Brand Corrosion: Mass-Marketing's Threat To Luxury Automobile Brands After Merger and Acquisition

Brand corrosion: mass-marketings threat to luxury automobile brands after merger and acquisition
trach Pavel S
University of Economics, Prague, Czech Republic, and
M. Everett Andre
University of Otago, Dunedin, New Zealand
Abstract Purpose The purpose of this research is to explore the practical implications of brand management decisions, particularly those involving the combination of luxury and mass-market brands within the same organization through merger or acquisition. The aim of the paper is to expand brand theory by linking it to administrative heritage in the context of the increasingly integrated global automobile industry. Design/methodology/approach Integrated case studies of Jaguar, Mercedes-Benz, and Saab illustrate the effects of brand extension and dilution through the lenses of brand development, luxury brands, and administrative heritage theories. The recent history of acquisitions and mergers involving luxury automobile brands provides background to the in-depth examination of these three specic instances. Conclusions are reached by comparing and contrasting the experiences of these rms relative to their mass-market siblings. Findings The blending of luxury and mass-market automobile brands in one corporate portfolio engages advantages of scale and scope economies, but induces potentially fatal brand corrosion. Consumer perceptions of luxury brands are inuenced by the degree of commonality with the associated mass-market brands, independent of whether the luxury brand or the mass-market brand is the dominant corporate vehicle. Originality/value The paper provides insights useful to practitioners as well as academic researchers. The novel juxtapositioning of the concepts of luxury brands, administrative heritage, and global strategic management through mergers/acquisitions demonstrates the unintended consequences of complex interactions in a dynamic industry. The paper concludes with suggestions for further research. Keywords Brands, Acquisitions and mergers, Brand extensions, Globalization, Automobile industry Paper type Research paper
An executive summary for managers and executive readers can be found at the end of this article.
Introduction
Recent empirical research indicates that mergers and acquisitions can induce innovation (Prabhu et al., 2005), which leads to higher rm and brand value (Pauwels et al., 2004). This contrasts with the results of acquisition processes in the automotive luxury segment, where new up-market models based on their mass-market sister products have failed to boost the premium brands market value. Attempts to create mass-luxury are an inherent consequence of the strategic direction implemented by major multinational car manufacturers with respect to their premium-brand acquisitions. The strategies resulting from such mergers or acquisitions can inadvertently lead to brand corrosion evaporation of distinctive features, attempts to appeal to new customer segments while not building on brand heritage, and boosting production gures through less expensive models or
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Journal of Product & Brand Management 15/2 (2006) 106 120 q Emerald Group Publishing Limited [ISSN 1061-0421] [DOI 10.1108/10610420610658947]
reduced attention to quality. Such strategies, emphasizing cost savings and operational efciencies rather than market-related performance, are the result of insufcient customer orientation during integration (Homburg and Bucerius, 2005). Nearly all new car models constitute brand extensions, capitalizing on current consumer perceptions and positioning the new model within the brand family. In some cases, established model names have been continued for essentially new products (e.g. the Toyota Corolla, Volkswagen Golf, and Ford Mustang have been marketed for more than two decades, with substantial changes). Step-down vertical brand extension (Kim and Lavack, 1996) can partly explain the resulting brand corrosion. Brand dilution, caused by overextension of models and production quantities, has been observed in more prestige brands, including automobiles (Chen and Chen, 2000; Kirmani et al., 1999), although this same effect was not conrmed in the case of master brands (Leong, 1997). The negative impact of extensions on brand dilution has been researched through focus groups and market experiments in fast-moving consumer goods (FMCG) nez and Pina, 2003; Glynn and Brodie, 1998; John (e.g. Mart et al., 1998; Loken and John, 1993). Generation of a new theoretical perspective, rather than conrmation and verication, indicates that a qualitative paradigm should be employed (Deshpande, 1983). The examination presented here is based on case studies, an established research methodology (Whitley, 1932) recognized in mainstream academic literature in domains such as 106
Brand corrosion trach and Andre M. Everett Pavel S
Journal of Product & Brand Management Volume 15 Number 2 2006 106 120
sociology (Kiser, 1997), law, economics, and history. Case studies are used for in-depth contextual analysis of events or conditions which, although signicant, occur only in small numbers (Cooper and Emory, 1995), or concern marketing cognition and symbolism (Deshpande and Webster, 1989). Yin (2003) suggests picking cases with diverse initial conditions (literal replication), which are represented here by different ownership, company size, and country of origin. Eisenhardt (1989, 1991) proposes that cases should be presented until theoretical saturation is reached. This paper integrates three otherwise separately presented elds brand development, luxury brands theory, and administrative heritage of large transnational companies. The latter term builds on Bartlett and Ghoshals (2000) suggestion that multinational corporations (MNCs) are captives of their past and therefore their administrative heritage can signicantly inhibit their attempts to change. Three premium brands Jaguar, Mercedes-Benz, and Saab are utilized as examples, examining relevant aspects of their corporate and brand histories preceding and following mergers with and/or acquisitions by mass-market corporations. While Jaguar and Saab were acquired by the two largest US auto makers, the parent of Mercedes-Benz reversed this situation by taking over the third of the US Big Three. All three situations represent a clash between American and European perceptions of brand management, with divergent outcomes. The nature of premium brands is not based purely on their boutique status (e.g. Jaguar and Saab), as demonstrated by the annual million-vehicle sales of Mercedes-Benz, supporting the optimistic sales growth expectations of the two US parents. However, the distinctiveness of exclusivity is a material component of brand perceptions, as conrmed in a recent study of car brand communities (Algesheimer et al., 2005). Substantial acquisition, and even some divestment, of established automotive luxury brands became a central part of the strategic game among the dominant car manufacturers beginning in the mid-1980s, featuring ownership transitions of premium marques such as Rolls Royce, Bentley, Ferrari, Maserati, Lamborghini, Bugatti, and Lotus, as well as somewhat less exclusive makes such as Jaguar, Aston Martin, Volvo, Alfa Romeo, and Saab. Brand management at Detroits Big Three (General Motors, Ford, and Chrysler) became a focus of interest in the early 1990s (Lienert, 1998). Recognition arose that automobile brands were less developed than brands in other sectors such as FMCG (Goodyear, 1996). This paper is organized as follows. First, the history of luxury automobiles is briey introduced, indicating why they differ and what is occurring in the premium brand market. Next, the brand development model introduced by Goodyear is overviewed. Subsequent sections are devoted to in-depth analyses of three case brands (in alphabetical order): Jaguar, Mercedes-Benz, and Saab. The paper concludes with a discussion of lessons that may be learned from these three stories, providing links to both theory and practice.
characteristics, including consistently premium quality, craftsmanship, recognizability, exclusivity, reputation, distinctive variation, timing, and a clear reection of personality, values, and heritage, as well as association with a country of origin that has an especially strong reputation as a source of excellence in the relevant product category (Nueno and Quelch, 1998, pp. 62-63). Five dimensions differentiating luxury brands were empirically derived by Vigneron and Johnson (2004), resulting in factors they labeled conspicuous, unique, quality, extended self, and hedonic. Important features of luxury products include superb quality, aesthetic design, and excellent service (Dubois and Duquesne, 1993). Additionally, luxury brands must be perceived as luxurious, because they act not only as standards of excellence but also as social codes. Luxury brands typically combine an international reputation, elements of fantasy and desire, and limited distribution, imbuing them with rarity and desirability (Kapferer, 2001). Not all luxury goods possess the same degree of distinctiveness and exclusivity. For instance, a Cadillac and a Rolls-Royce may be both perceived as luxury cars, but one compared with the other would be considered more luxurious (Vigneron and Johnson, 2004, p. 485). Following demographic and economic trends including smaller family sizes in developed nations and increasing consumer purchasing power in developing countries, luxury markets have expanded over the previous decade (Fiske and Silverstein, 2004). Higher accessibility and wider circulation of luxury goods led some professionals to distinguish between supraluxury and mass luxe (Jordan Keane and McMillan, 2004) or to talk about the mass marketing of luxury (Nueno and Quelch, 1998). This study examines the set of automobile brands with a low ratio of function to price, regarded as status symbols while simultaneously being manufactured by the thousands on traditional assembly lines. The terms luxury and premium are utilized interchangeably here to reect the nature of these brands, located below the supraluxury market. The notion of a luxury car varies widely in the literature. For example, Rosecky and King (1996) cite ve different denitions and limit their study to owners of Mercedes, BMW, Jaguar, Cadillac, Lincoln, Lexus, Innity, and Acura brands. Is a $50,000 Ford a luxury? What about a $20,000 BMW? It is probable that no strict nancial criterion can be applied. Luxury car drivers are usually status seekers, older or retired males, highly educated, and high income people (Choo and Mokhtarian, 2004). Although only 20 percent of the sales of luxury products are mens products, most luxury goods are purchased by men (Nueno and Quelch, 1998). Older consumers search for less information before they realize a purchase (Srinivasan and Ratchford, 1991) and consider fewer brands (Lambert-Pandraud et al., 2005), making them more susceptible to traditional brand-heritage considerations (Ewing et al., 1995); in turn, this makes their purchase decisions more vulnerable to strategic brand repositioning. Overview of the luxury car market The combined market share for all premium brands in the worlds largest car market (the USA) has increased steadily since 1986. Up to 1996, total sales accounted for 5 to 7 percent, but unit sales grew by 17 percent annually between 1997 and 2002 (Mintel, 2003), lifting luxury brands market 107
Literature review
Luxury items are typically expensive (both in relative and absolute terms), somewhat trivial, and without any clear functional advantage over their counterparts (Dubois and Duquesne, 1993). They feature a unique set of
share to 10.2 percent in the rst half of 2003 (Wards Auto World, 2003). By 2009 the North American luxury car segment is expected to rise a further 69 percent to 1.26 million vehicles annually (Henderson, 2005). Several newlycreated luxury brands (including Lexus, Acura, and Inniti) were originally developed for and marketed only in the USA, taking advantage of market characteristics attributed to both cultural adolescence and a generally shorter memory among American consumers (Simister, 2004a). This examination of the recent dramatic changes of ownership of luxury automobile brands focuses on the past two decades; some brief highlights follow. Toyota made its rst move into the premium segment by purchasing Lotus in 1984. This brand was sold to GM in 1988, once Toyota had absorbed Lotus multivalve engine technology and adapted it for mass production. GM subsequently shunted the brand into near-bankruptcy before taking its hands off in 1996, happily leaving the company to be acquired by Proton of Malaysia (which is now using Toyota engines in some Lotus models). From 1988 to 1993, GM-owned Bugatti experienced a similar troublesome story. Bugatti became a part of the Volkswagen (VW) Group, together with Lamborghini, in 1998. Lamborghini was originally purchased by Chrysler (1987), but sold off to Indonesian investors in 1994. Fiat began its luxury acquisitions in 1969 with a 50 percent stake in Ferrari, purchased from its founder Enzo Ferrari; buying an additional 40 percent in 1988 gave it nearly complete control. Fiat gained further experience with the sporty brand Alfa Romeo, obtained in 1986, before purchasing Maserati in 1993. Ford has accumulated specialty brands consistently since 1987, when it purchased Aston Martin. More recent acquisitions by the Premier Automotive Group (a division of Ford) include Land Rover (2000), Volvo (1999), and Jaguar (1989). Since 1998, the Volkswagen group has owned Bugatti, Bentley, and Lamborghini. In 2000, BMW withdrew from its six-year marriage with MG-Rover, retaining the right to produce an upwardly re-priced Mini. BMW added Rolls Royce to its portfolio in 2003 (from 1998 to 2003, this brand was managed by Volkswagen). Such acquisitions and their management have been far from trouble-free, since their inception (Feast, 1998). The inherent aim of luxury acquisitions creating mass demand for niche products by capitalizing on large-scale production efciencies is intrinsically illogical for luxury brands, although it appeals economically. For example, losing a niche orientation by sharing platforms and engines with humdrum sister marques at Ford and GM has led some customers to express concerns that new models are not real Saabs or Jaguars (Stones, 2004). A parallel situation has occurred at DaimlerChrysler, where some Mercedes-Benz models have been perceived as too similar to Chryslers or Mitsubishis due to shared features and components. An emerging relationship between country of (group) origin and treatment of premium brands can be identied in Table I. Over the past 20 years US automotive multinationals have preferred to acquire established premium brands rather than developing their own. However, they force their luxury divisions to share platforms with the mainstream divisions. This is consistent with the ndings of Bartlett and Ghoshal (2000), who describe US-based MNCs as coordinated federations, where formal control procedures over subsidiaries are in place. A major bottleneck affecting this 108
type of organization is hypothesized to be a parochial and even superior attitude towards international operations, perhaps because of the assumption that new ideas and developments all came from the parent (Bartlett and Ghoshal, 2000, p. 509). European MNCs typically congure themselves as decentralized federations, with national subsidiaries loosely controlled and primarily focused on their local markets. They also display distinctively national characteristics. In the case of German-American DaimlerChrysler and German BMW, the parent company is the birthplace of the groups luxury brands, fostering a perception of credibility and engineering quality. The German VW Group supports individual development of Bentley, Bugatti, and Lamborghini models, but the engines and platforms of its Audi models are shared koda. with its other core brands, Volkswagen, Seat, and S Neither of the two remaining French manufacturers, PSA (Peugeot and Citroe n) and Renault, offers its own luxury brand, which is noteworthy considering that Moe t Hennessy, Louis Vuitton, Coco Chanel, Christian Dior, and many other distinctive luxury marques originate in France. Fiats approach can be seen as a continuation of Italys famous sports car tradition, where Ferrari and Maserati share hardly anything with their cheaper siblings; Italy does not produce non-sporty luxury vehicles. In this context, Yamawaki (2002) differentiates the pricing strategies of European car makers based on their country of origin. MNCs of Japanese origin tend to exhibit the organizational structure termed centralized hub (Bartlett and Ghoshal, 2000). Centrally controlled units produce global products, aiming at efciency and quality, with a strong emphasis on engineering design (through quality function deployment and similar approaches) at their headquarters. Although Japanese cars of the 1970s were patterned after American limousines, their manufacturers did not introduce upscale versions, developed internally, until 1986 (Acura) and 1989 (Inniti and Lexus). All three brands maintain a sharp distinction from their parent companies in the North American market, although Lexus is still sold in Japan under the Toyota badge, while Inniti and Acura are marketed as models within the Nissan and Honda range elsewhere. Since the initial announcement of the merger, the situation at DaimlerChrysler has been reported as a classic example of a potentially successful merger in terms of minuscule internal cannibalism threats, although as a ipside of this argument it was deemed barely economically viable due to minimal overlap in models and markets. DaimlerChrysler was established on the belief that purchasing power would reduce overall operational costs. However, the two companies were producing vastly different products Daimler focused on the upper end of the international market while Chrysler produced vehicles targeted at the middle of the US market. Although the expensive parts of Daimlers vehicles could be used for more affordable Chrysler cars and the cheaper Chrysler parts be used on Daimler vehicles; both these moves were likely to reduce the competitive advantage on each of the markets in which the original companies operated. Chrysler cars could have become less affordable while Daimlers brand might have lost its reputation for quality (Rugman and Collinson, 2004, p. 478). Car brands currently represent almost 10 percent of the worlds most valued and respected global brands (see Table II). Toyota is presently the most valuable car brand; in 2004 it passed Mercedes, which held the top spot among car brands
Table I Luxury brands of the top 12 auto manufacturers

Company (parent, alliance, or group) General Motors Ford Toyota Renault-Nissan VW Group Daimler-Chrysler PSA Honda Hyundai-Kia Fiat Mitsubishi BMW Productiona (million, 2004) 11.7 7.8 7.5 5.9 5.0 4.8 3.3 3.2 3.1 2.0 1.5 b 1.3 b Origin USA USA Japan France and Japan Germany Germany and USA France Japan South Korea Italy Japan Germany Luxury brands Cadillac, Hummer, Saab Aston Martin, Jaguar, Land Rover, Lincoln, Volvo Lexus Inniti Audi, Bentley, Bugatti, Lamborghini Mercedes-Benz, Maybach Acura Alfa Romeo, Ferrari, Maserati BMW, Rolls-Royce, Mini
Notes: a PriceWaterhouseCoopers (2005); b International Organization of Motor Vehicle Manufacturers (2005)
Table II Most valued global car brands (2000-2005, $ millions)

Brand 2005 2004 2003 2002 2001 2000 2005/2000
Toyota 24,837 22,673 20,784 19,448 18,578 18,824 32% Mercedes-Benz 20,006 21,331 21,371 21,010 21,728 21,105 2 5% BMW 17,126 15,886 15,106 14,425 13,858 12,969 32% Honda 15,788 14,874 15,625 15,064 14,638 15,245 4% Ford 13,159 14,475 17,066 20,403 30,092 36,368 2 64% Volkswagen 5,617 6,410 6,938 7,209 7,338 7,834 2 28% a a a Porsche 3,777 3,646 a a a a a Audi 3,686 3,288 a a a a a Hyundai 3,480 a a Nissan 3,203 2,833 2,495 a Note: a Not featured among top 100 global brands for the year Source: Annual research compiled by Interbrand and published in Business Week (2001, 2002, 2003, 2004, 2005)
major auto market in terms of volume, is beginning to show both the intention and capability of producing its own luxury brands, as evidenced at the Beijing Autoshow 2004, where Daimler-Chrysler broached plans to sell in China 1,000 Maybachs per year; Porsche echoed that goal a year later at the Auto Shanghai show, aiming to sell 1,000 in China during 2005 (Li, 2005). Ferrari (2005) claimed that, for calendar year 2004, New and growing markets (China, Russia, Eastern Europe and South America) contributed substantially to volumes increase, without jeopardizing the exclusivity of the brand. Production of Cadillacs ofcially commenced in GMs new Shanghai factory on 25 May 2005 (General Motors, 2005). Contextualizing brand development Brands and branding strategies affect the value of companies and thereby serve as a measure of their success (e.g. Aaker and Jacobson, 1994; Rao et al., 2005), and are even considered a key to their survival (Aaker, 1997). Development of a brand usually takes three to ve years and is of critical importance for the success of car manufacturers (A.T. Kearney, 2001). Goodyear (1996) recognized six stages in brand development, in this context applied to luxury car marques (see Table III). According to Goodyear, perception and strength of a brand will depend on the maturity of consumerism in the market, on brand marketing, and on the level of customer loyalty. Customer loyalty depends on both market maturity and brand marketing, which in turn includes aspects such as customer service and trust (Reast, 2005; Delgado-Ballester and n, 2001, 2005; Andreassen and Lindestad, Munuera-Alema 1998). Empirical research has shown that luxury car purchasers are more loyal to the segment at large than to any particular luxury brand (Colombo et al., 2000). As an example of a strategy designed to counter this effect, Volvo attempts to implant the companys core values into customers and create the brand through personal identication of buyers with the brand (Urde, 2003). This study explores the impacts of a change in the form of ownership of luxury brands, from independent rms targeting top-end markets to global giants intent on capitalizing on the brand while gaining economies of scale. The number of 109
for the two preceding years. Prior to that, Ford was far and away the leader, peaking at the worlds seventh most valuable brand in 2000. Volkswagen also faced a sharp brand value decrease, although its luxury Audi brand more than offset the loss while entering the chart in 2004 and increasing in value in 2005. Among luxury car brands, only four (all German) ranked among the top 100 most valued global marques of 2005. Mercedes-Benz maintained its absolute value while BMW added substantially to its brand value. The German origin of the most valued global luxury car brands supports the importance of administrative heritage and demonstrates country of origin effect. Toyotas and Nissans gains may be connected to the rising reputation of their luxury divisions, which badge cars under the main brand, whereas Fords Premier Automotive Group vehicles are sold under their own brands and therefore do not affect the value of the Ford brand itself (although they do affect the value of the company). Korean and Chinese car makers will probably have their luxury say in the near future. The Koreans are now selling locally their President, Equus, Chairman, and similar (licensed and un-licensed) emulations of American, German, and Japanese limousines, and the drive to establish their own luxury makes is strongly evident. China, as the third
Table III Six stages of brand development

Stage Unbranded Attributes Commodities, packaged goods Major proportion of goods in non-industrialized contexts Minor role in Europe/USA Supplier has power Name used for identication Any advertising support focuses on rational attributes Name over time becomes guarantee of quality/consistency Brand name may be stand-alone Marketing support focuses on emotional appeal Product benets Advertising puts brand into context Consumer now owns brand Brand taps into higher-order values of society Advertising assumes close relationship Use of symbolic brand language Often established internationally Brands have complex identities; consumer assesses them all Need to focus on corporate benets to diverse customers Integrated communication strategy essential though-the-line Company and brands aligned to social and political issues Consumers vote on issues through companies Consumers now own brands, companies and politics Luxury car brandsa
Brand as a reference
Acura, Hummer, Inniti, Land Rover, Lexus, Lincoln
Brand as personality
Alfa Romeo, Aston Martin, Jaguarb, Maserati, Mini, Saabb, Volvo
Brand as icon
Audi, BMW, Cadillac, Lamborghini, Mercedes-Benzb
Brand as company
Bentley, Bugatti, Ferrari, Maybach, Rolls Royce
Brand as policy
Notes: a Only brands from Table I, belonging to the top 12 companies, are included; b As the focus of this study, the placement of Saab, Jaguar, and MercedesBenz is examined in greater detail within the text Source: Adapted from Goodyear (1996, pp. 114 and 119) (car brands column added)
luxury automobile brands today is relatively small, and each has a unique story to tell; three will be addressed in the case studies presented here. First, Jaguars uctuating sales, divergent model releases, and recently announced plant closures (with redundancies) are only the most evident issues Jaguar has had to deal with. Second, Daimler-Benzs acquisition of Chrysler continues to produce unforeseen consequences and periodic reversals of fortune. It also constitutes the unique occurrence in the automobile industry of a luxury brand buying a mass-market manufacturer. The dramatic decline in consumer evaluations of Mercedes-Benz automobiles and speculation that cross-brand sharing is to blame adds tension to the situation. Finally, Saab is of particular interest as its acquisition by General Motors began relatively early, and remains an ongoing saga with direct links to research on the impacts of administrative heritage on luxury branding. General Motors recently announced that it will relocate manufacturing mid-size and development of all Saab cars away from Sweden, leading to speculation about the possible discontinuation of the brand.
Case 1: Jaguar
Since its founding in the 1920s, the name of Jaguar has been inextricably linked with high performance, as exemplied by its championships beginning in the 1930s at Le Mans (seven times), the Monte Carlo Rally (twice), and countless other events. Luxury and performance intertwine to form the personality of the marque, sometimes described more as a mystique or a phenomenon than just another brand. 110
Treated as an iconic brand in its English homeland, Jaguar has attained the status of brand as personality (based on Goodyears classication) in the USA, its major market by volume, since its acquisition by Ford in 1989. However, it seems that the brand has been personally identied with old upper-class male drivers (Stones, 2004). Prior to its acquisition by Ford in 1989, Jaguar experienced major restructuring, passing through the bureaucratic hands of British Leyland, which discontinued perhaps the most famous Jaguar model (E-Type), presented Jaguars jointly with other brands at auto shows, and induced a lengthy, painful strike in 1980. Jaguar was reasonably protable after separation from Leyland, reporting record sales of 49,500 vehicles in 1988, the year before its acquisition by Ford. The workforce numbered 12,000. A widely recognized and real problem was the infamous sloppy quality and outdated work practices throughout the company (Feast, 1998). Quality issues permeated public anecdotes about the brand. Difcult trading conditions led Jaguar to consider potential collaboration with a larger car manufacturer. General Motors and Jaguar discussed cooperation in manufacturing and marketing, and acquisition of a minority stake in Jaguar by GM. At the time, Ford was racking up experience with second-hand sports car brands. In 1970, it acquired Ghia (producer of Ghia and De Tomaso cars), a famous design studio in Torino, Italy and promptly downgraded the brand into a mere label for Fords own top lines. In 1987, it purchased three-quarters of sports car maker Aston Martin, completing the acquisition in 1993. Ford opened negotiations with Jaguar in September 1989, and repeatedly announced its intention to make a full bid for the company. Fords offer of
$2.55 billion was hard to resist and swiftly extinguished the prospects for GM. In 1992, Jaguar sold just 22,478 cars, half of the pre-Fordtakeover number. In 1993 the new owner installed a new assembly line at the Browns Lane factory in Coventry. Jaguars started improving in quality and reliability. However, production gures did not recover to the 1988 level until 1998, and then shot upwards to attain 120,570 vehicles sold in 2003. The challenging era for the Jaguar name began with Fords $1.3 billion development of the S-Type and X-Type models, which would lead the brand into the twenty-rst century. The S-Type, mid-sized sports saloon joined the Jaguar eet in 1998 as the rst model fully developed under Fords stewardship. Before this model, Jaguar sourced about 65 percent of its parts within the UK, a gure which dropped to 40 percent for the new model, showing the larger share of foreign (Ford) components (DTI/SMMT, 1999). The vehicle shared its platform with sisters Lincoln LS, Ford Thunderbird, and the new Ford Mustang (announced for 2005). Jaguar crossed the magic line of 50,000 units sold in one year and sales were predicted to climb to 85,000 in 1999 and 90,000 in 2000 (Bruce, 1998). Anticipating the arrival of the X-Type, sales for 2002 were forecast to skyrocket to 200,000 units (Jaguar USA, 2004). Fords Halewood (UK) plant was built in 1962 and assembled its last Ford Escort in June 2000. The plant underwent a large scale transformation to support the new X-Type, which was unveiled during the Geneva Motor Show in 2001 and promptly labeled baby Jag. The X-Type shared its platform with the markedly cheaper Ford Mondeo and was the rst model for the brand featuring four wheel drive technology. The X-Type has suffered build quality issues since its launch (Richards-Carpenter, 2003). The model should have attracted younger buyers and should have opened up a bright future for the established make (Burt, 2001a). However, elderly customers downsized to the cheaper car and the perception of Jaguar being an old mans car was not lifted (Stones, 2004). A few months later, the 1.5 millionth automobile bearing the Jaguar badge was celebrated in Browns Lane. Not far away, a new 40-hectare design and development center opened in Whitley, accommodating an additional 2,500 engineers. In 2002, the company admitted it had overestimated the sales volume for the X-Type (Grant, 2002) and production was slowed for several weeks in September and October to clear unsold stock. The 2002 model year featured another new arrival to the product range; the traditional bodytype XJ saloon replaced the previous XJ8 model. The new XJ made heavy use of aluminum parts, resulting in a light, strong chassis. An extension to the regular sedan series, the S-Type R was one of the most powerful mass-produced saloons in the world, featuring a 4.2 liter eight-cylinder turbocharged engine capable of accelerating from 0 to 60 mph in just 5.3 seconds. Jaguar sales surged from around 50,000 at the time of Fords acquisition to 130,000 in 2001, but then began to contract. The cardinal change in the sales pattern was achieved with introduction of the S-Type and X-Type, the rst Jaguar vehicles attracting mass attention. However, tripling sales logically implies less distinctiveness and exclusivity for the marque. Jaguar today has facilities located at Castle Bromwich in Birmingham (production of S-Type), Whitley in 111
Coventry (engineering), Halewood on Merseyside (production of X-Type), and Browns Lane in Coventry (production of XJ limousine and XK sports coupe). Some engines are produced in the Ford engine factory at Bridgend, South Wales. Jaguars are marketed in over 70 countries with the most important single market being the USA followed by domestic sales within the UK. The year 2004 was particularly colorful and critical for the British marque. Two Peugeot-engineered diesel engines were introduced in the X-Type (four-cylinder) and S-Type (six-cylinder). Ford relinquished its own engineering efforts targeting such engines, which previously occurred at the Whitley development center. As diesel fueled vehicles have become increasingly popular, these models should boost the companys coffers by attracting more European customers. In order to expand sales of the X-Type, Jaguar introduced its rst-ever station wagon in the 2004 season. Originally, this vehicle was not intended to be marketed in the USA, but lower than expected sales of the X-Type there reversed this decision, and the X-Type sports wagon faced American customers starting in October 2004. The Jaguar S-Type received extensive exterior modications as well as a new aluminum hood, a more luxurious interior, and a new suspension system (Hammonds, 2004). In the second quarter, Ford reported a $362 million loss for its Premier Automotive Group (consisting of Jaguar, Land Rover, Volvo, and Aston Martin), out of which Jaguar accounted for about half, $178 million. In September, Ford announced a $450 million restructuring plan for Jaguar, featuring closure of the Coventry factory. 400 voluntary redundancies were expected as a result of shifting production to Castle Bromwich. 750 white collar jobs would be lost at Coventry and in other parts of the company. 300 jobs would shift to the Aston Martin factory in Gaydon. Jaguars headquarters and wood veneer manufacturing (with about 310 staff in total) would remain at Browns Lane. General secretary of the Amicus labor union Derek Simpson claimed that Fords decision may kill off Jaguar (BBC, 2004). Ford also considered closing the Land Rover plant in Solihull. Some industry experts suggested that Jaguars should be made at only one plant, potentially outside the UK (BBC, 2004). Coventrys new city stadium, under construction, was intended to be named Jaguar Arena, given the companys approximately 7 million pound sponsorship. However, three months after announcing the closure of its factory there, Jaguar withdrew from the deal, leaving some locals with a bitter impression. One wrote the following on a BBC Have Your Say web site:
When jaguar announced it was to sponsor the arena it appeared they were leaving a legacy in the city after announcing the closure of the Browns Lane factory, withdrawing this sponsorship is a kick in the teeth to the people of Coventry, though why should Ford care, I suggest that everyone associated with the city SHOULD NEVER BUY A FORD AGAIN (Sutherland, 2005).
Fords restructuring included Jaguars exit from the Formula One championship following the last race of the 2004 season, when the Jaguar Racing team placed seventh in the constructors championship with ten points, far behind rst-place 262-point Ferrari (as well as BAR-Honda, Renault, BMW-Williams, McLaren-Mercedes, and Sauber-Petronas) (Formula1, 2004). Nonetheless, engagement in Formula One racing was seen by some customers as a major factor in recreating the Jaguar brand as it symbolized performance and technological superiority.
It was believed that Jaguar cost Ford more than $6 billion by 1998 in terms of purchase price, investments, loans, and accumulated annual losses (Feast, 1998). The rise in sales gures is attributed to the downmarket X-Type, which some believe has destroyed the brands values without increasing its long-term sales potential (Stones, 2004). The S-Type and XType were both reported among the least reliable cars on the market (Garsten, 2002), but performed well in some quality rankings. Since 2001, studies by J.D. Power (2004) cited Jaguar among the three top brands sold in the USA, together with Lexus and Cadillac, in terms of initial quality.
Case 2: Mercedes-Benz
The history of Mercedes-Benz constitutes the history of the automobile in signicant ways. Two inventors Gottlieb Daimler (1834-1900) and Karl Benz (1844-1929) laid down independently of each other the foundations for some 680 million motor vehicles running worldwide by the year 2000 (Soubbotina and Sheram, 2000), with another 40-plus million added annually since then. It was Karl Benz who, on 29 January 1886, applied for a patent for his three-wheel gas-engine vehicle a patent considered as the birth certicate of the automobile. Daimlers four-wheel motorized carriage patented on 28 August in the same year followed immediately in his tire tracks. Karl Benz developed a two-stroke engine (1879) and patented many other original solutions including an engine speed regulation system, axle-pivot steering, and a battery ignition system for combustion engines. Gottlieb Daimler created and patented an uncooled, heat-insulated engine with unregulated hot-tube ignition. This one-horse-power engine was capable of 600 revolutions per minute (rpm), while previous engines could achieve a maximum of 180 rpm. This engine was installed in the worlds rst motorcycle, in 1885. The Mercedes brand was established in 1901, chosen by key investor and dealer Emil Jellinek after the name of his daughter. Eight years later, the three-pointed star appeared as a Daimler trademark and from 1910 it has been a distinctive feature of Mercedes cars. The three-pointed star (later enclosed in a circle) was supposed to symbolize a passion for motorization on land, on water and in the air. Further engineering innovations followed, including an occupants safety cell (patented in 1951) and the unique 1954 gullwing coupe with vertically-opening doors. In 1979, the company entered a new segment with the G-series, an off-road vehicle combining high all-terrain performance with exclusivity a precursor to the M-class sport-utility vehicle (SUV), manufactured in a new plant in Tuscaloosa, Alabama since 1997. In 1988, the post-war production total of MercedesBenz vehicles reached ten million. Daimler-Benz set up a joint venture in 1994 with the Swiss watchmaker Swatch to build a mini-car. Swatch left the minicar partnership in 1998, and Daimler-Benz launched the Smart two-seat mini-car to European customers later that year. However, its 9,000 euros price tag did not prove overly appealing. In 1997, Daimler-Benz survived a catastrophe as the long-awaited small A-class vehicle was ipped by a Swedish journalist during the infamous elk test (swerving around an elk on a slippery road), prompting signicant design adjustments. The A-class was re-launched a few months later, labeled Baby-Benz by the press, but has not yet become a nancial success. 112
In 1998, Chrysler, one of Detroits Big Three auto makers, was just returning to nancial stability; its models (such as the retro-styled PT Cruiser and four-wheel-drive Jeep Cherokee) were again popular, and lean production and a new, friendly approach to customers nally made an impact. However, vulnerability to a hostile takeover proposed by shareholder Kirk Kerkorian was high. Daimler-Benz was actively seeking expansion opportunities, particularly beyond the European horizon where the companys traditional strength lay. The unusual combination of circumstances, managerial egos, and dynamism of the automotive sector pointed towards future consolidation on both sides of the Atlantic. The date 6 May 1998 gained fame as the day of the biggest industrial merger ever, with the new DaimlerChrysler company valued at $75 billion. Shortly after the announcement, analysts pointed out that in theory the merger would lower costs through volume purchases and slashed redundancies. On the other hand, it was evident that Daimler-Benzs key advantages lay in quality, innovation, and exclusivity while Chryslers success was based on size, rapid decision-making, and exibility (Smith, 1998). Additionally, American and German ways of running an auto maker are based on different administrative and cultural heritages. DaimlerChrysler was incorporated in Germany, with Daimler-Benz shareholders receiving 58 percent of the new rm while Chrysler shareholders received the remaining 42 percent of shares plus a cash premium of 28 percent of their shareholdings value (Vlasic and Stertz, 2001). On 17 November 1998, DaimlerChrysler introduced the rstever global registered share (GRS) under the symbol DCX, launched simultaneously on 21 world markets (Karolyi, 2003). Both CEOs Ju rgen Schrempp of Daimler-Benz and Robert (Bob) Eaton of Chrysler became co-leaders of the newly established company. Within a few months Bob Eaton vacated his role of cochairman, leaving Mr Schrempp as sole emperor. Two years after the merger, Ju rgen Schrempp told The Financial Times that he never envisaged the merger as a partnership of equals (Burt and Lambert, 2000). Chryslers original management team had been dispersed and key positions had been occupied by German expatriates. Chryslers renewed nancial difculties provided ample argument for such an upheaval. The merger has been retrospectively labeled a cultural asco (Priddle, 2000). Complicating the situation, DaimlerChrysler acquired a controlling 34 percent stake in enormously indebted Mitsubishi Motor Company for $2.1 billion in 2000. The Mercedes Car Group became a special division of DaimlerChrysler responsible for production and marketing of the Mercedes-Benz, Maybach, and Smart brands, while the Chrysler Group handled Chrysler, Dodge, Plymouth, and Jeep (Plymouth was discontinued at the end of 2000). The merged company reported its rst-ever quarterly loss due to the poor performance of its Chrysler division in 2001. Consequently, DaimlerChrysler announced one of the largest restructuring plans ever undertaken by any company. 26,000 employees were downsized and six plants shut in the Americas. There were rumors that the company might be broken into parts and sold. There is little doubt we would be interested in parts of the business. Of course, Mercedes and some parts of Chrysler are very attractive to any buyer, a GM executive said (Hickey, 2001). In 2002 DaimlerChrysler revealed a ten-year plan to integrate more closely the
Mercedes-Benz, Chrysler, and Mitsubishi brands, which would cut the number of different engines and transmissions. The overall impact of the merger on Daimler-Benz has been reported as negative due to the loss of talent it had to divert to both Chrysler and Mitsubishi (Chambers, 2003). A media leak that Mercedes bought leather from Bulgaria brought fears that its cost-cutting strategy could result in substandard products. In terms of consumer satisfaction, Mercedes-Benz ranked rst in 1999 and 28th in 2005 out of 37 brands (Simon and Mackintosh, 2005). In the most recent J.D. Power customer satisfaction survey of British executive and luxury car owners, it was revealed that the Mercedes-Benz E-Class nished next to last and barely made the top 100 overall, with the C-Class being only two places above the E in this sector (What Car, 2005). Mercedes-Benz cars scored well below industry average and shared 21st place with Seat of Spain. Customers were particularly unhappy with the M-Class SUV and S-Class sedan (Kelly, 2003). In 2004, DaimlerChrysler ran into troubles again; currency effects, product changes, and quality improvement efforts were blamed for nancial difculties in the Mercedes Car Group, and the company reduced its stake in Mitsubishi following recalls and prot problems there. Prots coming from the Mercedes-Benz brand slid from 784 million Euros in 2003 to 20 million in 2004 (Smith, 2005) and declined further to an operating loss of 954 million in the rst quarter of 2005 (including Smart restructuring costs of 800 million) (BBC, 2005a). The quality shift which resulted from closer integration in later stages of the merger is illustrated in Table IV, which shows a steady decline in initial mechanical quality since 2000. (The J.D. Power Initial Quality Study looks at ownerreported problems in the rst 90 days of ownership; this score is based on problems reported with the engine, transmission, steering, suspension, and braking systems.) To regain its reputation, the Mercedes Car Group announced in 2004 that it would aim to top the J.D. Power US survey in 2006. However, this goal was subsequently placed under review as admittedly the J.D. Power survey may too closely reect American tastes, which might not be desirable for a global car brand (Reuters, 2005). In early 2005, the new B-class sports hatchback was introduced, increasing the number of Mercedes-Benz passenger models to 13 (smaller hatchbacks A- and B-class, classic C-, E-, and Sclass, roadsters and coupes SLK, SL, CLK, CL, SLR, and CLS, and off-roaders M- and G-class). The company is expected to launch its R-class sports station wagon in 2006. Mercedes-Benz star decorates the grill of multi-purposeTable IV Initial mechanical quality of selected Mercedes-Benz models
Model C-Class E-Class S-Class M-Class Total *s a *s above minimum possible 1998 **** ***** ***** **** 18 10 1999 **** **** ***** **** 17 9 2000 **** ***** ***** **** 18 10
vehicles, campervans, vans, buses, trucks, and Unimog vehicles for extreme conditions. Smart cars have had a signicantly negative nancial effect on the Mercedes Car Group (Smith, 2005). In April 2005, it was announced that the Smart division would eliminate two out of its four models and lay off 700 employees; a restructuring charge of 800 million Euros was taken in early 2005 (BBC, 2005a). It was believed that Smarts problem was not the vehicles lack of appeal but its high production and distribution costs (Landler, 2005). At the same time, Mercedes recalled the largest number of vehicles in its history 1.3 million to modify braking systems on E-, SL-, and CLS-class cars built since July 2001, the voltage regulator in alternators in six and eight cylinder vehicles built between June 2001 and November 2004, and the battery unit software in E- and CLS-class models made from January 2002 to January 2005 all of which occurred during the new era of parts commonality across brands.
Case 3: Saab
In April 1937, a new company, Svenska Aeroplan Aktiebolaget (Swedish Aeroplane Stock Company), later to be known as Saab, was founded in Trollha ttan in response to governmental support for the establishment of a national defense industry in Sweden. Within a few months, the company launched licensed production of the Germandesigned Junkers medium-heavy bombers for the Swedish army. The company rapidly established itself as a success in the military aircraft industry. However, the approaching end of the Second World War implied that if the company wished to continue operations, a search for new market opportunities in civilian sectors would be in order. In 1946, the company introduced a passenger car, the Saab 92. The rst Saab car was a true eye-opener, both technically and aesthetically. Since December 1949, when the rst bottle green Saab 92 left the production line in the Swedish provincial town of Trollha ttan, almost four million Saab cars have cruised roads worldwide, symbolizing luxury, safety, and innovativeness. Saabs were the rst cars with standard turbocharged engines (1978), heated front seats (1971), dual-circuit brake systems (1963), halogen headlights (1969), side-impact bars (1972), CFC-free air-conditioning (1991), and headlamp washers (1970). Since then, many things have changed; nowadays the marque is battling to retain its very nature. Production in the 1970s peaked at 90,000 annually before falling back to 65,000 in 1980. A new, still-standing annual
2001 *** ***** ***** *** 16 8
2002 *** ***** **** ** 15 7
2003 **** ** *** *** 12 4
2004 *** *** ** **** 12 4
2005 *** **** *** ** 12 4
Notes: ***** among the best, **** better than most, *** about average, ** the rest (there is no single * rating); a maximum possible 20 *s; minimum possible 8 *s Source: Data from J.D. Power Consumer Center (2005)
113
record was reached in 1987, when 134,112 cars rolled off the production lines. In addition to Trollha ttan, by 1990 Saabs had also been assembled in Linko ping, Arlo v, Malmo (all in Sweden), Mechelen (Belgium), and Nystad/Uusikaupunki (Finland). At the end of the 1980s, the high-end car market was increasingly important, protable, and attractive. Smaller car manufacturers were on the block worldwide. Fiat bought Alfa Romeo; Chrysler bought Lamborghini; GM acquired Lotus; Ford took over Jaguar. Simultaneously, the Saab-Scania division of the Saab Group declined negotiations with Mazda over possible cooperation in 1989, instead signing an agreement with Fiat. Disappointed but enlightened by its failed Jaguar courtship, GM started secretly dating Saab. Surprised and bewildered Fiat was suddenly left out of the game and GM became a half-equity partner in the newlyestablished joint venture Saab Automobile AB in 1990. Saab Automobile AB was placed under the exclusive management of General Motors Europe in Zu rich (Switzerland). However, both joint venture partners subsequently claimed continuous disappointment with company performance and corporate governance. By the end of 1998, Saab Automobile ABs cumulative decit had reached $2 billion, and additional infusions of capital and loans from its two shareholders totaled $1.45 billion. In January 2000, GM decided to exercise its option to buy the remaining 50 percent share. The acquisition was completed for $125 million, which indicates just how sharply the companys value had dropped when compared with the rst half bought by GM for $500 million ten years earlier. GM, as a new owner, chose to target a new kind of customer. GMs idea was to build another BMW, but 18 months after acquisition, GM admitted that Saabs would never be like the vehicles from Munich (Flint, 2002). Instead, it decided to ramp up production, from 1990s 100,000 to a target of 250,000 annually. Under GM ownership, the Saab 900 was introduced in 1994, based on the Opel Vectra. It handled clumsily, suffered alarming quality lapses and was later reported to have done poorly in Swedish crash testing (Kitman, 2004). A refurbished Saab 900, designated Saab 9-3, was introduced in 1999 with over 1,100 improvements and changes in reaction to the previous non-Saabish model. The 9-5, introduced in 1997 and still being manufactured in 2005, is based on Opel platforms as well. The 9-5 retained the companys classic center-console ignition switch which some critics scoffed was the sole remaining distinctively Saab characteristic in this model. Hopes to lift annual production were voiced several times during the GM era. In 2001, Saab predicted an annual output of 230,000 to 250,000 vehicles by 2006 (Burt, 2001b). In 2002, GM revealed 135,000 to 200,000 as an optimal target for the next ve years. However, annual production remained steady with an average of 124,000 units assembled annually from 2001 to 2004 (International Organization of Motor Vehicle Manufacturers, 2005). With reduced R&D expenditure, Saab introduced fewer innovations since 1990 (seats with active head restraints and internal fans, with the Alcokey alcohol-sensing ignition system being tested). In 2003, GM eliminated the 1,300 engineers and designers at Saabs headquarters. The engineering department merged with GMs Opel-Vauxhall operations and was relocated to Ru sselsheim (Germany). As a result, Saabs head designer quit, joining Porsche (which remained 114
an independent, performance-focused, luxury brand). GM Europe conrmed integration of its sales and marketing ofces for Opel, Vauxhall, and Saab in several European countries at its Zu rich headquarters in mid-2004. The entirely new Saab 9-3 was designed mainly by Opel, and released in 2003; it shares a common platform with the Opel Vectra, Pontiac G6, and Chevy Malibu. The 9-3 sedan features a unique rear suspension which makes driving sportier; this seems to be a substantial engineering differentiation, but within GM it is treated as an example of how things should not be done (Simister, 2004b). GM shifted production of the Saab 9-3 Convertible from Finnish Uusikaupunki to Austrian Graz, where Magna Steyr AG & Co KG became responsible for the entire development and production process. This was the rst convertible produced by Magna Steyr, which had purchased the production facility in Graz from DaimlerChrysler just a few months earlier. The plant also assembles Jeep Grand Cherokee, Chrysler PT Cruiser and Voyager, and Mercedes Benz E-, M-, and G-class automobiles for DaimlerChrysler. Saabs lineup was traditionally limited to sedans, station wagons, and convertibles. Like most luxury brands, it had never offered sport utility vehicles (SUV) or four wheel drives which are driving demand in the U.S. Because that market is the most important one for the Saab brand, the small four wheel drive Saab 9-2X was introduced to the US market in June 2004 as a reaction to the similar Audi A3, BMW 1 series, Volvo S40, Mercedes A-class, and Jaguar X-Type, the entry-level models of otherwise upper-class manufacturers. The 9-2X is a slightly upgraded Subaru Impreza WRX sedan and wagon built in Japan by Fuji Heavy Industries (of which GM owns 20 percent). It is a good example of a car that Saab might have offered today if it had had enough nances in the 1990s light weight, quiet, high powered, with excellent road holding capabilities and rm handling. Journalists promptly relabeled the new model Saabaru it has a Subaru engine, a Mitsubishi turbocharger, and a ve-speed manual transmission, yet manages to maintain a kind of Saab solidity and style (Ford, 2004). Broadening Saabs brand appeal (GM, 2004), the 9-7X SUV joined the Saab eet in the USA in 2005. This model is a restyled Chevrolet TrailBlazer built in Ohio; it cannibalizes other GM SUVs such as the Buick Rainier, Cadillac Escalade, GMC Jimmy, GMC Envoy, and Isuzu Ascender. The 9-7X features a non-turbo-charged six- or eight-cylinder engine and the obligatory Saab-style center ignition. Saab Cars USA recorded sales success in 2003 with 47,914 Saab 9-3 and 9-5 sold. It was the best year in Saabs history in the US auto market, surpassing the previous best year of 1986. Although 2004 sales declined signicantly, 2005 rebounded, heading for gures similar to 2003 (Auto Channel, 2005). In 2004, Saab Cars USA head ofce relocated from Norcross, Georgia, to GMs world headquarters in Detroit (Atlanta Business Chronicle, 2004). The president of Saab Cars USA commented:
As is true for Cadillac or Hummer, Saab will retain its unique brand identity and heritage, and continue to provide its customers the same excellent ownership experience.
Under GM, Saab Automobile AB has recorded almost only losses (except for 1994 and 1995, when small prots were achieved). In 2002, GMs estimated total bill for Saab was around $4 billion (Flint, 2002). In September 2004, GM
announced further downsizing of its European operations, with the most vulnerable plant identied as the Saab plant in Trollha ttan. When the knife nally fell in March 2005, Ru sselsheim (Germany) won manufacturing of all mid-sized Opels and Saabs, with a reduced Trollha ttan factory retaining other Saab models and gaining a new model Cadillac (BBC, 2005b; Deutsche Welle, 2005).
Discussion
Building on the notion of luxury brands, it can be concluded that all three of the examined brands lost part of their luxury as a result of a merger or acquisition among companies with divergent administrative heritages. All three marques encountered overwhelmingly negative effects on two of the objective luxury dimensions of conspicuousness and uniqueness identied by Vigneron and Johnson (2004). Luxury car brands and luxury car buyers cannot be treated as mass-market goods and consumers; the distinguishing feature of both the cars and their purchasers is that they are not average. While mass-market owners salivate at the potential for proting from the de-customization of their luxury brand acquisitions, the buyers of such vehicles reject any attempts to impinge on the distinctiveness and quirkiness of their brands. Platform sharing is seen as one of the greater evils (termed prostitution by one commentator (Kerwin, 2004)). Vigneron and Johnsons third objective dimension of luxury, quality, evidently decreased at both Mercedes-Benz and Saab. In the case of Jaguar, however, the sharing of engines and component suppliers with other Ford brands has actually increased Jaguars quality ratings in recent J.D. Power (2004) annual new-car evaluations. The relationship between function and price has been termed rarity value (Kapferer, 2001) or exclusivity (Nueno and Quelch, 1998). Jaguar, Mercedes-Benz, and Saab all tried to ramp up sales gures through models with a higher ratio of function to price and the addition of some unusual models (e.g. the Saabaru, Jaguar station wagon, and the MercedesBenz M Class), together with economically-grounded platform and parts sharing, which increased their affordability. Increasing affordability has an inverse effect on uniqueness and conspicuousness, thereby diminishing perceived luxury. The net effect of such strategic decisions has been brand corrosion. From a brand management perspective, it is difcult to justify acquisitions such as those of Saab by GM or Volvo by Ford. Saab was a niche player and not regarded as a worldwide luxury brand. With a lot of work Saab might break even. And can Ford expand Volvo enough to recoup all its costs, and can it avoid encroaching on Jaguars customers? (Flint, 2004). Additionally, Ford has recently strongly advised Aston Martin to switch from a boutique to a mass-production strategy and increase volume signicantly (Priddle, 2004), while Fiat has called for greater parts sharing between Alfa-Romeo and Maserati (Green, 2005), following advice from Fiats erstwhile strategic partner GM. Although making perfect sense from the perspective of mass-marketers, such prescriptions are anathema to the administrative heritage and therefore the philosophy, strategy, and organization structure of the established niche luxury brand manufacturers. Combining mass and niche products would presumably result in losing the niche image. In 1960, a brand new Mark II 115
(the smallest saloon produced by Jaguar at that time) was sold at one-third the price of a Ferrari (sole model), while the 2004 X-Type is priced at less than one-fth of the least expensive contemporary Ferrari (the Modena). Devaluation of a brand through a lower pricing strategy will result in image erosion and will decrease the brands potential (Greyser, 1999). A luxury brand will typically attract diverse buyers who are not loyal to a particular marque over a sequence of purchases, but who remain loyal to the luxury segment (Ehrenberg et al., 2004). This leads to the potentially deceptive assumption that attracting new customers while losing existing ones should not necessarily be seen in a negative light. Perhaps Ford has seen the light with respect to Jaguar, enhancing quality while increasing sales to a potentially sustainable level, despite some mis-steps (Kerwin, 2004). From tens (or even hundreds) of car producers in each industrialized country at the beginning of the twentieth century, only about a dozen global players remain today. The manufacturer of the rst patented automobile is still in business, a survivor in a graveyard littered with once-famous, once-protable, once-independent symbols of industrial power. Its Mercedes-Benz brand has traditionally been the car of preference for heads of state, the rich, and the famous. Nowadays, the Mercedes division accounts for the bulk of the value of DaimlerChrysler, the fourth-largest car maker in the world by value (sixth by volume). However, Mercedes-Benz is in trouble. Quality and reputation difculties have tarnished the brand, and it is becoming conceivable that arch-rivals BMW and Audi will surpass the three-pointed star in sales volume in the near future. Much of the blame lies with aftereffects of the Daimler-Chrysler merger, in particular the sharing of platforms, major components, and suppliers across brands. The underlying reason for sharing is cost reduction through enhanced scale and scope efciencies, which appear advantageous until examined from a luxury branding perspective. Exclusivity and compatibility may well be mutually exclusive. Sporting a similar administrative heritage to both Jaguar and Mercedes-Benz, Saab focused rst on innovation and distinctiveness in design, with a side emphasis on safety. While the rst two rough edges have been smoothed out by association with General Motors, the industry has responded to a multitude of governmental requirements for enhanced safety, making many of Saabs inventions standard practice. Without the compassionate largesse of an abundant research budget and an independent design facility, Saab will not regain its traditional uniqueness, thereby corroding the brand to the point where its continuation cannot be justied in an admittedly overpopulated stable. Limitations and suggestions for further research The three examples presented here are not pervasively representative, and therefore cannot claim to produce a generalizable theory. These brief overviews do, however, exhibit consistency with each other and among the notions of luxury brands, administrative heritage, and brand corrosion. Subsequent research, including examination of other brands (both within the automobile sector and in other markets) that have undergone similar and dissimilar transformations in ownership, may serve to conrm or negate the directions indicated here. Longitudinal studies with consistent empirical measures would be particularly appropriate.
The arena of competition among luxury automotive brands is undergoing rapid change, both in terms of consolidation of established marques and in the entrance of new ones, particularly from East Asia (which will doubtless be the launchpad for a number of new premium badges in the next decade). Reversals of fortune are by no means excluded; likewise, the current owners of the brands described here have increasingly demonstrated awareness of the issues they must address if they are to prot from their expensive purchases, and some changes in strategy should be evident in the near future. In a market as dynamic and economically dominant as the automotive industry, no possibility should be excluded lightly. Numerous questions arise directly and tangentially from the summaries presented here, affording multiple avenues for further research. For example, why are the images of many European premium brands languishing under the stewardship of the American giants despite widely-acknowledged quality improvements in makes such as Jaguar? Why do Japanese carmakers prefer to develop their own luxury badges instead of acquiring or merging with an established make? Why do German car companies apparently excel at creating luxury models and brands? Why do the French the world headquarters of luxury brands (Dubois and Paternault, 1995) neither acquire nor offer any luxury automobile brands at all? Which path will the Chinese and Koreans choose, once they stop emulating foreign models? Given the scale and traditional leadership of the automotive industry, how far can conclusions from this sector guide strategic decisions in markets for other goods and potentially services? These questions focus on the impacts of administrative heritage and country-of-origin effects, and deserve investigation by international business as well as marketing researchers.
References
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Conclusion
The lump sum expenditure for a car forces customers to be wise, to compare, and to distinguish among diverse marques in the search for their desired ratio of function to price. Component sharing enhances production and purchasing efciency but dissipates uniqueness. This is threatening for distinctive smaller brands, which are subsumed in the portfolios of giants who intend to charge extra for little more than image. Volkswagen customers have realized that they can buy the same features and quality for less money if koda or Seat (Stones, 2004). The the car is branded as a S same logic inherently applies to dyads such as Saab and Opel, Jaguar and Ford, or Mercedes-Benz and Chrysler, where some of the latter brands top models now sport the vaunted engines of the former (and are selling accordingly). Struggling between reaching a critical mass and still appealing to customers as special, distinctive, and unique poses a dilemma. Luxury brands must fascinate one group of customers and give legitimacy to another (Dubois and Duquesne, 1993). As identied by the head of Fords Premier Automotive Group, mass-market luxury is an oxymoron (Kerwin, 2004). Premium car makes cannot be treated as average brands by mass-producers, since they attract non-average buyers. Post-acquisition attempts by mass-market owners to adjust new models of a premium marque to the prevailing platform- and parts-sharing logic without due respect to their distinctive traditions and administrative heritage constitute an attack on the very nature of the brand, inevitably leading to brand corrosion.
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description of the research undertaken and its results to get the full benet of the material present.
The dilution of deluxe automotive brands The automotive industry is going through a period of global consolidation. The resulting mergers and acquisitions can be a source of innovation. Certainly to compete very large research and development budgets are needed, together with global distribution infrastructure. Automotive brands account for almost ten percent of the worlds most valued and respected global brands. The car has a central role in many lives and is generally associated with much, much more than being a mode of transport. Toyota has just passed Mercedes in being adjudged the most valuable automotive brand. In previous decades Ford was always top. Volkswagen (VW) too is in decline when judged on brand value criteria. A new victor has emerged and to them will go the spoils. Much of the ongoing industry consolidation process is focused on buying up brands. Most new products are in fact brand extensions, be it the Toyota Corolla, VW Golf or Ford Mustang. It is a safe way to proceed and has brought many nancial benets in relatively quick time. There is a downside though. Brand dilution is one of the most signicant concerns for automotive brand managers. Success in introducing new models, particularly in entrylevel extensions to prestige brands are beginning erode consumer perceptions of luxury and performance. In related case studies focusing on Jaguar, Mercedes-Benz and Saab, researchers Strach and Everett have focused on the postacquisition impact of mass marketing on prestige brands. From distinctive boutiques to the supermarket shelves The overwhelming majority of the worlds most prestigious automotive brands rest now in the hands of the largest companies. Since the 1980s the ownership of such premium marques as Rolls Royce, Bentley, Ferrari, Maserati, Lamborghini, Bugatti and Lotus has changed, becoming part of the portfolios of the dominant mass-market manufacturers. Similarly, the less exclusive brands of Jaguar, Aston Martin, Volvo, Alfa Romeo and Saab have found themselves under new management. The luxury car segment is on the march. According to Mintel research it accounted for 5 per cent to 7 per cent of total car sales in the years leading up to 1996, but since then has grown by 17 per cent annually each year between 1997 and 2002. Luxury cars accounted for over 10 per cent of car sales in the rst half of 2003. By 2009 it is anticipated that the luxury car segment in North America alone will rise by a further 69 per cent to 1.26 million vehicles sold annually. It is a growing market, against a backdrop of difcult times in other segments, and the margins happen to be good too. Some marriages have been instantly difcult. British sports car manufacturer Lotus was acquired initially by Toyota. Engine technology was absorbed by Toyota before the brand was sold to General Motors (GM) who passed Lotus across to Proton of Malaysia in near bankruptcy. GM-owned Bugatti suffered a similar fate before being passed along to VW. Lamborghini too has been passed along, being initially acquired by Chrysler before being sold to an Indonesian group. 119
Corresponding author
M. Everett Andre @business.otago.ac.nz can be contacted at aeverett
Executive summary
This executive summary has been provided to allow managers and executives a rapid appreciation of the content of this article. Those with a particular interest in the topic covered may then read the article in toto to take advantage of the more comprehensive
Insights from Jaguar, Mercedes-Benz, and Saab There has been apparent success for others though. The mass-market automotive manufacturers have thrived, when they have thrived, on meeting the needs of, well, the massmarket. On the surface, investments in new models, new processes and new equipment are yielding strong dividends. For Jaguar, since coming under Fords ownership as part of its Premier Automotive Group that includes Land Rover and Volvo, sales have grown from 49,500 vehicles in 1988 (the year before the Ford takeover) to 120,570 vehicles sold in 2003. The gures hide a performance that has been far from linear in its growth. Sales dipped to just 22,478 cars produced in 1992, and even a massive investment in the production facility did not see them rise particularly quickly. It was only by 1998 that results began to signicantly improve. The creation of DaimlerChrysler, combining the transatlantic giants of Chrysler and Daimler-Benz, created an automobile company valued at $75 billion in 1998. Turbulence has followed, and Daimler-Benz had to divert talent and resources to troubled Chrysler and Mitsubishi brands. The creation of the Mercedes Car Group as a division of Daimler-Chrysler provided the focus to the management of the prestige brand, but has seen customer satisfaction decline very rapidly. Chief among the problems is one of quality. Mercedes are currently playing catch up as they try to regain their reputation. Saab has worked with a number of partners in recent decades, often sending out mixed signals to potential suitors. Under GM ownership attempts to broaden Saabs appeal have tended to be problematic. Essentially Saab models have been based squarely on existing GM ones. For customers, much of the Swedish distinctiveness has gone.
Prestige brands dilution factors The big automotive players have often achieved good sales volumes with their prestige brand acquisitions, yet for customers things do not seem quite the same for their brand, brand relationships often going deep. Among the diluting factors are: . Platform sharing, which has been termed prostitution by critics. Quality ratings may go up, as they have for Jaguar, but still the image of the brand is diminished. . Rarity value, the relationship between function and price, is increasingly a factor. Increasing affordability is diminishing uniqueness. . Combining mass and niche products the large selling entry-level models with small volume high prestige offers eats away at the niche image. It should be noted that without large scale investment and collaboration with the major automobile players, then good old fashioned motoring brands may have gone to the wall, new models requiring the sort of capital investment that is only available with international sales. However, in achieving lasting benets, the new owners must look hard at their brand management strategy. In the world of the prestige automotive brand heritage matters, uniqueness matters, character matters. . . which means that a few rough edges, well they are just part of the pleasure. cis of the article Brand corrosion: mass-marketings (A pre threat to luxury automobile brands after merger and acquisition. Supplied by Marketing Consultants for Emerald.)
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Brand Corrosion: Mass-Marketing's Threat To Luxury Automobile Brands After Merger and Acquisition

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Brand corrosion: mass-marketings threat to luxury automobile brands after merger and acquisition

Brand corrosion trach and Andre M. Everett Pavel S

Brand corrosion trach and Andre M. Everett Pavel S

Brand corrosion trach and Andre M. Everett Pavel S

Table I Luxury brands of the top 12 auto manufacturers

Notes: a PriceWaterhouseCoopers (2005); b International Organization of Motor Vehicle Manufacturers (2005)

Table II Most valued global car brands (2000-2005, $ millions)

Brand corrosion trach and Andre M. Everett Pavel S

Table III Six stages of brand development

Acura, Hummer, Inniti, Land Rover, Lexus, Lincoln

Alfa Romeo, Aston Martin, Jaguarb, Maserati, Mini, Saabb, Volvo

Audi, BMW, Cadillac, Lamborghini, Mercedes-Benzb

Bentley, Bugatti, Ferrari, Maybach, Rolls Royce

Brand corrosion trach and Andre M. Everett Pavel S

Brand corrosion trach and Andre M. Everett Pavel S

Brand corrosion trach and Andre M. Everett Pavel S

2001 *** ***** ***** *** 16 8

2002 *** ***** **** ** 15 7

2003 **** ** *** *** 12 4

2004 *** *** ** **** 12 4

2005 *** **** *** ** 12 4

Brand corrosion trach and Andre M. Everett Pavel S

Brand corrosion trach and Andre M. Everett Pavel S

Brand corrosion trach and Andre M. Everett Pavel S

Brand corrosion trach and Andre M. Everett Pavel S

Brand corrosion trach and Andre M. Everett Pavel S

Brand corrosion trach and Andre M. Everett Pavel S

Brand corrosion trach and Andre M. Everett Pavel S

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2001 * * * * 16 8

2002 * * 15 7

2003 ** * * 12 4

2004 * * ** 12 4

2005 * * ** 12 4