Luxury Brands – Selling Their Soul to the Devil


The luxury car market has been expanding the base of its pyramid rather innovatively – by pushing the entire pyramid downwards. Is this the right thing to do? What are the long-term repercussions? And where will it stop?

What Defines Luxury?

It’s a question that has bothered us for long. What differentiates luxury from ordinary? Is it all just in the mind? Is it because luxury brands have fancy names based on Italian villages? Or is luxury really differentiated from ordinary by features? How does one define luxury? What are the attributes that differentiate between a luxury product and an ordinary product?

Let’s look at various industries and check the differentiation:

  1. Aviation: This is perhaps the best case of differentiation. The Business Class pampers you with larger seats, recliners and fold flat beds while passengers in the Economy class smell each other’s armpits. There is a clear demarcation with the Economy passengers not even allowed to peep into the Business Class cabin. While things like take-off & landing bumps and turbulence are common between the two classes, the Business Class passenger enjoys them more with a glass of champagne and his own 17 sq ft of cocooned luxury.
  2. Clothing: The clothing industry is also a great proponent of differentiation though they lack a ‘connect’ with the customers. Once you buy a designer suit, they don’t make you feel like a part of a limited club. However, an expensive designer suit (normally) has a much plusher fabric and a sense of exclusivity, mostly because of its abnormal pricing. And then there are couturiers like Ermenegildo Zegna who will stitch a bespoke business suit for you, tailored as per your body contours, definitely a special differentiator.
  3. Leather: Luxury leather goods have finer grains and more durable leather. The stitching has more attention to detail and often products have multi-year, no questions asked replacement warranties. Take Bellroy for example, the Australian wallet manufacturer sells wallets for USD 100 when ordinary wallets cost 10-20% of that. Against that price what you get is a wallet actually designed by a product designer, with a unique design unlike anything else in the market, and one of the snazziest online marketing campaigns ever. You also get a three-year replacement warranty, unheard of in the highly commoditised wallet market.
  4. Watches: Now here is where things start getting murkier. Swiss watches have random pricing and are probably gigantic marketing frauds yarns. What you do get in a Swiss watch is a very fine attention to quality, detail and craftsmanship rivaling jewelers. At the same time, you do need an expert eye nowadays to distinguish a Rolex from a cheap Chinese fake. The reason is that most Swiss watchmakers import the straps, dials, bezels and glasses from China anyways. Some like TAG Heuer buy movement parts from Seiko in Japan. Technically, anyone is allowed to use the label ‘Swiss Made’ as long as at least 50% (by value) of the movement originates in Switzerland. This is a funny situation because a few expensive parts can make up for more than 50% of the value of the movement allowing nearly everything else to be sourced from – you guessed it right – China. In essence the luxury part in Swiss watches comes from the brands and their control over quality.

Luxury Products – Character Traits

Looking at the above product segments, a luxury good should possess the following character traits:

  1. There should be quality and feature traits that should strongly differentiate a luxury product from a normal product, e.g. Business Class travel is different from Economy Class travel.
  2. A luxury brand needs to be supported by high product quality, an unusual warranty and high service quality as well, e.g. Hermes offers unusually long replacement warranties on their bags.
  3. The customer should feel a sense of euphoria and pride at possessing a luxury good.
  4. There should be some exclusivity in luxury goods to support characteristic (3). This exclusivity may be supported by urban legends, e.g. you have to wait a few years for a Hermes bag. This sense of exclusivity is often supported and transmitted through advertising terms like ‘Bespoke’, ‘Made to order’, ‘Limited Edition’ and ‘Special Edition’
  5. Luxury goods should be expensive to the point of being pointless, e.g. an Ermenegildo Zegna suit costs many times more than the most expensive mainline business units in the market. This price differentiation is important for supporting characteristic (3) & (4)
  6. The customer needs to feel privileged and special while using or owning the luxury goods, e.g. membership to an owner’s club.
  7. Most importantly the brand has to believe in itself, however frivolous the claim to luxury may be. And this belief has to be supported by a deep sense of serving the customer, once they have convinced a Mr/ Ms moneybags to become one. When this analyst ordered a Bellroy wallet from Australia, which was duly lost / stolen by Indian Post, the company did not even blink twice in shipping another one to a friend’s address in Australia with the kind words “We are eager to see a blue steel Note Sleeve wallet in your pocket.” Needless to say, they have a long-time customer bagged.
  8. A history or a story is always handy. Else it may be created through legends, some true, some cooked, e.g. single malts from Scotland taste the way they are because they use water from the Spey or that Evian was reputed to cure liver and kidney problems in the late 1700s. Surprisingly it doesn’t do much nowadays.

Editor’s note: At this point we tapped the analyst on the shoulder and pointed out that this is an analysis for IndiaAutoReport and we haven’t spoken a thing automotive in the last 850 odd words.

Considering the above characteristics, the automotive industry seems an aberration. It is different to distinguish a luxury product with a mainline one. Then there is so much overlap between product ranges that it becomes impossible to distinguish where ordinary ends and luxury begins.

What Defines a Luxury Automotive Brand?

A luxury car needs to deliver a significantly higher grade of dynamics and performance while cocooning its passenger / driver in comfort. It should be the cutting edge in technology and should be a market leader in terms of communication, navigation and other electronic gadgets. A luxury automobile should use the best grade components, the highest quality materials and the most luxurious materials for interiors and upholstery.

Now that is a rather text-bookish definition of luxury cars. In real life, a luxury car parked in your driveway should release excess quantities of the hormone Proudextrone in your blood stream, often prompting you to frequently update your Facebook page with pictures of you with the car, or just the car by itself.

This is the true essence of luxury – an inane ability to be desirable and provide a sense of pride to the owner.

And have no direct link with logic.

Going by market definitions of desirability, let us count the German brands Audi, BMW and Mercedes as luxury. To them we will add Volvo and Jaguar. Then we have Land Rover which is SUV-luxury. We further have Porsche and Aston Martin as sports-luxury (!) and Rolls Royce, Maybach and Bentley as super-luxury. Ferrari, Lamborghini are super-sports-luxury while Bugatti is uber-sports-luxury.

In between these, we also need to sprinkle brands like Spykar and Aero, now available in India.

Confused properly yet?

The problem is that most of these brands have a major overlap across luxury bands so a Jaguar XJ-L comes very close to the Porsche Panamera, which in turn is identical to the Aston Martin Rapide. The Porsche and Aston Martin are very close to the Bentley Flying Spur as well.

It gets more confusing on the SUV front – should the Range Rover Sport be compared to an Audi Q7 or a Porsche Cayenne? And how do you fit the Range Rover, BMW X5 and the upcoming Aston Martin SUV into the mix?

It gets weirder at the bottom end of the market where the bottom end of the luxury segment has a major overlap with the top-end of the semi-premium (an oxymoron, no doubt!) market. So the choice here is between a Volkswagen Passat and a BMW 3-Series, both formidable machines in their own right but having different characteristics.

And the overlap is getting stronger with luxury brands hell-bent on launching smaller models. Till now the 3-Series, A4 and C-Class denoted the entry point of luxury. All of that changed when Mercedes decided to do the B-Class (W246). Thankfully, it was an oddly shaped, segment defying, difficult to describe bodystyle, probably aimed at the nerd moneybags.

Then Mercedes decided to follow up with the A-Class (W176), a hatchback, which could not be mistaken for anything else. And just to be sure, Mercedes has the CLA (C117) sedan waiting in the wings. This is a sedan the size of an Octavia and aimed at a segment below the C-Class.

Mercedes also has the upcoming GLA crossover, the brand’s answer to the X1 and Q3 (finally!).

BMW has the 1-Series hatchback in the market, which is mostly to reassure Mercedes that their poor selling A-Class has company. Coming in early 2017 is the Real McCoy, a new 1-Series sedan (NES-New Entry-level Sedan). Based on a brand new front-wheel drive (kill me now!) platform, the 1-Series sedan and many other small BMWs and Minis based on the UKL1 (Untere Kompaktklasse) architecture will spearhead the German brand’s growth in markets like India. Some expect the UKL1 underpinned models to account for more than a million units per year (globally) within the next five years in the process making UKL1 BMW’s largest volume platform.

Audi is not far behind too. The VW group luxury brand has been happily sharing engines with budget brand Skoda and mainline brand Volkswagen. Audi has the upcoming A3 sedan, a small sedan the size of an Octavia (where have we read that before?), and which will share more than just engines and transmissions with Volkswagen and Skoda.

And then the four rings brand loses it completely with its crossovers and crossover-coupes. If you thought the Q3 was small and impractical, wait for the Q1 to come out sometime in early 2017. This would be a crossover with the underpinnings and interior space of the Polo.

There is also the Q2 crossover-coupe, essentially a more impractical, but beautiful, twin of the Q1.

All of this is being done to capture a new breed of customers. These are customers who were not in the Mercedes / BMW / Audi market in the first place but were hunting for Volkswagens, Toyotas and Hondas, the so-called semi-premium brands. The semi-premium brands were already under pressure from the lower end of the luxury segment. With the A3, CLA and 1-Series, things can get really depressing if your name is a Passat or Jetta.

It gets even more too close for comfort when one takes into account the attractive finance schemes offered by luxury car manufacturers. Most of them offer much more attractive schemes as compared to the mainstream brands.

In a way, luxury brands are not expanding the base of the pyramid in a traditional way. They are shifting the pyramid downwards so that the base gets automatically expanded.

Why shift downwards?

There was a time when snobbery was in. That time ended with the 70s. When BMW introduced the original 3-Series (E21) in the midst of the 1973 oil crisis, it was the company’s budget offering for the well heeled.

That sounds ironic.

But it worked. The 3-Series managed to double BMW’s overall sales within three years. The 1-Series (E87), launched first in 2004 s attempting at doing something like that. In five years, EMMAAA expects the UKL1 pinned models to increase BMW’s overall global sales by more than 50% from 2012 levels.

The impact in India would be more profound. EMMAAA forecasts UKL1 pinned models (1-Series/NES sedan, 2-Series Gran Coupe, next gen X1, many MINIs) to triple BMW’s sales in India by 2019, from 2012 levels. In doing so, the UKL1 models would account for 56% of all BMWs sold in India.

Meanwhile, the CLA & GLA (and A-Class and B-Class) should together account for nearly 60% of all Mercedes sales in India by 2019, as per EMMAAA’s forecast. In doing so, the entry level vehicles would have grown the Mercedes brand by more than 290%, from 2012 levels. The better growth (compared to BMW) comes from Merc’s lower base of 2012.

Audi is expected to do a similar magic with the A3 compact sedan and other entry level models. The entry level models will more than double Audi’s sales in India by 2019, from 2012 levels. At that point, the A3/Q3/Q2 and their brotherhood is expected to account for more than 65% of all Audi sales in India.

Luxury Car sales would be driven by entry level launches in the next few years
Luxury Car sales would be driven by entry level launches in the next few years

It may be argued that without the NES / CLA / A3 and their supported / underpinned SUVs entering the market, the luxury brands would struggle to gain such volumes in India. In a way these models justify the investments in plant and product development that the German luxury brands have done till date.

There is a deeper reason as well and it relates to human nature and society. It’s called a one-way street of desire and is the biggest driver of luxury car sales worldwide. The thing is that once you buy a luxury car, however small it may be, you are very unlikely to go back to driving a Hyundai Elantra, however much Hyundai may load their Executive sedan. The next stop after a luxury car is often another luxury car, mostly a segment higher. In a way, the 1-Series and its parallels are means of providing an enticing, low-level entry into the luxury car market. Once there, he will come back in a few years to put his money down for a bigger model.           

Does it work?

Absolutely. This lowering of sizes and prices is ushering in a new breed of buyers. These buyers are younger, individuals (not families), upwardly mobile, and are likely to upgrade within a few years to another luxury vehicle. The manufacturers themselves, and forecasters like EMMAAA, are hugely optimistic about the potential of these entry-level models.

[one_whole boxed=”true”] Big Bikes – Coming Down the order: The significance of lowering the entering barrier is very important for Big Bike manufacturers as well. Big Bike manufacturers like Harley-Davidson and Triumph, especially the later, have small volumes globally and a downturn in sales in any of their significant markets is almost suicidal. The cushioning can only be provided by promising markets like India, except India has a Per Capita Income of around USD 1500 and Big Bike sales above 800cc were less than 2,000 units in 2012. The only way to conquer India then is to come down to India’s affordability level by offering bikes significantly lower in prices than the current entry point. Both H-D and Triumph have entry points of 5.7 lakh rupees for their Superlow and Bonneville models respectively. Harley-Davidson plans to lower this to less than 4.5 lakh rupees (estimated) when they launch the Street 750 model in 2014 and even lower when they bring the Street 500 model to the country. Triumph, meanwhile has a completely different idea about entry level and we expect the entry level Triumph from September 2015 to be the Cub 250 with a sticker price of around two lakh rupees. EMMAAA has recently released a forecast for the Indian Big Bike market. This is a quarterly updated, ten-year forecast of the Indian big bike market, which breaks the market down to model, engine sizes and brand levels. EMMAAA forecasts that these models (Street and Cub) will have a significant impact on their respective brands. The Street range should help Harley-Davidson grow their sales by 921% by 2018, over their 2012 volumes of 1136 units. In doing that, the Street range would itself account for nearly 60% of all H-D sales in India. The Cub is another animal altogether and EMMAAA forecasts the Cub to account for more than 90% of all Triumph sales in India in 2018.

Big Bikes come down the order
Big Bikes come down the order


These entry-level models allow luxury car manufacturers to tap a customer segment, which wasn’t there, and wouldn’t have been there for many more years. As these models are more individualistic in nature, manufacturers are planning to offer numerous bodystyles to attract as many customers as possible. Some media reports estimate that eventually the UKL1 architecture will underpin as many as 23 models – 11 on the MINI side and 12 on the BMW side – ranging from the small three-door MINI hatchback to the not-so-small BMW X1.

What’s Wrong?

It seems that automotive luxury brands have been bending the eight characteristics of luxury that we defined earlier, all in a bid to expand their market space and profits. In doing that, they seem to be sacrificing the very ethos of the brands that made them formidable. This is selling your soul to the devil and may have long lasting repercussions that may hurt the brands irrevocably.

Let’s examine closely:

Quality / Features: In automotive parlance, there are two types of quality – quality of materials and quality of build. Luxury brands have always played on the quality of materials while being average on the quality of build as compared to more dependable manufacturers (read Japanese, and nowadays, the Koreans). As JD Power survey results across various markets amply demonstrate, a luxury brand does not necessarily mean a well-put together vehicle.

So the quality that we often talk about in luxury vehicles is the quality of materials. And there is problem on that front. You see, the present X1’s interiors don’t have the quality feel as the previous entry level BMWs. Media reviews suggest that the Mercedes has done well with the A-Class interiors but the BMW 1-Series interiors are disappointing.

Lowering the entry level is not just about reducing the size. That does not lower the costs to the extent desired. Manufacturers also have to tick fewer boxes in terms of trim and choose lower grades of materials. This inadvertently lowers the gap in features between the entry-level luxury models and similarly priced mainstream models. Often the mainstream models are bigger, offering more practicality, interior space and comfort. This is not a favourable comparison for a luxury brand and is likely to disappoint the customer who then is likely to break the second law of luxury car ownership – ‘Thou shall not go back to ordinary’.

Exclusivity: A big part of BMW and Audi trouncing Mercedes in India in 2012 is because of the fatigue of the Mercedes brand. Buyers often buy luxury goods for their exclusivity and chose BMW and Audi, as they were newer in the market. This is primarily the reason why Jaguar has seen a jump in sales lately.

The problem with opening the floodgates with the lower entry-level models is that a few thousand of them would be sold every year. EMMAAA accounts that the entry-level models would together account for nearly 50000 units in 2019.

Exclusivity has just been thrown out of the window.

In a way this lowers the excitement of a new luxury car buyer. He no longer has the urge to brag about his acquisition, as everyone around him seems to be driving one too. While our inner Buddhist may find it frivolous, bragging is an essential part of luxury car ownership.

Price: A luxury car should be expensive to the point of being impractical. Luxury car buys are emotional decisions with the brand and experience converting customers. With the aggression that luxury carmakers are displaying to make their cars cheaper, the entry barrier to luxury car ownership is coming down fast. Attractive finance schemes make the cars more ‘affordable’. This is a deviation from the luxury brand’s characteristic of being emotional and impractical in nature.

Deviating from Brand Attributes: In their haste to come down to tap the upper middle class, luxury brands have been going smaller and cheaper. At times, this also results in a few other product attributes being compromised to achieve the goals of lower price and smaller sizes. The prime example here is BMW UKL1 architecture, which deviates from BMW’s historic rear-wheel-drive architecture. The UKL1 is front-wheel-drive, necessary because of packaging and cost issues. The reaction from enthusiasts on popular car forums has been skeptical and bordering on negative. While BMW may pull it off, matching the driving dynamics of its larger cars with the small car range, it is a major deviation from what the brand has stood for a very long time. In a way, it’s like destroying the history and heritage of the brand.

Where will it end?

We feel this is the end and luxury carmakers cannot stoop scrape any lower. The model sizes have become too small for comfort and packaging may become an even bigger issue. At some point in the price-value matrix, customers too start figuring out things and it becomes impossible for a car to be sold on the basis of the brand alone. So while a Suzuki Alto sized Mercedes Is possible, theoretically, it would be very difficult for Mercedes to offer the product attributes of the brand in such a car. Case in point is the Aston Martin Cygnet, which was just a Toyota Aygo in disguise. Few were sold and the Cygnet is now history.

Another reason why this trend should stop where it is sheer elementary. You see, all the luxury car manufacturers have reached the very start of their numbers and alphabets nomenclature systems (Mercedes has an A-Class, BMW a 1-Series and Audi has an A1) and cannot go any further in that direction without looking silly.


  1. Great article. Something that baffled me too regarding such a stupid move by luxury brands. It needs to stop soon as they are leaving all existing customers embarrassed.

  2. Although the above article is old (and i came across this one when searching for something else), I’d like to put in my 2 bits, since its still relevant

    Firstly – after reading the whole article I didnt really understand what your key issue was, and why are you bashing the Germans?

    Was it quality degradation of materials at the Entry level luxury cars?

    Or was it the ‘confusing’ overlapping of different segements?

    Nonetheless I’ll try and give my view over this. Clearly you need some perspective…

    Spec-to-Spec, globally, Germans charge a premium of ~ 30% vs. the Koreans and ~ 20% vs the Japanese. While in India, thanks to the import duties, the gap widens to more than 50-55%. This is the starting point of what you call ‘confusion’ .. and thanks to the above

    1. German manufacturers cannot scale as much in India.

    2. Indian customers ‘demands’ a ‘wow’ package (interior/exterior/engine) since he’s paying almost twice that of a Korean car.

    3. There’s a pressing need to introduce a line ‘below’ the entry level sedan (Read 1-series/A3/A-Class) to make luxury more ‘reachable’…

    Overlapping is a function of a manufacturer Lineup Design, and is very ‘intentional’.. not accidental. A 3-Series is PRICED to start overlapping a Passat. And mind you – Spec to Spec – passat is supposed to be comapred to a 5-Series, not 3-Series. What you call ‘confusion’ means the luxury cars are doing their jobs very well

    If you closely look at the lineup – there’s no confusion. In fact Mercedes is probably the most sorted.. check below..

    A – Entry Luxury
    B – Tall boy Hatch [Failed series]
    C – Mid Luxury
    E – High Luxury
    S – Ultra Luxury

    If you add the below Prefix to the above, you get
    CL – Sportback (currently only CLA/CLS)
    SL – Roadster (Currenly only SLC / SL(S))

    And similar logic runs across BMW, and Audi as well. There might be gaps – which can be potential launches for the future.. But to say that their lineup is confusing/messed up is RUBBISH

    QUALITY deterioration as the lineup goes down south
    I’ll rubbish this argument as well. When this article went live – X1 was on its first Gen (E84 that ran since 2002), and hasnt had a refresh. German cars generally launch a new Gen every ~ 7 years. X1 was an exception to the rule. Come 2016, and X1(F48) version is launched. It comes amazingly specced with Adaptive LED’s et al.. Even the X5 previous gen had xenons which got upgraded later.

    Similarly for A3 – which got bumped to the Full LED Display Instrument cluster instead of an Analog Instrument cluster (which was first launched on the Q7)

    Mercedes A Class – was the first car to have the ‘inverted grill design language’ amongst all of its Mercedes cars

    In short – i feel they know exactly what they’re doing..


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