Future of the Global Luxury Vehicle Market Brand Differentiation and Competitive Pressures to Revolutionize the Luxury Vehicle Market by 2020

M975-18 June 2014

Executive Summary

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Executive Summary—Key Findings Growth of luxury vehicle sales is set to outpace growth of the mass-market vehicle sales, with luxury expected to account for 10% of the global automotive market by 2020.

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In an increasingly competitive space, OEMs are exploring new means of differentiating their brand, and the study finds that new brand attributes and positioning will propel the market.

2

To expand market share and improve profitability, traditional mass-market brands (e.g., Hyundai, Ford, and Fiat) are attempting to expand their portfolio with the launch of premium models, such as the Genesis, the C6, Avantime, and Ford’s upcoming Vignale brand. Chinese brands are to follow.

3

Size is no longer one of the key definitions of a luxury vehicle. There is a growing market for smaller, fuel-efficient luxury cars. The compact segment is expected to be one of the fastest-growing luxury car segments, growing by 70% to reach close to 3 million sales globally by 2020. • To build sustained brand loyalty, luxury OEMs are targeting Gen X and Y with more compact, sustainable, high-tech cars; for example, Mercedes CLA, Audi A3, BMW 1 series. • The premium suburban utility vehicle (SUV) and crossover market is one of the hottest segments, accounting for approximately 23% of global luxury sales.

4

Connectivity and autonomous driving are evolving into key parameters by which a brand will be judged in the future. The race is on to launch the first fully automated car, which is expected to hit the market by 2020.

5

The advent of eRetailling and digital technology has spurred the evolution of market channel strategy of luxury OEMs from the traditional brick-and-mortar showroom to a more sophisticated, digitally enhanced brand experience.

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In 2013, China overtook the United States to become the largest market for luxury vehicles. By 2020, China’s share of the global market is expected to grow to nearly 30%. Source: Frost & Sullivan

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Key Mega Trends that will Impact the Luxury Vehicle Market While all Mega Trends are important, the selection and ranking of these trends indicate which seismic shifts will have particular relevance in shaping the landscape of the global luxury vehicle market.

High

Smart Mobility

Big Data

Women Empowerment, Gen Y Growth of HNWIs

Bricks and Clicks*

Future of Mobility*

Health and Wellness

Low

Growth Attractiveness

Assessed based on market attractiveness in terms of revenue

Luxury Vehicle Market: Mega Trends, Global, 2010–2025

Minor

Conservative

Connected Living and Connected Car

Radical

Impact on the Luxury Vehicle Market Measured based on most impact on future products and services capabilities, resulting in new convergent and radical devices *Social trends, bricks and clicks, future of mobility, and connectivity have been independently featured in demographic analysis, future retailing, future of mobility ,and technology sections, respectively. HNWI stands for high net worth individuals. M975-18

Source: Frost & Sullivan 7

Luxury OEM Types of the Future Luxury Vehicle Market: Classification of OEMs, Global, 2013 Sports and Super Luxury Porsche

Market Leaders Land Rover

Jaguar Jaguar

BMW BM Au Audi

Mercedes

Lexus Be Bentley

Tesla

Ferrari Ferr

Volvo

Asto Martin Aston Rolls Royce Lamb Lamborghini Maserati Ma Lotus Lotu tuss tu McLaren

Affordable Luxury and Near Premium Acura Ac Hyundai Genesis

Hongqi Ho Vo Volkswagen Phaeton

Low Sales Volume*

Lincoln Li

ac Cadillac Infiniti

Alfa Romeo Mini Mid Sales Volume*

High Sales Volume*

*Sales volume within the luxury segment. Mass-market brands with premium models have been included; for example, Toyota’s Century, Volkswagen Phaeton.

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Source: Frost & Sullivan 8

How Luxury Cars will be Defined in the Future

Luxury Vehicle Market: Future Definitions of Luxury, Global, 2010–2025

New Luxury Definitions Urban Luxury Sustainable and Green Luxury Women Empowerment Individual Luxury Smart Luxury

Factors That Determine Luxury

Early Examples That Set the Trend

Cars designed for an urban driving environment to deal with pressures of congestion and parking

BMW i3 and BMW i8 (Mega city) luxury cars

Brands focused on alternative powertrains and lower CO2 emissions

Tesla Model S

Brand and vehicle model differentiated for women

Acura MDX and Volvo V40

Increased customization and limited-edition cars

Rolls Royce Wraith and Bentley Continental

Smart features in cars, such as increased connectivity, advanced human machine interface (HMI), and haptics that are intuitive.

Audi A8 and BMW 7 Series

Source: Frost & Sullivan M975-18

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How OEMs will Differentiate their Brand in the Future Focus will shift to connected mobility; automated mobility; and health, wellness, and well-being.

Luxury Vehicle Market: Future Brand Differentiators, Global, 2010–2025 Design and Styling

Driving Dynamics

Quality and Reliability

Comfort C omffortt and d Convenience

Pre-2000

Safety y

Sustainability and Environment

Automated Mobility y

Cost of Ownership

Connected Mobility

Health, Wellness, and Well-being

Today

Future Source: Frost & Sullivan

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Branding Comparative Analysis of the Luxury Brand Values Brand values are segmented into functional and emotional categories. The future might see an emphasis—from OEMs—on enriching the emotional values to build barriers to entry. Luxury Vehicle Market: Branding and Comparative Analysis of Brand Values, Global, 2013–2020

Functional

Smart Quality

Emotional

Serenity

Prestige, elegance, stylish, exclusive, smart interior, high class

Excellence Elegance

Design Performance

BMW

Attractiveness

Advanced Style Prestige

Functional

Prestige, engineering excellence, precision, technically superior, sporty, dynamic, smooth engine running, agility Audi Stylish, classy, discrete elegance, sporty, progressive, “sober” design, solid, safe, very well built, reliable, German origin

Lexus Conservative, functional, elegant, effective, Proud to own pride of ownership, consistent, clear, credible, eco-friendly

Innovation

Environment

Fun to drive

Dynamism

Safety

Sporty

Delight Efficient

Note: The list of OEMs is not exhaustive. Original M975-18

Mercedes-Benz

Well-being Conservative

Infiniti Sporty, quiet, bold, aggressive, edgy, stunning, attractive, less formal, performance, dedicated, yet with a difference Acura Attractive, smart, advance, cool, safe, excellent, quality, performance, efficient, health, cost of ownership, appropriate, sleek, early adopter Source: Frost & Sullivan 11

Attractive Attributes for the Future Luxury Customers Customer preference for traditional (hard) and future (soft) attributes is likely to influence the brand’s positioning and the target demographic. Luxury Vehicle Market: Customer Value Set, Global, 2025 Gen Y—Inherited Wealth Interior Appeal, personalization and smoothness of drive, customization, HMI, connectivity, vCommerce, and apps

Ride and handling

Body style and design

Gen Y—New Money

Size and interior space

Body style and design, ride and handling, cost of ownership, green mobility, vCommerce, apps, and infotainment

Infotainment

Cost of ownership

Gen X—Inherited Wealth Body style and design, interior appeal, size and interior space, ownership experience, autonomous driving, health/wellness, and buying experience

Buying experience Enhanced safety Apps/Internet/ network

Green mobility

vCommerce

Ownership experience

Connectivity

HMI Customization

Security Personalization and access and smoothness of drive

Interior appeal

Health/ wellness features

Autonomous driving

Gen X—New Money Interior appeal, size and interior space, security and access, customization, HMI, and infotainment Baby Boomers Body style and design, size and interior space, enhanced safety, ownership experience, autonomous driving, health/wellness, and buying experience

Women Body style and design, size and interior space, security and access, enhanced safety, HMI, green mobility, and autonomous driving Source: Frost & Sullivan

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Future Luxury Customers Luxury OEMs are set to target three major demographic segments.

Baby Boomers1

• Baby boomers' buying preferences have shifted as their lifestyles have changed. • Mercedes and BMW are brands preferred by this demographic. Other popular brands are Jaguar, Porsche, Volvo, and Lexus.

Millennials2

• Luxury spending is increasingly becoming the domain of millennials. • Millennials tend to buy a new car when they have a change in lifestyle or financial status.

• They value connectivity and view their cars as an extension of their digital and social media lifestyles.

Women

• Safety, reliability, and quality are key considerations for women. • Women are 67% more likely to prefer the crossover body style when compared to men.

1Baby 2

Boomer: Born between 1946 and 1964 Millennial: Born between 1977 and 1996

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Source: Frost & Sullivan 13

The Smart Future Retail Network The development of vertically aligned retail networks will lead to synergies between retail formats, with a luxury retail outlet in the heart of the city transforming into a strategic pillar. Global Vehicle Market: Smart Future Retail Network, Global, 2013–2020 Current (2013) Future (2020) Horizontally aligned, authorized dealer networks and lastmile deliveries with no vertical synergies

Vertically aligned retail networks with synergies between retail formats

Brand A Authorized Dealer

Brand C OEM 2 Brand D

Authorized Dealer OEM Warehouse

Brand E OEM 3

Brand F

OEM 1

OEM Warehouse

OEM 2

Brand H

Big Box Multibrand Dealer

Brand D Brand E

Brand G OEM 4

OEM Warehouse

Experience Flagship Stores

Brand C

OEM 3

Authorized Dealer

Brand B

Customer

Brand B

Customer

OEM 1

Brand A

Brand F

Small Virtual Stores

Authorized Dealers

Brand G Authorized Dealer

Suburban Areas

OEM Warehouse

OEM 4

Big Box Multibrand Dealer

Brand H

City Center

City Outskirts

OEM Warehouse

Suburban Areas Online Stores Source: Frost & Sullivan

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Key Components of the 2020 Luxury Automotive Store Luxury automotive retailers are anticipated to employ an array of technologies and sales techniques to ensure the highest brand engagement and a highly personalized customer consultation.

Interactive and Seamless

Digital Displays (three-dimensional (3-D) visuals, holographic projections) Interactive Media (gamification, augmented reality)

Digital Staff (technical experts, product geniuses) Digital Tools (tablets, 3-D glasses configurators, robotics) Interactive Rooms—VIP Customer Lounge (3-D configurator, projection system)

Experiencebased

Consultative

•

Presentation of information in visual and virtual form within a showroom; placed above the entrance area, showroom windows, and/or media wall

•

Automotive showrooms equipped with gamification to improve user engagement, data quality, timeliness, and learning

•

Augmented reality included to experience a vehicle in simulated conditions, explore, and test model features

•

Relationship managers and product experts who advise and educate customers with the aid of digital tools

•

Direct online customers through digital tools to acquire pertinent information on models, equipment, and color

•

Digital, mobile, and interactive tools to engage customers with the product, enabling exploration of an unlimited number of model ranges or configurations

•

High-tech dedicated lounges used to communicate with customers

•

Lead to next level of engagement, i.e., retailing perspective (finance, insurance) Source: Frost & Sullivan

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Future Omni Channel Retail Stores To Be More Experience-based Than Transactional Omni channel retail stores are not likely to be transactional. The highest degree of brand immersion is experience-based high-end flagship stores that convey product information through sophisticated in-store digital solutions

High

Brand Information • Mobile apps-based technology • Emphasis on relaying brand information • Ideal for urban and rural areas • No physical inventory

• Higher use of gesture-based technologies • Emphasis on creating a brand experience • Ideal for city centers • No physical inventory

Virtual Stores (Within Stores) Virtual Stores (within Stores)

Brand Lifestyle • Use of 3-D, gamification, and highresolution display • Emphasis on relaying brand philosophy • Ideal for city centers • Display of physical inventory

Mega Flagship Stores

Low

Degree of Digitization

Small Pop-up Stores

Brand Experience

Low

Online browsing

Digital kiosks

Brand theaters

AR-based information overlay

Digital configurators

Brand studios

Virtual test drives

3-D car configurators

Virtual posters

Digital display

Genius bars

Degree of Brand Immersion

High Source: Frost & Sullivan

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Increasing Investment in Data Mining and Data Analytics Luxury OEMs are investing in data mining and data analytics to provide the highest level of customer service and personalization and to enable a seamless transition from the online to the offline customer experience.

2

The technology works on multiple car configurations.

1

Customer visits an OEM/dealer Web site to look for the new car launched or to browse existing models.

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4

A QR code is generated based on the configuration.

QR code gets converted to a virtual showroom in a car dealership.

6

OEM manager receives data and information from customers around the globe and gains the ability to plan targeted marketing campaigns and to offer feedback directly to the product development teams.

5

Sales representative receives customer experience report and is advised on the next steps. Image Source: IBM, Zerolight, JaguarLandrover.co.uk Source: Frost & Sullivan 17

Luxury Vehicles—Future Differentiating Technologies Features, such as ride and handling and convenience features, are prioritized, followed by active safety, peripheral integration, input HMI controls, and interior features and vehicle personalization key. Luxury Vehicle Market: Future Differentiators, Global, 2013–2020 Connectivity—HMI and Personalization

Autonomous Driving

Comfort and Convenience • Active ventilated front seats and massage

• Capacitive touchscreens

• Map-enabled Automated Driver Assisted Systems (ADAS), including powertrain and suspension control

• Touch screens with haptic feedback

• Collision warning and mitigation using AR

• Apps or in-vehicle features to monitor air pollen levels and blood sugar levels

• Low-speed collision avoidance and emergency braking

• Long-term Evolution (LTE) and over-the-air integration

• Powertrain automation

• Wireless charging

• Top view assist, park assist, rearview camera

• Vehicle-to-Vehicle (V2V) and Vehicle-to-Infrastructure (V2I) communication

• Touchpad with handwriting recognition and gesture controls

• Driving dynamics personalization • NFC-based interior personalization (through phone)

• Autonomous Cruise Control (ACC) with traffic jam assist

• Interior lighting (mood lighting) • Laser or organic light-emitting diode (OLED)_ headlights Connected Mobility

• Integration with wearable personal devices Source: Frost & Sullivan

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Connected Car Feature Portfolio of Luxury OEMs Connected services, apps, and HMI innovations are the crucial areas where luxury OEMs are investing a lot of time and effort. Connected Services • Dynamic navigation/ Google Earth or picture navigation

Key Features

• Live traffic services • Parking reservation and payment • POI services, Google search, other real-time services

Apps • Eco-driving apps • Social networking apps • Location-based services—geosocial networking, food guides, charging station locators, etc. • Entertainment apps—Internet radio, ondemand radio, news radio • Mobility—car rental

Key Takeaway

Navigation is a commodity—smart parking-type services are crucial to integrate.

Balancing number of apps with right type of apps is critical—BMW is leader here.

Telematics Services • Emergency or breakdown services • Vehicle tracking services • Proactive diagnostics alerts • Conditionbased service scheduling • Over-the-air updates • Concierge services

Long-term customer interaction is crucial from after-sales angle—BMW teleservice.

HMI • 8- to 17-inch displays Wide Video Graphics Array (WVGA) • 800*480 to 1280*480 to 1280*600 pixels • Dual-view displays • 3-D graphics • Haptic rotary controller • Personal digital assistant • Natural speech recognition • Integrated Circuit (IC) display

12-inch-plus screens are becoming a norm with Tesla, 2014 S Class with high PPI.

Remote Convenience • Remote vehicle communication— locking or unlocking • Status check and battery range • Activating or planning charging cycles

• Parked vehicle location finder • Diagnostics information check • Interior settings— seat, lights

It is crucial, especially for electric vehicles (EV) or hybrid owners, to ease range anxiety factor. Source: Frost & Sullivan

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OEM Comparative Analysis—Automated Driving Rollout Strategy High-volume premium OEMs, typically thought leaders, are ahead of the curve in launching applications with 3-fold benefits to mitigate frustration and monotony in traffic jams, in parking lots, and on highways.

Automated Driving Market: OEM Comparative Analysis, Europe and North America, 2014–2020 Top-level Functions

Automation Level

Launch Year

First Models

BMW

Semi– Highly

2014 2017

X5 5-/7-series

Europe and North America

Mercedes-Benz

Semi– Highly

2014 2017

E-Class S-Class

Europe, North America, Australia

Audi

Semi– Highly

2016

A8

Europe and North America

Cadillac

Semi– Highly

2018 >2020

SRX, ATS, XTS

North America

Lexus

Highly

2020

LS

Japan, Europe, North America

Infiniti

Highly

2020

Q50

Japan, Europe, North America

Volvo

Semi

2015

XC90

Europe and North America

OEM

TJA1

APA2

AHD3

Region of Introduction

1

Traffic Jam Assist Automated Park Assist 3 Automated Highway Driving 2

Source: MIRA Ltd; Frost & Sullivan M975-18

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