I recently read an article from the online version of BusinessWeek entitled, "Luxury Cars Losing Luster?" The picture at the right is an automobile of the super luxury class called a Maybach. It is produced by Mercedes Benz, which is owned by DiamlerChrysler, and can be purchased for a mere $1.4 million. This vehicle leads the pack as one of 2007's most expensive super luxury vehicles. This automobile is designed to be the answer to pulling up luxury car sales from a slump. The article states that in the 1990's many of the car manufacturers were looking to release models into the super luxury market (over $100,000 in price) due to the economic prosperity being experienced at the time. But, even despite record pay bonuses, sales even the luxury class sales have drifted downward. How can offering a more expensive product attract more customers? The answer given by car manufacturers to cure lack luster sales is the super luxury class, which will concentrate on great design and the feeling of exclusiveness for the buyer. The introduction of a super luxury class basically boils down to product differentiation. Each car manufacturer is trying to gain monopoly power by making the most exclusive automobile. But, can the market support rising price tags and unlimited customization? Or, will a super luxury class further dampen sales for luxury vehicles? In theory the product differentiation strategy should work to the advantage of luxury car manufacturers, but only time will tell. What do you think?
5 comments:
I don’t much about high-end luxury cars (I am a SUU student). But as the article says the market depends mainly on exclusivity. If car makers are able to convince consumers they are getting a rare exclusive model than I think the market will do just fine. There are plenty of rich people willing to pay 100 grand for a car but they need to feel like the only one buying it.
-1 on Aaliyah for a couple of grammatical errors.
This seems pretty reasonable to me. Just remember that differentiation is not a way to create sustainable economic profits.
I think that luxury cars are really sexy!
Dr. Tufte said that “. . . differentiation is not a way to create sustainable economic profits.” This made me think, “How do you create sustainable economic profits then?” Obviously costs need to be lower than revenue. Yet, what happens if we have a great system set up in manufacturing, good suppliers, economies of scale, and overall low costs, but no one wants to buy from us because our profit is just like everyone else's? I have always heard that differentiation was key. Further information would be helpful to better understand the underlying factor to create sustainable economic profits. Thanks!
The key word is sustainable. Differentiation can create economic profits, but it needs to be combined with some barrier to entry to be sustainable.
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