Hyundai's Big Branding Conundrum

Luxury is about image as much as quality. You don't just want to experience the finer side of life?you want to be seen wearing it or driving it, too. This is part of a luxury carmaker's allure, but for companies trying to make inroads into the luxury market, the lack of any previous luxury association can be a formidable challenge.

So consider the plight of Hyundai, which for years has been doing an excellent job of cleaning up its once-derided brand name here in the U.S. (Remember Alec Baldwin's famous tirade in Glenngarry Glen Ross? "You drove a Hyundai to get here tonight, I drove an eighty-thousand-dollar BMW.") Today the company has a new problem: How should it incorporate the Equus and Genesis luxury sedans into its product lineup?

A Hyundai and Not a Hyundai

Five years ago, when the Korean automaker introduced its rear-wheel-drive Genesis sedan, the luxury car was a departure from the company's lineup in both substance and styling. Then, in 2009, it introduced the coupe version of the Genesis. Where the Genesis sedan was priced and marketed as a luxury vehicle, the coupe targeted affordable performance along the lines of the V-6 Ford Mustang. The coupe also looked a little more like the rest of the Hyundai lineup than the sedan did. A year later, Hyundai brought stateside the Equus, a larger, more luxurious version of the Genesis intended to become the company's flagship vehicle. But the Equus didn't quite look like a Hyundai?it wore the car's V-shaped Korean logo on the nose, wheels, and the interior, rather than the stylized Hyundai H.

To consumers, all of this brand differentiation might be confusing, but Hyundai was hedging its bets. Toying with creating its own luxury sub-brand (e.g., how Toyota owns Lexus), Hyundai wanted both sedans to have a more premium aesthetic that was separate from the core brand. (As for why the coupe shares the Genesis name?well, that was never fully explained). Until last year, Hyundai was still debating internally whether a luxury sub-brand was a good idea.

Not anymore. According to Derek Joyce, product public relations manager for Hyundai, the carmaker has completed its research and decided a separate luxury sub-brand is off the table. "We've had really good success with Equus and Genesis basically bolstering our whole model lineup?the whole Hyundai lineup?in terms of customer satisfaction," Joyce says.

Both cars have exceeded Hyundai's expectations. In 2012, Genesis coupe and sedan sales hit 33,973 units, and Equus sales, which started in 2010, reached 3972 in 2012. Joyce said Hyundai had hoped to sell just 2000 to 3000 Equus models per year.

Citing examples such as Toyota and Lexus, Nissan and Infiniti, and Honda and Acura, Joyce says that separate luxury brands can provide special services and showrooms that result in high buyer satisfaction rates, but the core brand doesn't really see any big benefits. For Hyundai, it makes more sense to keep the Equus and Genesis in its own lineup rather than lose its clout and enter a competitive luxury market with an all-new luxury brand.

Yet Hyundai's decision to not spin off a separate luxury sub-brand also presents a dilemma: Should Hyundai work to assimilate the two sedans and any future luxury models into its core lineup, or let them exist as brand outliers? Stand directly in front of a Genesis sedan and there's no way to tell it's a Hyundai (or any brand, for that matter?the wheels and the rear sport Hyundai logos but the nose is completely clean). Standing directly in front of a Hyundai Equus, with its special V-shaped logo, is even more confusing. (You'll find the stylized Hyundai logo only on the rear.)

This brand confusion also carries over to the dealerships. Joyce says most dealerships sell the Genesis and the Genesis Coupe, but the Equus is available only at select high-volume dealers that preferably also have space for a separate showroom. Without going inside or calling up your local dealership, there's no way to know if it carries either car. (In addition to the showroom, there's a premium program for the Equus that entails specially trained sales representatives, special delivery for test drives, and maintenance pickup. Joyce partially credits this program with the Equus' success.)

Rolling Billboard

If the whole point of keeping these cars within Hyundai's lineup is so that the brand can benefit from a halo effect, then why make them feel so separate? With the refreshed Equus, revealed at this year's New York International Auto Show, Hyundai has maintained the car's brand aloofness. "Those cars cost a little bit more, they're more premium, and we want to give them a special look, a more premium look," Joyce says. "So we're trying to do that." The thinking is that if people are intrigued by either car, they'll seek out the badge and be pleasantly surprised when they find out it is a Hyundai.

This surely happens, but it's also expecting a lot from a consumer who's more distracted than ever. The last time I drove a Genesis sedan, bystanders praised the car but had no idea what it was?and they probably never would have bothered to find out. I've seen similar situations with the Equus.

When most people can't identify a car, it means the carmaker is missing the opportunity for word-of-mouth praise. A car is a rolling billboard for a brand, and making someone search for a logo is bad business. The fact that both Hyundai sedans ape some styling cues from a certain Germany luxury carmaker (cough, Mercedes-Benz, cough) doesn't help.

There are two historical precedents that Hyundai should be worried about here. First, the Mazda Millennia. In the early 1990s, Mazda was going to launch a luxury Amati brand to compete with Acura, and the Millenia was to be its flagship. But the company decided against it and allegedly passed the savings along to the customer. Despite positive reviews, the Millennia died after one generation (10 years long, mind you) and was always a bit of an oddball in the lineup, overlapping with similarly sized and priced models. The other example is the VW Phaeton, which still exists in Europe but was a tremendous flop in the U.S. A luxury, super-expensive Volkswagen was just too much of a stretch for buyers who saw VW as the affordable German car company.

Although neither the Genesis nor the Equus sedans are as costly as the Phaeton, they currently exist in a branding limbo. To avoid the Millenia's fate with its own premium cars, Hyundai should consider badging the cars more prominently and strengthening their brand association. While the Phaeton was a huge leap compared with the rest of VW's showroom, the Genesis and Equus are a reasonable progression price-wise from other models, and still reflect the brand's emphasis on value. And Hyundai has sold enough of both to dispel any worries about consumers balking at a Hyundai-made luxury vehicle.

Furthermore, Hyundai will most likely bring the Equus-based Kia Qourus luxury sedan to the U.S., and it would undoubtedly carry the Kia nameplate. If such a move is good for Hyundai's sister brand, why not do the same for both? Hyundai is missing out on important brand equity by not taking greater ownership of two very solid cars.

Source: http://www.popularmechanics.com/cars/news/industry/hyundais-big-branding-conundrum-15539113?src=rss

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