BMW, Beware: DYG Says Recession Attitudes Outlast Recession

WOODCLIFF LAKE, N.J. - Conspicuous consumption is out of fashion now, but it's important for luxury brands like BMW, Lexus and Mercedes-Benz to know whether that's a lasting change.

Conspicuous consumption bounced right back after the last few recessions, and in my opinion that's what will happen this time, too.

For instance, the outlook for European luxury-car brands was poor in the late 1980s, with Japanese rivals Lexus and Infiniti coming on and the U.S. economy entering a recession. In fact, some brands like Alfa Romeo, Maserati, Peugeot and Sterling didn't make it in the U.S. market past the early 1990s. Otherwise, for most of the last 15 years luxury-import brands outperformed the rest of the U.S. car market.

But in this economic cycle, according to market research firm DYG Inc., luxury-car buyers will stay in a more frugal state of mind, even after the U.S. economy recovers.

"We're looking at a fundamentally changed consumer and that means even the premium consumer," said Madelyn Hochstein, owner, president and co-founder of DYG.

"Every recession we've seen, the minute it's over, back we go (to free-spending habits). But this one is different," Hochstein said in a presentation here yesterday hosted by BMW of North America.

Notice the term, "premium" customer, as opposed to "luxury." BMW prefers the term "premium," because "luxury" on the face of it suggests something expensive and hard to justify.

If DYG is right and today's recession-style mindset persists, in the long run it could affect strategic decisions like which new models to build, which product segments to explore, or whether a given brand should move up or down the price scale.

In the short run, it's already safe to say that current attitudes mean luxury brands have to work harder to market themselves; to differentiate themselves from other brands; to justify higher prices compared with mass-market brands.

According to DYG, humility is "in," impulse buying is "out"; ethics are in, excess is out; simplicity is in, over-complexity is out.

In more practical terms for luxury automotive brands, status in the form of design, engineering and environmental sustainability is in; status in the form of a high price tag in and of itself, or a luxury brand name alone, is out.

Hochstein said status symbols should be so low-key, they could be called "dog-whistle taste," after the whistle that only dogs can hear. In other words, only people "in the know" would pick up on the cues that confer true status.

This does not mean customers will stop buying luxury brands, but it does mean luxury brands need to be careful how they present themselves, Hochstein said.

This wasn't part of DYG's presentation, but BMW has spent the last 20 years trying to live down its association with the "Yuppie" phenomenon. For a while in the late 1980s, BMW marketing emphasized the Beautiful People who drove the cars, rather than the cars themselves.

Since then, BMW has successfully stuck with its "Ultimate Driving Machine" positioning.

"Brands do become more important in a challenging economy," said Jack Pitney, BMW marketing vice president. At the same time, Pitney said BMW needs to promote practical reasons for purchase. For instance, BMW includes the cost of scheduled maintenance in the price of the car.

"Brands that have stood for the same thing over time, authentic brands, are going to do really well," Pitney said.

Graphic: DYG