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Section 03 | The Categories Consumer and Retail | Cars Insight Contrary to popular perception, Millennials aspire to own cars There are some Millennials that don’t care about cars at all. They live in downtown San Francisco or New York where you can live without a car. But there also are Millennials who would love to have a car. And, like every other group, they want to get right to premium level and show the world they’ve succeeded. The problem is that a lot of them don’t have any money. One of our Millennial interns said recently, “Everyone says Millennials are afraid to make a big purchase. We already have made a big purchase, our college education.” Andrew Ortlieb SVP, Strategic Services, Brand Strategy Group Team Detroit andrew.ortlieb@teamdetroit.comA. Manago@added-value.com Fuel efficiency and emissions shape preferences Hybrids continued to do well, with sales up about 30 percent in the US. It’s not that shoppers preferred the styling or performance of those cars, but they wanted to enjoy the key benefit – fuel efficiency. Toyota hybrid sales in Europe grew 43 percent, driving strong profit for the brand in that region. The prospect of stricter regulations encouraged manufacturers to invest in electric alternatives. Price, limited range and the lack of recharging infrastructure remained significant barriers. Nissan Leaf and Chevy Volt experienced soft sales. Tesla generated excitement, but did not sell many units, although it has become a status symbol. BMW is introducing its i3. Minivans sales in the US declined with the rise of SUV crossovers, particularly at the premium end of the market. Europeans preferred small utility vehicles that fit into small parking spaces and emit less carbon, an important issue in Europe. The need to reduce carbon emissions is prompting European luxury brands like Mercedes and BMW to produce smaller models. Regulations to improve air quality in China, expected to be similar to the European standards, will impact the Chinese produced cars. Fast growing markets China car sales increased 13.9 percent to 22.9 million units in 2013, according to the China Association of Automobile Manufacturers. Sales declined in Brazil and India for the first time in about a decade. With slowing sales and a weakened rupee, international carmakers in India turned to export to deal with overcapacity. The European luxury brands sold well in China, led by Volkswagen’s Audi, which is the car of choice for official government transportation. Ford, which introduced several new models in China, experienced almost a 50 percent increase in sales to over 935,000 units. Ford plans to introduce its Lincoln brand in China to compete in the luxury sector. Sales of Toyota and Honda rebounded in China after tensions subsided between Japan and China. Honda sales also were helped by the introduction of an updated Accord sedan. Nissan sold 1.3 million cars in China, a 17 percent increase. Insight Brands improve safety and driving enjoyment Carmakers are increasingly focused on loading their products with the most advanced technology in the service of driver comfort and safety. Many of these advances are now available in mid-range models, either as original equipment or affordable accessories. Technology is therefore becoming more and more of an industry table stake. This tends to make the luxury brands less about advanced features and performance and more about the “badge” and some creature comforts. As a result, some luxury brands are now focusing on the total buying experience as a significant opportunity to differentiate their brand. Over 80% of car buyers begin their shopping on-line before ever stepping into a dealership, yet the basic dealer experience model hasn’t fundamentally changed in over 50 years. This could well become the next battleground in the industry. Hayes Roth Chief Marketing Officer Landor Hayes.roth@landor.com Action Points for Brand Building 1. Be safe Consumers may enjoy slipping into the driver’s seat and feeling as if they’re surrounded by cooler technology than they can access on their smartphone. But the stakes are much higher behind the wheel. Ultimately, people want to feel confident that their families are safe. 2. Be transparent Even in today’s world of incessant social media it’s possible to keep a secret, at least for a while. But keeping a secret has consequences. As has been demonstrated repeatedly, the public may disapprove of the original misdeed but it’s less likely to forgive the cover-up. Insights: BrandZ BigData Making luxury accessible Technological advances in manufacturing, related safety improvements, as well as better emission controls have increased the availability of luxury features across more massmarket brands. However, consumers view the luxury car brands as having greater meaningful difference and give the brands more credit for “leading the way.” Toyota and BMW, the most valuable car brands, are equally meaningful. BMW is more greatly differentiated and “leading the way,” but Toyota is ahead on “environmental responsibility.” Source: BrandZ database All brands average = 100 3. Demonstrate leadership Younger consumers especially are making product choices driven by concerns about the environment. Car brands can react or they can lead with innovative technology. Luxury (top 4 brands) Mass (top 6 brands) Meaningful 118 Different 132 Leading the way 111 Meaningful 106 Different 103 Leading the way 103 Spotlight Europeans say life without a car would be difficult Over half of Europeans in a sixnation study say that life would be difficult without a car. They are less likely than in the past to view a car as an important measure of success, however. About a third believe that the choice of personal technology says more about an individual than a car. Cars should have advanced technology, Europeans say, especially for eliminating the environmental impact of driving. Life difficult without a car France UK Italy Denmark Spain Germany 55 52 49 48 48 62 Percent who agree; My life would be difficult without a car. Source: The Future of Sustainable Transport in Europe, a <strong>report</strong> by The Futures Company for Ford (2012). 62 BrandZ Top 100 Most Valuable Global Brands 2014 63
Section 03 | The Categories Consumer and Retail | Luxury Luxury Shoppers feel freer to indulge, enjoy and express themselves Tastes and attitudes change 16% Definition The luxury category includes brands that design, craft and market high-end clothing, leather goods, fragrances, accessories and watches. Luxury is back. Consumers purchased enthusiastically and without apology. The category brand value rose 16 percent, following a 6 percent rise a year ago. The strong performance illustrates both how luxury consumers have put the financial crisis behind them and also how the crisis influenced changing attitudes and tastes. During the recession, luxury became a stealth indulgence after years of conspicuous consumption. Informed by that experience, consumers today are more comfortable with luxury, treating it as a medium of self-expression. Even in China, consumers became more discerning, appreciating luxury for design and craftsmanship rather than as ostentatious display to demonstrate status. At the same time, luxury brands felt the impact of China’s slower economy and the government’s discouragement of extravagant spending. Adjusting to these market dynamics, some brands rebalanced in favor of exclusivity over the accessibility to mass audiences that drove revenue during lean financial times. Logo key rings are out, but fragrance remains an entry point to the category. Driven in part by newly wealthy young people in fast growing markets, the luxury consumer is becoming younger, with different tastes and interest in niche brands. Major luxury brands marketed to this group both for the immediate payoff and to cultivate the next generation of customers. In a trend also influenced by consumption in fast growing markets, men’s luxury has expanded from a narrow focus on watches and cars to include accessories and clothing. And brands, including Gucci, Prada and Burberry, opened stores devoted exclusively to men. These other trends emerged: More consolidation Industry consolidation continued as LVMH added Italian clothing designer Loro Piana to a portfolio that includes brands such as Givenchy and Fendi as well as Louis Vuitton and Moët & Chandon. Vertical integration Several brands purchased vendors in order to vertically integrate, control the production process, ensure quality and improve profitability. Brand experience New ways to express brand experience included brand-themed theatrical events staged in airport duty free shopping areas. Brand experience in luxury drives new business, trialing and brand equity. Consumer confidence influences aesthetics Interest in luxury jewelry increased, perhaps an indicator that post-recession, people are ready to purchase items that are purely decorative rather than utilitarian. Consumer interest in jewelry is broader than traditional precious gems and includes colorful and unique stones that express individuality. The interest in self-expression also shaped attitudes about the prominence of designer logos. Louis Vuitton, known for integrating its iconic logo into the design of its bags and other merchandise, introduced products without the LV logo. The shift away from prominent logos to more discrete, subtle and less accessible luxury captures a change in consumer attitude termed, “in the know” rather than “in the show.” Louis Vuitton, Gucci and Fendi took steps to reinforce the exclusivity of their high-end brands by cutting back on less expensive merchandise. Burberry eliminated some opening price points on rainwear and leather goods. Insight Some brands rebalance exclusivity, accessibility Some of the luxury brands are pulling back their low-end entry merchandise. While these brands may feel a short-term financial impact, they have a long-term view. They want the branded product to be consistent with the brand’s purpose, what the brand is about. They believe that makeup and fragrance work better than key chains and other trinkets as an entry point to luxury. Elaine Quirke Worldwide Director Mindshare Luxury Elaine.Quirke@Mindshareworld.com Top 10 Luxury Brand Value 2014 $M Brand Contribution Brand Value % Change 2014 vs 2013 1 Louis Vuitton 25,873 4 14% 2 Hermès 21,844 5 14% 3 Gucci 16,131 5 27% 4 Prada 9,985 4 6% 5 Rolex 9,083 4 14% 6 Cartier 8,941 4 40% 7 Chanel 7,810 5 10% 8 Burberry 5,940 5 42% 9 Coach 3,129 2 -4% 10 Fendi 3,023 4 -17% Source: Valuations include data from BrandZ and Bloomberg. Brand contribution measures the influence of brand alone on earnings, on a scale of 1 to 5, 5 highest. 64 BrandZ Top 100 Most Valuable Global Brands 2014 65
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