Automakers diversify their product offerings for many reasons. Advancing technology, regulatory compliance, economic well-being and market trends are just a handful of items that help automakers decide when the world needs another Compact Dynamic Coupe Sport Utility.
In recent years the low-volume, high-margin luxury automakers have displayed a greater proclivity to produce products that cater to the peripherals of the automotive spectrum – known as filling white space. White space is term used to describe where there isn’t a product to fill a consumer need.
In the automotive space the product is the catalyst for consumer’s need. Remember there was a time when Americans just wanted better horses not automobiles.
In the last decade Porsche entered into new segments with their sedan and sport utilities, while automaker like Mercedes Benz, BMW and Audi, have moved further downmarket. Whether its chasing the $199-a-month lease or serving the needs of current owners – there is no denying the fact that luxury automakers in America are the most diverse they’ve ever been.
The visualizations below illustrate the diversification of four luxury brands in the U.S. over the last 10 years. As you move along each chart notice notice how the vertical bars go from just a couple of colors to a towering kaleidoscopic of choices.
The Cost of Diversity
Many posit that this diversification of product dilutes a brand’s by allowing new people (through lower priced products) into a once selective community.
Does Ultimate Driving Machine apply to BMW’s utility vehicles? Consider this: in 1996 70% of BMW vehicles sold in America were 3-Series. In 2014 that number fell to 31%.
The ad that launched the Mercedes Benz CLA had a single message: <$30,000. What impact does an ad that screams “Cheapest Benz Ever!” have on the perception of the brand? Are there negative longterm value implications when a luxury brand displaces prestige with price?
These are just examples of the impact of diversifying products and the potential impact on automakers.
Put aside brand perception and other qualitative attributes and consider the quantitative costs to a diverse product portfolio. First there’s the investment required for homologation of vehicles for the U.S. market. Then comes all the additional costs such as parts, training, service, dealer education, marketing, etc. – which seem like a large investment to seize another .01% of market share.
Is it worth it?
If you ask Porsche they’d answer with a resounding yes. The German brand has experienced a 600% growth in market share in the last ten years. For a brand that averaged $23,200 in operating profit per unit in 2014 product diversification continues to pay off.
While each brand has unique reasons for diversifying their product offerings, short of bankruptcy there doesn’t appear to be any force capable of reversing this trend. Luxury automakers will likely continue to build niche vehicles in the hopes that a sports-car-inspired utility vehicle towing a large pot of gold awaits them at the end of the product rainbow.