
Yet there is always a risk to a brand's credibility when adding a premium or an inexpensive product, says Matta.
"If a value- or mid-priced brand is trying to move into a premium market segment, the challenge is making the product appealing to consumers who value luxury and want a premium offering," Matta says. "For this very reason, Toyota has the Lexus brand and Honda has the Acura brand."
If a luxury brand offers a value product to its portfolio, the challenge may be that of alienating its core consumer segment.
"Luxury brands appeal to consumers because of status that these brands confer on them," Matta says. By introducing a value brand to the portfolio, a luxury brand could potentially reduce that status.
Lincoln is facing that challenge as it redefines itself following the demise of Mercury.
"For the first time in some decades, we are now in the position of working toward becoming a world-class luxury brand," says Lincoln spokesman Christian Bokich in Dearborn, Mich. "We are comparing ourselves against other German and Japanese luxury competitors and not against Ford."
Acknowledging an older owner base, Bokich says Lincoln plans to "skew into a younger demographic" while maintaining loyal long-time customers.
"We've said we are coming out with a C-segment smaller vehicle, but haven't specified which body style or competitive set," Bokich says.
With the introduction of its 2012 Verano sedan in the fall, Buick, too, seeks to expand its appeal to include consumers interested in a compact car.
"People here are getting rid of their (luxury) gas hogs and high payments and trading them for Hyundais." Says Kevin Wilkerson, sales manager at Hyundai of New Port Richie, Fla. "I'd say it has been a trend for the last couple of years."
But apparently some of those former luxury car owners are ambivalent about a change in status. Wilkerson says the dealership has on several occasions pried off the Hyundai insignias on the front and back of the car and on the wheels, replacing them with a flying wings emblem. This aftermarket package runs $399, he says.
"I guess they don't want people who admire the car to guess that it's a Hyundai," Wilkerson says.