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Customer experiences are becoming a premium factor


Customer experiences are becoming a premium factor

As the revenue backbone of the German automotive industry, the premium segment is under pressure. With three leading premium brands alone, profits melted from a total of 6.85 billion euros in 2007 to 550 million euros in 2009, which corresponds to a decrease of 92 percent. According to the results of studies by the management consultancy McKinsey & Company, this development can only be averted if premium manufacturers concentrate on technology and design, brands, exclusivity and personal interaction.

In the study, for which the consultants asked 9,000 new vehicle buyers in Germany and Italy, the term “premium” was defined as the surcharge that a customer is willing to pay for a certain model compared to another functionally equivalent model in the same segment is. In some segments, achievable surcharges would have reached up to 35 percent compared to the cheapest model. But for most manufacturers, the bulk business was a losing business even in good years. “The fact that the auto industry still achieved a total global profit of 50 billion US dollars in 2006 is due to the premium market, in which around 100 billion US dollars were made in that year,” says Andreas Cornet, who is the sales consultant at McKinsey and directs marketing in the European automotive industry. However, fewer and fewer manufacturers are able to activate this increased willingness to pay on the part of customers.

While premium was a clearly defined market in the past, premium is now evenly distributed over almost the entire market. “The same premium profit share is now generated by 75 percent of all vehicles on the market,” explains McKinsey partner Christoph Erbenich. The reasons for this are that ever smaller cars are being developed within existing premium segments (downsizing) and consumers are buying cars from lower segments (downtrading). At the same time, premium manufacturers have implemented a “full range” strategy in recent years, which means that premium vehicles can be found even in traditionally high-volume small car segments. However, cost structures have often been underestimated. In times of crisis in particular, high sales aids are needed and it is difficult to achieve profitable prices for premium cars in these segments. In addition, innovations would no longer secure a permanent unique position in the premium segment.

The profitability in the financial crisis would also have been damaged by double-digit price reductions from premium manufacturers, which are difficult to correct for future models in consumer expectations. However, results have shown that customers are still willing to pay a premium for some factors. For example, for a third of those surveyed, the premium vehicle should stand out as a “style icon” with its pioneering exterior and interior design and set new technical standards. “An electric drive in particular can be marketed as a premium element if it underlines the technological leadership and the social aspirations of the brand,” explains Cornet. In addition, almost a quarter of those surveyed combine premium with brand loyalty to the preferred manufacturer and confirm that they want to buy the brand again. Almost a quarter of those questioned also saw a status symbol in a premium vehicle that reflects their social position through luxury and exclusivity. Excellent advice makes the difference in a premium vehicle for every sixth respondent. “The personal conversation in the car dealership or in the authorized workshop is the environment in which Premium can be conveyed particularly well from the customer’s point of view,” confirms Erbenich. The digital experience of the product is almost as important, from the manufacturer and dealer website with online vehicle configurators to its presence in social networks.