Product Marketing Element in the Luxury Car Industry

Preface

This essay discusses the role of product (a marketing element) in the luxury car industry. Various frameworks of strategic marketing management are reviewed and applied to the context of the luxury car industry. The essay argues that product decisions should not be done in isolation, as they are rather complex concepts that transcends the physical products itself, so a comprehensive approach is necessary during the strategic marketing process.

Many of the business functions, including but not limited to marketing, have received strategic relevance in contemporary business discussions (Olson et al. 2005). This means that marketing is viewed (i.e. strategic marketing) as a strategically important component in business decisions in order to better reach and satisfy customers and to improve organisational performance (e.g. productivity and profit). Therefore, marketing should not be considered as a distinct business function that is only involved in promoting the product and sensing customer needs (Caru, 2008). In reality, strategic marketing closely collaborates with other functions to effectively differentiate from competing firms in a particular market by answering three rudimentary questions, which are where, and how the organisation should compete. This means that if strategic marketing is applied, it is well probable that strategic planning will have a close and an intensive dialogue with the marketing department (Smith et al. 1999).

This essay intends to critically analyse the role of the product marketing mix in the luxury car industry. The reason why the product marketing mix was chosen is that this element plays an elevated role for those industries where there is a physical product sold (Trott, 2011). This does not mean that in other more service orientated industries (such as the banking and financial sector) the product mix have a lower role, however, marketing managers may want to focus more on other elements of the marketing mix to deliver an enhanced customer experience. Generally speaking, the key criterion for product is that it must satisfy existing or emerging customer needs in competitive markets, so organisations must place an extra emphasis on communicating why their products are superior to that of their competitors (Grönroos, 1997). This could be particularly true in the luxury car market industry where the competition between existing brands could be intensive.

Short overview of the industry and its trends

First and foremost, a key distinctive factor of the luxury car market is that its performance (i.e. sales volume) is less affected by changes in the macro environment (Bordley, 1993). The recent financial crisis severely hit the car manufacturing industry, however, the demand fluctuation in emerging markets was offset by a growing desire for luxury cars in emerging markets, such as China and the Middle East (Rapoza, 2014). The luxury car market is dominated by three brands, which are Mercedes Benz, BMW and Audi, altogether controlling the majority of the sales in this sector (Behrmann, 2016). The industry is expected to grow in the future, however, manufacturers and resellers must ensure that they closely follow developments in their external environment. The aforementioned brands are expected to maintain their market leading position, however, many other brands (such as Vauxhall) are also trying to enter the luxury market, mainly through by changing their product mix (i.e. the use of premium materials in the interior or including such design features (e.g. large diameter wheels) that used to be the hallmark of luxury car products (Morton, 2013).

The relative importance of the product mix in the luxury car industry

It is widely understood that organisations must first carry out an internal analysis if they are pursuing strategic marketing and if they want to ensure that their products will be successful in their selected market(s) (in this case the luxury car industry) (Stevens et al. 1993). According to the 5C framework, organisations should analyse their customers’ need, their resources to produce and distribute a particular product, their industry context, competitors’ strategy, performance and whether or not forming strategic alliances could be a rational choice (Kaynak, 2005). To give relevant examples to the luxury car industry, the following assumptions regarding the 5C model could be taken:

• exiting and unsatisfied consumer needs (need for safety, prestige, luxury feeling without compromising the automobiles’ functionality);
• company resources: does the organisation have access to luxury suppliers or does it possess the necessary skills and expertise to manufacture luxury goods in house (e.g. high performance engines for Mercedes Benz AMG performance line cars);
• context: the products must follow changes in the external environment (e.g. growing interest towards electric cars or other miscellanies changes);
• competitors: identification of competing firms and benchmarking against them to develop a differentiated product;
• collaborations: is there any opportunities to form strategic alliances with suppliers? Many luxury cars openly associate themselves with other brands (e.g. Brembo).

Once an organisation has assessed the above mentioned constraints (and preferably devised strategies to overcome these), the constraints must be linked with the marketing mix. Although this paper solely focuses on the role of product in the marketing mix, it must not be forgotten that strategic marketing may only contribute to organisational success if an integrated approach is adopted (Keller, 2001). The STP process (segmentation, targeting, positioning) is also a critical part of this holistic methodology, so product decisions must also be consistent with the selected market(s)’s needs. Therefore, achieving business success is done through the development of a close with between the product, the customer and the marketing (Mohr et al. 2009). As such, a luxury car must have those product attributes which are sought after by the luxury car customer and the external communication strategy (i.e. the marketing communication) should clearly set out a product that is highly valued by potential customers (Martin, 1998).

The product levels in the luxury car industry

Despite the fact that the author of this paper previously argued that products are often perceived to be physical items, the theory of product levels illustrate that successful organisations must address all layers of the of product level diagram (Kotler et al. 2016). These levels are hierarchical, so the suggested holistic approach is also recommended for product management in order to ensure that customers are provided with a consistent product experience, given that each level closely reflects the target market’s (luxury car buyers) expectations.

The core product (even if it name suggests otherwise) is an intangible element of the product. It essentially entails the realisable benefits from the product use. In general terms, people purchase cars to facilitate their transportation from point A to point B, as other alternative modes of transportation (e.g. bus, taxi, walking … etc.) might not satisfy customer needs. The basic transportation need is overly generic for luxury car manufacturers, so understanding the psychology behind purchasing a good that well exceeds realistic customer needs is of paramount importance (Shukla, 2012). Luxury cars are seldom purchased for their convenience – other car makers could perfectly satisfy transportation needs too, so there has to be another rationale behind a high value purchase. Although this paper is too short to enlist the possible psychological factors influencing luxury car purchases, it is realistic to assume that these decisions are overly driven by emotions (Kapferer, 1998). People driving luxury cars intend to communicate their status or they want to leverage on state-of-the art technology and safety features that somewhat counterbalance the irrational choice of luxury cars. Correspondingly, luxury car manufacturers must convince prospective buyers of the presence of these attributes, and seemingly the three market leading brands are succeeding. BMW, Audi and Mercedes Benz are recognised as status brands and their technological advancement and safety features are well above the industry’s standards. In essence, this is the first step that customers examine before they actually visit a luxury car saloon to discuss further details of the product with a sales associate.

The next product level is more tangible in its nature, as it encompasses the actual product (the actual car model, e.g. BMW X5, S-Klasse or S6) and its visual aspects (such as colour, style, quality, chassis contour… etc.) (Kotler et al. 2016).  Even though it is hard to separate this level from the actual product, it is important to emphasise that the core and the actual product must complement each other, so if a luxury car is designed to offer buyers a status symbol, this should be reflected in the car’s physical appearance and certainly in other parts of the marketing mix (e.g. price, place, people) to maintain consistency.

Whilst it is tempting to categorise goods into either services are products, there is often a continuum between the two polar ends of the spectrum, so luxury car manufacturers should also focus on the augmented product level (Zimmerman and Blythe, 2013). The augmented product level is mostly composed of service elements, such as after sale warranties, the delivery of the luxury car, maintenance services, financing and a quality customer care to address any customer concerns before, during and after the purchase. The concept of product level shows that the physical product is often just a fraction of the product marketing mix, as successful sellers must address each level in their product management. As it was previously suggested, a concerted approach to marketing is necessary, so luxury car manufacturers must warrant that other components of their marketing strategy (e.g. other elements of the marketing mix) are consistent with their product decisions (Kotler et al. 2016). If these recommendations are adhered to, organisations are able to establish product leadership, which is essential to maintain anticipation and excitement towards the products and to increase the number of new and existing customers (Cooper, 2005). This must be accompanied by a continuous product innovation (instead of just adding variety to products without any value or inspiration) so that luxury cars’ superiority is maintained.

Product Assortment – Product Width, Length and Depth

A final consideration for product management in the luxury car market is product assortment. Product assortment entails all products that the seller offers for consumers (Thompson, 2000). Product width refers to the number of different product lines a manufacturer carries (e.g. high performance hatchbacks, Sport Utility Vehicles (SUVs), sedans, minibuses… etc.); product length measures the number of product variants within one category (e.g. optional car features, such as GPS or blind spot monitor… etc.), while product depth shows the total number of variants available at a particular manufacturer.

Serving all segments is seldom possible, so organisations must carefully analyse potential customer segments to target, while also maintaining the financial interest of shareholders (Crane and Northeastern, 2012). The luxury car industry (or a matter of fact, the luxury good sector in general) could be considered to be in a highly specific market, opportunities in increasing product width is not always possible. For example, as introduced during lectures, Dyson manufactures vacuum cleaners, air treatment equipment and hand dryers, which are seemingly completely different products, nevertheless exiting resources could satisfy production needs for all products and there are definitely cross selling opportunities (i.e. commercial vacuum cleaner buyers might also be interested in air treatment equipment). In case of the luxury car industry, such synergies could be more difficult to attain, since the deployment of capacities for different product lines could be difficult, although Mercedes has successfully diversified into the heavy truck industry seemingly without compromising its luxury perception in its consumer market.

Product length assortment consideration is more common in the luxury car industry, as within the passenger car product category, a high number of variants has been developed (Kotler et al. 2016). As previously mentioned, luxury cars come in a variety of forms, satisfying varying customer needs. While this product decision satisfies customer needs, it is also a kind of product diversification that helps luxury car manufacturers to shelter themselves from economic cycles – conceivably during the economic recession, large luxury cars were sold in lower volume, yet a cheaper model variant remained affordable to the target without compromising on quality.

To conclude, the essay demonstrated the role of the product marketing element in the luxury car industry. It was gradually explored why careful product considerations are necessary in order to ensure a consistency in an organisation’s marketing strategy and marketing process. It was also highlighted that thinking of products as physical items is not advisable to fully understand what a product is – instead, as the theory of product levels has shown, products must provide a holistic consumer experience in the luxury car industry.

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