–Achieve mainstream status in the U.S. market. Check.
–Steal chunks of market share from the Japanese. Check.
–Use Super Bowl advertising and other “tentpole” events as effective platforms for defining your brand. Check.
–Expand your product line to adequately address consumer needs from parsimony to performance, from the ordinary to the opulent. Check.
Yet despite that impressive list of accomplishments over his four years in the job, the president and CEO of Hyundai Motor America now faces what could be his biggest challenge yet: finding a way to stretch a single brand, Hyundai, to provide a credible platform for every one of his company’s widening array of vehicles, from the $15,000 Elantra to the $60,000 Equus.
Conventional wisdom in the industry says that it can’t be done. Toyota, Honda and Nissan all bowed to that convention a quarter-century ago when they created Lexus, Acura and Infiniti brands out of whole cloth to house their upscale product lines and pursue American luxury buyers with a higher-level proposition, complete with separate dealer networks and higher customer-service standards.
And when Mazda toyed with the idea of going up-market in the Nineties, it favored creating a separate luxury brand. After Mazda ultimately backed away from such an expensive undertaking, it didn’t at the same time decide to take the existing brand decidedly upscale. And now the Mazda brand is, basically, what Mazda was then.
Today, the rationale for Hyundai to spin off its own luxury brand remains pretty much the same as for the Japanese companies before it: Shoppers willing to consider a $50,000, rear-wheel-drive Genesis R-Spec 5.0 must be pursued differently, and distinctly, from those who’ll be happy to qualify for a lease on a $20,000, front-wheel-drive Sonata, according to this logic.
But Krafcik isn’t buying the “wisdom.”
“Our strategy is very simple, and perhaps the best way to [explain] it is to contrast it with what others are doing,” he told me. “Lexus and Acura and Infiniti have [established] isolated islands of retail excellence. They have raised customer-service processes in their stores. Unfortunately, those wonderful processes haven’t really cascaded down to their mass-market brands from a sales-satisfaction point of view.”
Hyundai, he maintained, will do the opposite — and stick with a single brand to house it all. “I don’t know why this concept is so hard for people to get,” he said. “We want everyone to have a phenomenal experience.”
It’s little surprise that Krafcik believes the brand he leads can cut against the industry grain. After a long tenure at Ford, Krafcik joined Hyundai in 2004 as vice president of product development and strategic planning. He guided the highly successful reshaping of Hyundai’s U.S. lineup and was rewarded with the top role in 2008, where he has only succeeded to an even greater degree.
Krafcik also has flashed his iconoclastic side in external settings, gaining himself a bit of an edgy reputation in the industry. At the 2009 Chicago Auto Show, for example, Krafcik caused visible discomfort telling an assembled crowd of peers and media that the auto industry was “viewed with contempt” in the United States because it was “slow, dim-witted” and “typically unresponsive to consumer and environmental needs.”
And last year, again using the Chicago show platform, Krafcik generated more buzz by commenting on an extremely generous incentive program by General Motors in January that some feared would launch a price war. Krafcik said that “this is a step backward for the industry. This is short-term thinking in a long-term process that hurts manufacturers and consumers.”
He shook things up inside the house a bit last month when Krafcik admitted that Hyundai had considered the idea of creating a “Genesis” sub-brand around its RWD nameplates that would occupy a separate zone in Hyundai dealers’ showrooms. “We study thousands of things and ask provocative questions about even more things, and that’s probably in the category of ‘What if we did this?’ or ‘Should we consider that?’” he told Automotive News.
But Krafcik added that such thinking was “just scenario planning” and that Hyundai had “absolutely no plan to make any change” involving a Genesis sub-brand. And Krafcik reiterated to me, “There is no plan for a sub-brand.”
There’s no doubt that the value of the Hyundai brand continues to rise and has shown remarkable elasticity already, as the company has dramatically extended its product lineup over the last few years. For example, Hyundai has risen to the top spot in the Brand Keys Customer Loyalty Engagement Index, heading all other automotive brands and placing sixth among a total of about 600 brands across 83 verticals.
So Krafcik insists his strategy will remain to elevate the upscale bona fides of the existing brand rather than to launch another marque. Part of that campaign, of course, is marketing. The use of Jeff Bridges as its advertising-voiceover guy is one way that Hyundai is trying to cut a more “hipster” image than its strictly econobox past might have allowed. So was employing indie film director Wes Anderson to helm a couple of Hyundai’s TV spots during the Oscars telecast in February.
But the most important work may be taking place in Hyundai’s 800-plus dealerships around the United States. Krafcik insisted that what the brand and dealers have achieved so far in learning to peddle the top-end models and to deal with demanding customers will redound to their handling of the rest of their product lineup and clientele.
“What we’ve done in introducing Equus and Genesis to the Hyundai brand is having all the people in a Hyundai store experiencing and learning how to deal with demanding, high-demographic customers,” he said. “That learning is cascading into their interactions with customers who are interested in buying Santa Fes and Accents… Folks who are buying one of our core three vehicles [Elantra, Sonata and Accent] really see the benefit of having vehicles like Equus and Genesis on the showroom floor with [the other vehicles]. It gives them confidence in the brand. They’re classic halo vehicles.”
But skeptics in the industry say this is one mountain that Krafcik and Hyundai simply won’t be able to climb without cleaving the brand. One thing that luxury auto customers are “buying,” this argument goes, is some form of separation from the mainstream consumer, not the opportunity to share exactly the same kind of purchase and ownership experience. Such demands begin with how luxury buyers like to be wooed at all sorts of expensive drive-and-schmooze events that are continually on the dockets of brands such as Lexus, BMW, Audi, Cadillac and their dealers, and carries through to the more intense after-sale customer-relationship management programs that are usually applied by luxury brands.
“The No. 1 hurdle is that new luxury buyers note that they can move from the part of the market where they’ve spent part of their life into another part of the market that has some exclusivity about it,” said Doug Scott, senior vice president of GfK Automotive, a Southfield, Mich., outfit that consults on automotive branding. “Hyundai wouldn’t get that in a single-channel-distribution brand.” And, he said, “People who are interested in the luxury market ultimately want to be pampered. If they buy a vehicle with some manner of exclusivity, they also expect to be — if not pampered, then treated in some special way.
“It’d be difficult in a single brand for Hyundai to say to a Sonata buyer, ‘You don’t really deserve what they get for buying Genesis.”
One top industry marketing executive told me that “it’d be crazy to try to make that [Hyundai] brand stretch. There are very few brands that are that elastic, either way. People aren’t going to buy a $15,000 Mercedes-Benz either. It is just not going to work.” In addition to how the Japanese established separate luxury brands as they went upscale, this doubter noted, Daimler and BMW have nurtured distinct brands for their less-expensive lines in the United States: Smart and Mini, respectively.
Another luxury-brand executive added, “If you’re spending $60,000-plus on a car, you need a different name” than Hyundai.
“If you really want to create a prestige image, why not?” spawn a separate luxury brand, said George Cook, executive professor of business at the University of Rochester and a former Ford Motor marketing executive. “It’s proven to be successful … And at this point, while Hyundai stands for good stuff, it still doesn’t communicate ‘the best of the best.’”
Some of Hyundai’s upscale customers already are voting with their pocketbooks. U.S. dealers sell an option for Genesis that literally swaps the Hyundai “H” badge on the hood for a winged badge used by Genesis sedans sold in South Korea, and one New Jersey dealer told Automotive News that about 90 percent of his Genesis buyers make the swap.
Time and again, Krafcik also gets the suggestion that Hyundai might easily solve this challenge by gradually, yet decisively, moving Hyundai into position as the South Korea-based parent company’s upscale brand in the United States. In that scenario, Hyundai would allow its lower-end models to fade away, while its sibling Kia brand more fully occupies the mainstream market in America as it, too, continues to succeed and expand.
If Hyundai were GM, Krafcik’s approach would be the equivalent of stretching one brand to fit from Chevrolet through Cadillac, conceded Chris Perry, vice president of Chevrolet marketing. So maybe Hyundai will “position it more where lower-end Hyundai models get phased out” and Kia effectively becomes the company’s entry-level brand, suggested Perry; he was briefly Hyundai’s vice president of marketing before he joined Hyundai’s previous chief marketing officer, Joel Ewanick, in2010 at GM, where Ewanick had become U.S. CMO and, more recently, global CMO. Said Perry about Hyundai: “It’s not easy to reposition a brand.”
But such a brand realignment relying on Kia could only be de facto. That’s because, as Krafcik explained it, the two brands remain separate not only in the marketplace but also in many other important practical, financial and legal ways. “You can’t buy a share of ‘Hyundai-Kia’ stock,” he explained. “You have to choose one or the other.” Hyundai’s situation in that regard, he explained, is similar to that faced by Ford and Mazda when Ford owned 25 percent of the Japanese company. Hyundai and Kia are “completely independent based on U.S. antitrust guidelines.”
To some extent, of course, this isn’t entirely Krafcik’s strategy to forge. Sure, the parent company may be comfortable with development and manufacturing of a few upscale models for Hyundai, but top leadership may be insisting on stopping short of the creation of an additional distribution system, manufacturing complexities and other challenges that typically come with creating a separate luxury brand. And, of course, whatever lines exist in the U.S. and other markets between Kia and Hyundai have been drawn there by the chaebol.
Yet some peers believe that Krafcik can, indeed, accomplish his objective of holding the brand together over a growing collection of attributes as well as models. Hyundai “could probably do something in the context of the showroom” to stretch the existing brand into upscale positioning, said one top marketing executive of a luxury brand, “as long as you adequately provide the type of experience consumers are looking for, with the esthetics, the right salespeople and, ultimately, the right type of followup.”
And Krafcik’s ex-colleague Perry told me that, if anyone can achieve what Hyundai is still trying to do with the brand, his old boss can. “It’s pretty remarkable where they’ve come from over 10 years,” Perry said. “So while it might be difficult to see what them doing this, John is a very smart guy and a shrewd businessman.”
