The Future of Luxury Cars: Trends, Strategies, and the Power of Complements

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Jul 05, 20233 min read

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The Future of Luxury Cars: Trends, Strategies, and the Power of Complements

Introduction:

In a world where the mainstream automobile market is stagnating, luxury vehicle brands are experiencing significant growth. The luxury car segment is expected to gain market share in the coming years, driven by the increasing number of ultra-high-net-worth individuals and high-net-worth individuals. This article will explore five key trends shaping the future of the luxury car market, including the rise of new attackers, the shift towards electrification, the demand for smartification, the importance of customer experience, and the strategic use of open-source software.

1. The Rise of New Attackers:

Luxury car segments priced between $80,000 and $149,000 will see rising competitive intensity due to the entry of new attackers. More than ten new players, with cars priced at over $1 million, are entering or planning to enter the luxury car market globally. This influx of competition is driven by the shift towards electrification, prompting both incumbents and attackers to produce electric vehicles (EVs) to remain competitive. However, incumbents face challenges in transitioning to EVs due to legacy combustion-engine issues, which can slow down their progress.

2. The Shift Towards Electrification:

The electrification of luxury cars is a trend that customers in this segment already expect. In the price range of $150,000 to $500,000, there is a notable influx of EV-focused disruptors and a strong push from the supply side. However, few luxury car original equipment manufacturers (OEMs) have the necessary consumer-centered DNA in their operating models to meet the demand for smartification alongside electrification. This poses a risk to their competitiveness and the opportunity to establish a price premium.

3. The Importance of Customer Experience:

Affluent consumers in the luxury car market seek continual engagement and personalized experiences when shopping for their vehicles. Traditional luxury OEMs are considering direct-to-consumer (DTC) approaches to meet this demand, while disruptors and luxury players are taking it a step further. They are adopting a go-to-market approach that combines direct sales, online interactions, and exclusive own-retail assets. This approach allows them to focus on specific urban areas where affluent and digitally savvy customers reside, reducing the number of outlets required. By embracing DTC, luxury OEMs can enhance the premium customer experience and avoid price inconsistencies and haggling, which can harm both the brand and residual values.

4. The Power of Complements:

The concept of complements plays a crucial role in understanding the strategies employed by luxury car OEMs. Complements are products that are usually bought together with another product, and their prices directly impact demand. Luxury OEMs strategically aim to lower the price of their complements to increase demand for their vehicles. For example, open-source software development is supported by companies investing in it as a good business strategy. By commoditizing complements such as enterprise software, IT consulting, web browsers, and entertainment delivery platforms, these companies can drive demand for their core products and services.

Conclusion:

As the luxury car market continues to grow, it is essential for OEMs to adapt to emerging trends and strategies. Three actionable pieces of advice for luxury car manufacturers include:

  • 1. Embrace electrification and smartification: Invest in developing EVs and understanding customer expectations for smart features to remain competitive in the market.
  • 2. Prioritize customer experience: Focus on providing personalized experiences and embrace DTC approaches to enhance the premium customer journey.
  • 3. Leverage the power of complements: Identify and commoditize complements that can drive demand for luxury vehicles, such as enterprise software, web browsers, and entertainment delivery platforms.

By staying ahead of these trends and strategies, luxury car manufacturers can position themselves for success in the evolving automotive landscape.

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