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Alfred P. Sloan died almost 50 years ago, but several of his strategies that built GM into the world’s largest automaker remain intact. Sloan created a “ladder of brands” at GM to enable the consumer to “move up” the ladder to more prestigious makes as his household financial position improved; today six auto manufacturers offer both mainstream and premium makes in the U.S. to similarly allow the consumer to “move up” the ladder, so to speak. IHS Automotive loyalty data (see below) show that Toyota currently is most effective in moving its drivers up to its premium make, Lexus, followed by Volkswagen-to-Audi and Honda-to-Acura. GM, Ford and Nissan are less successful, with Nissan’s rate of movement to Infiniti less than half that of Toyota-to-Lexus.
The data suggest there is a clear benefit to offering both mainstream and premium makes; the “step-up” rate is higher for all six OEMs who do so than for any of the mainstream makes who do not offer a same-corporation luxury make. Note that of the seven mainstream OEMs that do not have a related luxury make, five have seen consumers step up to a luxury make at a rate under 2%. Also note that owners of four of these makes move up to BMW, with one each moving to Lexus, Cadillac and Mercedes-Benz.
The relatively low step-up rates industry-wide result from several structural differences between the industry of Alfred Sloan’s day and the industry of the twenty-first century. Today’s mainstream makes offer products with many luxury attributes and benefits including technology, powertrain, and materials, among other things; there is a much wider array of brands and products to choose from today; and, the industry today is not as cleanly divided between mainstream and luxury as it once was, as today’s customer can choose a near-luxury (Buick) make or a niche (Jeep) make in addition to the mainstream and premium brands.
Defection to Luxury Make/Total Defection
Mainstream Makes With a Same-Corp. Luxury Make
Toyota to Lexus 6.27% Volkswagen to Audi 6.13% Honda to Acura 5.17% Chevrolet/Buick to Cadillac 3.94% Ford to Lincoln 3.26% Nissan to Infiniti 2.94% Mainstream Makes Without a Same-Corp. Luxury Make - Rate of Defection to Highest-Ranking Luxury Make Based on Defections Subaru to BMW 2.84% Mazda to BMW 2.16% Hyundai to Lexus 1.57% Mitsubishi to BMW 1.34% Chrysler to Cadillac 1.07% Kia to BMW 0.97% Dodge to Mercedes-Benz 0.63% Source: IHS Automotive (Polk new vehicle registration data, July 2014 CYTD)
Notes: Chevrolet/Buick to Cadillac is weighted average based on RTM mix; Defection data excludes movement to same make; Defection does not require disposal, second vehicle may be addition to household fleet.
Tom Libby is manager, loyalty solutions and industry analysis, IHS Automotive
Posted October 2,2014


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