- The Washington Times - Thursday, June 1, 2006

Alfred P. Sloan, who died in 1966, should be glad he can’t see this. The relevance of his marketing creation, General Motors’ ladder of brands, seems to have gone the way of the defunct Oldsmobile.

Created in the 1920s, the ladder of brands was a way to keep car buyers within General Motors by having its less-expensive brands feed customers to its more expensive brands.

“The logic Mr. Sloan used is that as people get older and have more money, they would trade up,” said Tom Libby, senior director of industry analysis at J. D. Power and Associates, Power Information Network.

Other companies, notably Ford, followed GM’s example, Mr. Libby said. Mr. Libby looked at a year’s worth (2005) of Power Information Network trading data to see whether the “trading up” concept still exists.

“It clearly does not,” Mr. Libby said.

That data show that only a handful of owners of any given brand trade up to a more prestigious brand within the same corporation. The major exception is Scion owners. A whopping 28 percent of them trade up to a Toyota. Scion is Toyota’s youth brand, created to attract young buyers and keep them as they move up the automotive food chain.

Next to Scion, the highest number of owners who trade up within the same company is Mini. Almost one in 10 Mini owners, 9.1 percent, trade up to a BMW.

Why is trading up important? Well, there is that well-known marketing maxim that it costs more to attract new customers than it does to keep the ones you already have.

“So whether they trade up, down or sideways is not important; but it is important financially that they trade within the same corporation,” Mr. Libby said.

The data showed that only 1.8 percent of Toyota owners traded up to a Lexus; 2.4 percent of Honda owners traded up to an Acura; 0.9 percent of Nissan owners traded up to an Infiniti; 1.4 percent of Volkswagen owners bought an Audi; 1.5 percent of Ford owners bought a Mercury and only 0.6 percent went for a Lincoln. Within General Motors, only 2.4 percent of Buick owners and 1 percent of Pontiac owners traded to a Cadillac. These brands do have loyal customers, which makes the reluctance to move up within the same company somewhat perplexing.

When Toyota owners buy another vehicle, more than half (53.9 percent) buy another Toyota. Almost half of Ford owners (48.19 percent) trade to another Ford, according to J. D. Power data. They are trading sideways, so how important is it that owners aren’t trading up to a luxury-branded Lexus?

“When they do trade up, I would think they would want Toyota people going to Lexus instead of Mercedes,” Mr. Libby said.

Mr. Libby thinks the reason more people aren’t trading up within the same corporate family is because the market is fragmented and there are just so many choices. Niche brands such as Hummer, Porsche, Land Rover and Jeep didn’t exist in Sloan’s day, Mr. Libby said.

A wide range of models are available from nonluxury brands in terms of body styles, prices, powertrains and features. These days consumers are more likely to find the luxury they want without buying a luxury nameplate. The Toyota Avalon, the Nissan Maxima, and the Ford Five Hundred all offer options that once were available only on luxury vehicles, Mr. Libby said. In addition, some brands have suffered a decline in brand image because of a weak portfolio of products, Mr. Libby said.

“So you have a Ford owner who can afford a luxury vehicle, there is a lot more to look at — BMW and Lexus — than there is at Lincoln,” Mr. Libby said.

Strong product is important. It is the reason Mr. Libby thinks 6.1 percent of Dodge owners trade to a Chrysler, which has appealing, competitive products, such as the 300 sedan and Town & Country minivan. “If the strategy is to keep a customer and have them go from Brand A to B and C, then I think the situation is not as good as they want it to be,” Mr. Libby said. All of this calls into question the relevance of a ladder of brands these days.


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