Chinese Luxury Cars!? Yes, But How Can They Succeed?

If you ask anyone in Europe what they think about Chinese car brands, you’ll probably get a muddled answer — even more so when it comes to luxury Chinese cars. In fact, you’ll most likely hear, “Are there any?” But the début of Arcfox at the Geneva Auto Salon has ushered in a new era of luxury automaking, and we might have to challenge what we thought we knew about the category.

Tesla has already proven that the sector can be opened up to new players, and with ambitious competitors arriving on the horizon, household brands like BMW or Mercedes-Benz won’t necessarily be the category’s undisputed leaders in the future. Arcfox is owned by the Chinese group BAIC (one of the five largest Chinese automakers), which wants the car to be perceived as an all-electric luxury brand. A huge amount of investment has gone into the Arcfox, as well as the people behind it. The cars’ lead designer, for example, is the legendary Italian car designer Walter de Silva, who previously designed cars for Alfa Romeo and Audi and is considered, in many circles, the best car designer in the world.

This month in Geneva, the company showed off several of their Arcfox vehicles — all slated to launch before 2020 — to fascinated insiders. One of them, the Arcfox GT, is a supercar with 1,600 horsepower and 800 Nm of torque, accelerating up to 100 km/h in under 2.6 seconds. The GT model will be accompanied by a crossover with a futuristic-looking design called the ECF. After seeing the cars in person, many of the incumbent top luxury carmakers are beginning to get nervous.

Entering into the luxury category is no easy feat, especially in engineer- or tech-driven categories, where the focus is on novelty. That’s perhaps because the most important aspects of any luxury business — the brand DNA — are often neglected by these car companies. Many of them treat brands like trademarks without any understanding of real consumer needs. While the product (a luxury car) is an essential one in the luxury market and must be superbly crafted, the real value for consumers is created by the brand itself.

Each luxury brand has a value from its name, which I call Added Luxury Value (ALV). That value is driven by the buyer’s expected benefits — many of which are psychological — from being associated with a brand. ALV, if managed correctly, can be the largest of all value components. My team did significant research on ALV, and we see again and again in our projects how companies sorely underestimate how it’s created and maintained. When a brand has very little ALV, it will necessarily lack differentiation, relevancy, and soul. In short, if a brand lacks ALV, it will undoubtedly fail.

But back to Arcfox. They’re in a critical situation now. Their product is ready to go, and a lot of money and effort has been spent on its development and finalization. But sadly, their brand isn’t known at all outside of China. There’s nothing to associate Arcfox with, and therefore, the car has no ALV. Without ALV, people won’t pay a premium for it. Advertising the car with pretty pictures and films on the brand won’t be sufficient. Many other brands have tried exactly this time after time and have failed. One only has to look at decades of failed attempts by Cadillac and Lincoln to be perceived as premium luxury automakers in the U.S. due to their lack of proper positioning.

It will be important for Arcfox to undergo a thorough and precise luxury brand definition and positioning exercise so they can (1) identify rational and emotional points of resonance with consumers and (2) develop a unique story that gives the brand maximum differentiation from its competitors. The car’s all-electric technology and its distinctive design will afford them the benefit of temporary newness, but this will not be enough to succeed if the Arcfox’s story isn’t rigorously defined.

Daniel Langer is CEO of the luxury, lifestyle and consumer brand strategy firm Équité. He consults some of the leading luxury brands in the world, is the author of several luxury management books, a regular keynote speaker, and holds management seminars in Europe, the USA, and Asia. Follow @drlanger

Categories

Automotive, The Future of Luxury