3 Automotive Brands That Have Shined in Subcategory Competition

In my view, the firms that are achieving real growth are moving from brand competition to subcategory competition. They have created “must haves” that define new subcategories, managed those subcategories to success, and built barriers that inhibit or prevent competitors from becoming relevant. My book Brand Relevance: Making Competitors Irrelevant details, a summary of which appears in Aaker on Branding.

The evidence is extensive. If you look at categories over long time periods and identify spurts of growth, with rare exceptions, they can be associated with the creation of a “must haves” and a new subcategory.

In services, there is Westin’s Heavenly Bed, Schwab’s OneSource, and Best Buy’s Geek Squad. In packaged goods, there is Kind, So-Be, Chobani Greek Yogurt, and Dreyer’s Slow Churned Ice Cream. In retailing there is Whole Foods Markets, Zara, IKEA, Uniqlo, Zappos.com, and Muji, the no-brand store. In computers, the market was altered by new subcategories defined by DEC’s minicomputer, Silicon Graphic’s workstations, Sun’s network servers, Dell’s build-to-order PCs, and Apple’s interface. All introduced new “must haves” into the marketplace and all created exceptional growth spurts in competitive markets.

A similar story can be told within the automobile industry where Ford has seen growth spurts with the Model T, Model A, Mustang, and Taurus all with distinctive “must haves” that defined a new subcategory. The same can be said of the VW bug, Mazda’s Miata, Toyota’s Lexus, the Jeep SUV, BMW’s Minicooper, and the Tesla. Then there was the Chrysler Minivan, Enterprise Rent-A Car, and the Toyota Prius all of which created a subcategory in which there was little or weak competition for nearly two decades.

The Chrysler Minivan

Lee Iacocca, after being fired by Henry Ford, became the new CEO of Chrysler in 1978, a firm that was in such bad condition that it took a $1.7 billion government loan to stay in business. One of his first acts was to invest in a new concept, a minivan. The new car was introduced in November 2, 1983 in the form of the Plymouth Voyager and Dodge Caravan. The minivan represented a new subcategory defined as a seven passenger, front-wheel drive, “garageable,” vehicle with roomy interiors, low step-in height, and removable seats. Termed the “Magic Wagon” by admirers, the new vehicle felt and drove like a car rather than a truck.

Chrysler’s minivan achieved amazing sales and profit performance. After, sales went from 200,000 the first year to over 500,000 ten years later in the US market, where it stayed until 2000. By 2016 it has sold over 13 million vehicles. Chrysler had no competition until 1998 when Toyota and Honda came out with the Sienna and Odyssey. No competitions for 15 years! Even with the entry of Toyota, Honda, and eventually others, Chrysler maintained a strong position. In 2014 it had 49% of the market although the minivan market size had shrunk because of the SUV. The plan was to reverse that subcategory decline with the new Pacifica, to create a renewed subcategory growth spurt some 33 years after the subcategory was crated. Note that the goal was subcategory growth, rather than brand growth.

Enterprise Rent-A-Car

Enterprise Rent-A-Car started in 1962 with 17 vehicles in St. Louis, founded on the customer insight that people needed cars when theirs were being repaired or when they wanted a weekend getaway. To serve their customer base, Enterprise developed an extensive network of retail sites and was eventually able to claim that over 90% of US citizens lives are within 15 miles of an Enterprise location.

With empowered local offices, the Enterprise staff builds up relationships not only with customer but with repair shops and auto dealers that would be fixing cars. Further, they innovate. In fact, it was an Orlando office manager that created the “We’ll pick you up” program in 1971, becoming an Enterprise signature promise.

Enterprise virtually had their subcategory to themselves for at least three decades as the rest of the industry virtually ignored their business model. This was in part because creating a competing infrastructure would be expensive, and because they were so attracted to the high margin business market. Enterprise actually passed Hertz in sales during the mid-1990s, and in 2008, had sales of $10.1 billion as compared to Hertz’s $6.7 billion, beating Hertz in both sales and profitability. Further, they were less susceptible to the ups and downs of the airline industry. The following year the privately owned Enterprise acquired National and Alamo rental operations and the data become hard to separate.

The Prius Hybrid

The Prius hybrid was introduced in late 1997 in Japan and in 2000 in the US, becoming a symbol of Toyota’s technological leadership and ecological commitment. It had Toyota quality, delivered a gas mileage way beyond the gas powered compacts, was rated as among the cleanest cars with respect to smog emission, and had a distinct appearance. The Prius not only provided functional benefits, but the self-expressive benefit of doing something about the energy and global warming crises in part because of its distinctive design.

The Prius was an incredible success and dominated the compact hybrid market through 2015, a domination that shows no signs of diminishing. By 2016, nearly six million Prius cars have been sold worldwide. It was even by far the leader in the total hybrid market with a share that regularly exceeded 50% in the US. To note, that is the total hybrid market, not just the compact segment. And customers were loyal. In one survey, some 94% of Prius customers said that they would rebuy the brand.

These three automobile brands all enjoyed at least 16 years with virtually no competition. Creating a marketplace with weak or nonexistent competition has a huge potential payoff. It is Economics 101, the ticket to real growth in sales and profits. For more on subcategory competition in the auto industry see my blog post on Tesla and on Chrysler’s effort to revitalize the minivan subcategory.

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