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Why Barack Obama Matters to Transatlantic Brands

Editor’s note: This post was originally written during the primary season, but for some reason fell to the cutting room floor.  We’ve decided to publish it in its original form, as looking back, it was right on the money.  The election of Mr. Obama as President has profound and global implications – for us as citizens and marketers.  Please also refer to our post on the impact of currency fluctuation and marketing investment; the rise of the dollar has benefited global marketers as we predicted. 

It may be time for U.K. and European  companies to reassess cultural assumptions regarding their communications within the United States.  We are witnessing a profound shift in demography and attitudes, perhaps more profound than the election of our first baby boomer president, Bill Clinton.  The returns in the South Carolina Democratic primary held no surprise in terms of the black vote; it was strongly in support of Obama.  But the fact is that younger voters, those 30 and under, were also swayed by his subtlety of intellect, and messages of hope and inclusion.  Super Tuesday primary results, which have propelled Obama to the lead toward the nomination held plenty of surprises to political pundits and pollsters alike.

As baby boomers move into retirement, they grab headlines for their purchasing power and staying power – and do remain a force in our market and politics.  But they are akin to a setting sun.  If you take an intermediate to long term view, as significant brand owners must, their influence and interest in current affairs and setting trends is waning.

The America of 10 years from now will be a very different place than it is today.  Teenagers of 2008 will be advancing their careers (and those now in their 20’s and 30’s will be running the show).  This cohort is more eco-conscious and service-oriented, and less biased than any generation before it (those who grew up in the 60s may bridle at that suggestion, but it is fruit of their struggle, not a discount of it).  They also understand that the world is a much smaller place than it ever was, and this creates opportunities for brands to extend their transatlantic marketing reach; this generation will be more open than any before it to becoming global consumers and citizens.

So what inspired this post?  As someone who became aware during the latter years of the civil rights movement,  I can’t help but be moved by images of a black candidate for President of the United States standing in front of series of mostly white audiences celebrating a series of stunning electoral victories. 

While I am moved emotionally, the context for Swelled Head readers also is striking.  Thinking larger, many of the U.S. leading men in Hollywood also are black.  Wesley Snipes, James Foxx, Will Smith, Denzel Washington, Samuel L. Jackson, Morgan Freeman – these men lead many of the largest grossing movies.  They set trends and make money for producers of their movies.  Their endorsements, paid and unpaid, move markets (think Ray-Ban and “Men in Black”).

Black executives loom large in financial services and entertainment as well (although still under represented as a percentage of the U.S. population, they are influential).  The Oprah Winfrey Network will extend Oprah’s power and influence further into television.  The presidents of American Express, Time Warner, Aetna, Sears and Symantec also are black.

The fact is that America is becoming the melting pot it promised to be.  We aren’t color blind, but are becoming color-neutral.  Role models are defined more by what they do and say rather than their ethnicity.  And this trend is accelerating.

So what about your marketing?  Are you selling to the new America?  Does your advertising that targets teens and those under 30 relate to the way they see the world?  Do you embrace a more inclusive worldview, or are you “traditional?”  And by traditional, I mean stubbornly adhering to “the way it is done,” or “we’ll educate those Americans,” two paths to sure disaster for transatlantic brands.

We hate to say it…

Yesterday, Eos Airlines announced that it had filed for bankruptcy, with a complete cessation to flights. A little over a year ago, SwelledHead posted about the then emerging new breed of all-business class airlines. First came MAXjet and Eos, followed a few months later by Silverjet.

As transatlantic marketing professionals, we had to wonder about the possibilities for this trio. Did the all-business class business model make commercial sense? Who had pitched the price/service equation right? How would the major carriers react to a different type of competitor?

For expert insight, we turned to Henry H. Harteveldt, Vice President & Principal Analyst, Travel Research, at Forrester Research. He looked right past the self-acclaimed “better service at a lower price” promise, citing utility as the fundamental factor for long term success.

For most business travellers, the majority of whom don’t reach into their own pockets to pay for the seat, the big advantage of the major carriers is flexibility in the service. BA, Virgin, United and American have many flights leaving each day, so missing one really isn’t much of an ordeal. Moreover, all have major international feeder networks of their own and/or through partner airlines (these factors make Lufthansa’s all-business class offering workable). MAXjet and Eos started out with a single daily NY-LON departure. Even after boosting this threefold, it just wouldn’t be enough to meet the needs and expectations of seasoned business class flyers.

To reiterate Harteveldt’s words: “Part of the challenge for Eos, MAXjet, Silverjet and L’Avion [a French member of the all-business class cohort], is that you need to reach a critical mass to provide the utility the traveller needs. JetBlue would be nothing if it hadn’t expanded beyond its initial routes… its impact would be de minimis. The brand has to offer utility to its customer… must represent value and meet emotional and rational needs.”

Taking MAXjet as an example, he continued: “They haven’t mispriced the product, but missed opportunities. Perhaps they would have been better off not adding other airports, but greater frequency to London and new routes from JFK to destinations such as Paris, so it represented greater utility from New York… then added flights to Las Vegas and California to add utility for domestic and international travellers.”

While the better service at a lower price model worked well for some customers – typically the principals of smaller firms who travel frequently but are more price sensitive – MAXjet and Eos missed or were unable to fulfil the real demands in transatlantic air travel.

Where does this leave the remaining incumbent? Silverjet is still running at a significant loss, according to its last published results. While this is acceptable for a business that is still in its start-up phase, the current downturn in economic conditions will not be creating favourable conditions. While Silverjet may be able to pick up business from passengers forced off Eos (it has arranged a clever deal to honour tickets of Eos passengers), with just two NY-LON daily departures it is still not fulfilling the needs of most business class traffic. The situation does not look good.

That’s not to say that the major carriers have won the war. The battle still rages, but on a different front, from low cost carriers. The first of these is Zoom Airlines, a Canadian carrier that also plies the NY-LON route. A relaxation of the rules governing transatlantic air travel, the “Open Skies” agreement, may see more of this sort of competitor take to the air. Or maybe such a major change will see the large airlines reduce their prices against each other, squeezing out Zoom and any other such pretenders. There can be little doubt that the transatlantic airline business is a tough one.

Is the mighty Tesco the next British retailer to fall victim to curse of the United States?

The United States has been something of a necropolis for British retailers with overseas ambitions. Sainbury’s, Dixons (now DSG International) and Marks & Spencer are some of the biggest names to have succumbed to a curse that appears to stalk the fortunes of plucky UK companies trying to make it in the world’s biggest consumer market.

If you were to put money on one that might succeed where others have faltered, Tesco would seem a safe bet. When it comes to achieving bounteous growth, both at home in the UK or overseas, the supermarket-and-almost-everything-else giant has demonstrated over and over that it’s got what it takes.

Yet, it too may be coming under the same terrible spell. The marketing director of Fresh & Easy, Tesco’s US convenience store enterprise, has hinted on his blog that all is not well. Simon Unwins has revealed that three months of review will take place before any further expansion, with analysts saying that results have been less than was hoped.

While Fresh & Easy could well be proving problematic for its parent, Swelledhead would not yet put its equally distended neck on the line and say that Tesco in America is doomed. Though history does not bode well, the company has boomed under the leadership of CEO, Sir Terry Leahy. Much of the success under his tenure has been found outside of the UK, where Tesco has shown an ability to adapt to local markets – a failure of the same being the undoing of foreign ventures at many other British retailers.

The Sunday Telegraph, the British newspaper which broke this story, reports that Unwins claims Fresh & Easy is simply taking a breather from its rapid expansion and is bedding down its operations. A potentially worrying sign is the news that Tesco is moving the CEO of its thriving Thailand business, Jeff Adams, to “work alongside” Tim Mason, the CEO of Fresh & Easy.

While the hiatus may indeed be unintended, and a bit of an internal shake-up somewhat disconcerting, to summarise it as the beginning of the end does seem a little premature. The UK lacks overseas success stories and has this lack of confidence is evident not only through failed international expansion, but a willingness to roll over to almost any foreign takeover. Tesco appears to be making sensible choices to keep things on track, and an eventual triumph would be a welcome shot in the arm for all British retailers with an eye beyond Blighty.

Read the original Sunday Telepgraph article here.

Where in the world would you find Dirty English?

Where does English gentility mix with British yob culture? I can think of a few London nightclubs that might be contenders, but in fashion terms the surprising answer is West Coast America.

Juicy Couture is unavailable in the UK (except perhaps for a small level of importing into boutiques), but its designs bear many cultural hallmarks of its isles. Take, for instance, the company’s logo, with its crown and rampant ‘scotty’ dogs. Typography that plays on the style of Old English manuscripts. Men’s wallets embossed with a crest that could have been stolen from Her Majesty. And a signature line of chav tracksuits of which Burberry would be proud.

What caught my eye this morning was an ad in the New York Times for the company’s new male fragrance, Dirty English. Its visual mix of a traditional bottle shape and crest, combined with characteristic scally chains and sovereign rings, makes for a heady and impacting blend of urban styles. Quite how this emerged in La La Land is something of a wonder.

It just goes to show the potency of American Anglophilia, here at its most subversive in retail terms. Quite splendid, innit?

Click here to view the Juicy Couture website.

Click here for the entry on Juicy Couture in Wikipedia.

MAXed Out

MAXjet Airways’ failure proves that a business model and strong marketing, in addition to a good idea, is needed to succeed when thinking about transatlantic business.

Capital intensive businesses such as airlines are prone to failure as their fixed costs are so high.  When the price of fuel or the number of people flying fluctuate dramatically, there is little management can do to adjust.  Throw in a much better capitalized competitor which decides that your nipping at its heels has gone far enough, and you’ve got a recipe for disaster.  When Swelled Head first spoke with Henry H. Harteveldt, airline expert at Forrester Research, he said pretty much the same (essentially predicting that American Airlines or British Airways could easily add Stansted flights and crush MAXjet).  His view was guarded to pessimistic as to the viability of MAXjet without something compelling to differentiate its business model, and he was spot on.

The failure of MAXjet casts a long shadow on business class airlines Eos and Silverjet.  They need to demonstrate a point of departure (sorry) that goes beyond a better seat, or they will follow MAXjet into the history books.  The biggest weaknesses these airlines face are narrow loyalty programs (useful only on their own routes), limited feeder networks, capital constraints that limit flights per day and number of destinations. 

Advertising in this category has generally been pretty uninspired given such innovation in the air.  Perhaps the failure at MAXjet will cause CMO's at Eos and Silverjet to rethink their efforts, and become more aggressive in pointing out their advantages and creative in presentation and positioning.  Public relations at these companies has also been notably weak.

A little go-to-market savvy might be useful, too, in making airlines such as Eos and Silverjet more compelling.  Unlike MAXJet, from which I never had a sales call, Eos is active in direct marketing and telemarketing.  Could be that Eos’ sales prospecting is differentiating enough – with only 48 seats to fill a few times a day, it wouldn’t take much of a sales effort, especially at prices that are lower than BA’s for a better service, to do the job. 

None of this is to say that MAXjet was a total loss to the business traveler; seating on many airlines’ transatlantic flights has been upgraded and the cost for business class travel has gone down dramatically even in the face of skyrocketing fuel costs. So I hope you will join Swelled Head in saying a fond farewell and thanks to MAXjet for its short but important service to transatlantic business.

With this post, Swelled Head returns after a six-month hiatus.  Sorry for the discontinuity, but we've been working on business strategy and development for our agency, Austin Lawrence Group, and can now return to Swelled Head with some regularity.  See you here again soon - and Happy New Year!

A great opportunity to sponsor a U.S. sport in the U.K.

Our agency, Austin Lawrence Group, recommended to a U.S. financial institution that it become the title sponsor of baseball and softball in the U.K.  Unfortunately for us, BaseballSoftballUK, thousands of British kids and this particular firm, the sponsorship didn’t happen.  It was intended to burnish the reputation of this company in the local market, aid employee morale (a community service concept was part of the program, whereby its employees would act as coaches and umpires with a great reward event at the end of the season) and make baseball accessible to British youth who might not have had a prior interest or the ability to pay for the equipment and/or coaching and umpires needed to have an organized team and league. 

We also recommended to start a “City Softball League” to raise money for a teenage crisis center in London – elements of which seem to have been taken up by BBSBUK with its “London Corporate Games” initiative.

I’ve posted this item because I believe so strongly in the value of such a program to the kids who could be served by it…hundreds or maybe even thousands of children could be positively impacted by an investment well within the reach of most City financial firms.

For a U.S. securities broker or money manager this would be a transatlantic sales, marketing and branding initiative that would more than pay for itself in terms of enhanced reputation among clients and peers, and a unique way to make a difference in the community.  As I write, there is no title sponsor for this organization, so a close and possibly exclusive relationship should be possible to negotiate.

And baseball represents a lot of what is great about the United States.  It’s a wonderful game that teaches many important life lessons, and for the British, a chance to experience a bit of our culture firsthand, instead of through Hollywood or McDonald's.

If you think there’s no market for U.S. sports in the U.K., consider: more than 300,000 British kids play baseball every year.  And, U.S. football is making noise about greater activity in the U.K., with the New York Giants and Miami Dolphins playing in London in October.  Check out the NY Times article today for more info on U.S. football in the U.K. and beyond.

If you’re interested and would like to learn more about our program design, contact me at k.lempit@austinlawrence.com or James Ollerenshaw, at james@austinlawrence.com.  You can learn more about baseball in the U.K. at http://www.baseballsoftballuk.com/

Her Majesty's Virgina welcome and transatlantic brand aspirations

If you have your doubts about Americans and their Anglophilia, just google news for the visit of Queen Elizabeth to Jamestown, Virgina, for the 400th anniversary of the establishment of the colony there.  More than 7,000 are reported to have turned out in misty rain to catch a glimpse of her visit, and The Commonwealth of Virginia held a special joint session of its General Assembly to receive her.  The Queen's prepared remarks included important statements on diversity in our two countries and the impact of changes in our societies over the last 50 years since her visit to commemorate the 350th anniversary of the settlement.  The six-day visit includes a State Dinner with President Bush. 

Touchingly, Her Majesty also visited with three survivors of the Virginia Tech shootings and was quoted by the Associated Press as saying, "My heart goes out to the students, friends and families of those killed and to the many others who have been affected.  On behalf of the people of the United Kingdom, I extend my deepest sympathies at this time of such grief and sorrow."

American’s fascination with the Royal Family should serve as a touchstone for UK brand marketers with aspirations to enter or expand in the US market.  To a certain extent (and this will vary from brand to brand), this is a powerful resource from which to establish brand differentiation and superiority.  Automakers Jaguar and Aston Martin have done very well by asserting and building on their UK roots to create a special place for their brands.  The cosmetics and skincare line brought to the US by Boots, however, builds almost nothing distinctive in its displays within our CVS chain of drugstores (a very middling retail environment to be sure).

For new entrants to the market, the weakness of the dollar is a high hurdle to jump.  I can only repeat what we’ve said here before: if your business can at all make sense with a weak dollar, when its strength returns your margins will be enriched.

God Save the Queen!

Ten Golden Rules for UK Business Success in the US

Last fall, I met HRH Prince Andrew at a transatlantic business event sponsored by UKTI. Prince Andrew is one of the best listeners I’ve ever met. He worked the crowd of more than 100 in groups of five to eight, asking each person to share an insight or story relevant to his talk on US – UK relations. My "five minutes of fame" was devoted to the first three of these Ten Golden Rules for UK Business Success in the US. Let us know what you think; we’d welcome your comments.

British brand owners aiming for success in the US market need to do more than spell a few words differently. A common language masks differences in business and consumer culture that are equally as significant as between Britain and anywhere else in Europe. Every individual company or brand will require its own approach, but there are some simple rules of which every arrival to our shores should be aware.  If your business is already here, these rules apply to you, too...are you doing everything you can to succeed in the US?

We'll work some of these themes in greater detail over the next weeks and months. Stay tuned!

1. Don’t open your first office on the West Coast.

It’s too far from the UK in terms of both distance and time zones to make day-to-day business practicable. If your company has a specific need, such as access to Hollywood’s movie industry or Silicon Valley’s tech sector, then fair enough. Otherwise, stick to the East Coast and save yourself a lot of missed phone calls and time in the air.

2. America is at least 25 markets.

Never be tempted to treat the US as a homogenous market. It isn’t. There’s coastal vs. inland; north vs. south; ultra rich, rich, middle-income and poor; white, black, Hispanic and others; legal and illegal residents (at last count more than 12 million are here illegally); seniors, baby boomers, generations X and Y and teens; left and right (politically); gay and straight; religious and secular. And then there are the myriad permutations these create. Get advice on where and to whom your product or service will appeal. It may surprise you. Regional differences in US culture can be explored in great depth; a convenient place to start is the US Department of State’s information web site, a chapter from a book on the main InfoUSA site.

3. Don’t underestimate America’s size.

It really is huge – almost eighteen times the land mass of Europe’s largest nation (France) and five times its population. There are now more than 300 million US residents according to census figures. From New York City to Los Angeles is 2,790 miles (4,450 km). You can drive for hours in some states, mostly out west, and never see another living being. Logistics dictate how you might roll out a retail or wholesale business; locating retail operations too far apart reduces efficiency, while B2B sales teams need to be spread out among major business centers to make it possible for sales reps to effectively cover a territory. A great place to start to understand the magnitude of the country is at the US Census Bureau’s Quick Facts site. This bigness impacts every aspect of your business, from operations to marketing.

4. We can’t (won’t) be educated.

We love to sample the international (just look at the size of our trade deficit), but understand that it’s on our own terms. This can be confusing when we tell you that yours is better than ours; it leads many to attempt to educate us dumb Americans in the "proper way" of things. Well, guess what: We’re not interested. And trying to teach us any different will either (a) cost way more than your budget, or (b) annoy us (we hate imperialism). We’ll probably buy what you’re selling, but we’ll consume it in our own way – and you may need to describe it more fully than is necessary at home – I still don’t know how to prepare Christmas Pudding. Certain UK marketers may wish to initially target British expatriates (there are close to one million in the US – see http://answers.google.com/answers/threadview?id=731995 for great stats on those born in the UK living in the US).

5. We’re all Anglophiles.

To us, there really is nothing cooler. When they announced the new actor playing James Bond, it was massive news here. There was front page coverage everywhere about one actor replacing another in a foreign movie series! We revere everything that has British connotations, assuming that it must be better than anything we produce. At the same time as hating imperialism, we also think the British can sometimes be too apologetic, so show us what you’ve got. Odds are we’ll like it.

6. America has a more advanced consumer culture.

And that means we have much higher expectations. We demand more choice, greater speed, better service and lower prices. Constantly. We tend to be more technologically advanced as well. Be prepared to reassess your offer and adjust it upwards to succeed in our market. That said, there are a few conspicuous anomalies. The British supermarket, mobile telephony and airline industries are all more advanced than ours in one way or another. Oh, and if your customer service is sub-par, don’t be surprised to find complaints out in the blogosphere – and if your service is poor enough, to have a dedicated blog on how terrible you really are. On the bright side, fan sites can emerge for something truly wonderful.

7. Americans comparison shop.

And we expect you to compare yourself as well. It’s common to see advertising in the US where one brand openly pits itself against another. That goes against the grain somewhat in Britain, but in the US it’s central to buying behavior. Dyson stands out as a UK firm that did a great job with this, in our market as well as yours. Sites like epinions.com and shopping.com (similar to Ciao) demonstrate not only our appreciation for the best deal, but our desire to share our opinions with others (some say that shopping in the US is a "contact sport"). Adjuncts to this rule: testimonials never grow old, and celebrity endorsements work.

8. Our business culture and history are different.

It is tempting to think that because you can speak our language that our market operates under the same principles as yours (this advice works both ways across the Atlantic). Doing business in the US is just plain different than in the UK. For example, some businesses (especially in the Midwest) still operate without written agreements, while others are so detail-oriented and over-lawyered as to be offensive (I’m thinking software). Americans are very comfortable talking business over a meal, in fact "breaking bread" is a major step in developing a relationship with a prospect or client. Lesser commitments, say for a coffee, indicate caution is still being practiced. The written word has lost its value here, perhaps more than in the UK or Europe. Proposals for fairly significant initiatives can be delivered in electronic form.

9. You need more advice than you think.

Recruiting key advisors and employees who can accelerate your market entry is a must. We’ve seen plenty of communications and go-to-market planning that, controlled by UK headquarters, missed the mark here in the US. There are myriad ways you can fail, including thinking cultural references translate (most don’t), indiscriminately applying British humor to your advertising, printing anything on A4 paper, sending condescending executives to meet with our press or your client executives, media plans that are much too small to make the desired impact (see size of US, No. 3 above), retaining UK spelling, underestimating the advantage of an indigenous competitor, centralizing your sales office and flying reps to their meetings, maintaining a too-conservative posture, and more.  Local knowledge also can save you massively on your outlays for media and creative services - our largest agencies are not always our most creative, efficient or aggressive.

Get the most out of institutions that assist UK businesses in the US, including UKTI and British American Business Inc. (the US/UK Chamber of Commerce).

10. Be willing to reinvent your brand.

What may seem sacrosanct in the UK may not be relevant elsewhere. Sometimes it’s very hard to work out what really is important; marketers put a lot of time and effort into understanding their core brand values and these would seem to be set in stone. Beware; differences in cultural frames of reference and buying behavior can mean they don’t translate, though it can be almost impossible to know this from the outside. Get advice, and then once you’ve figured out what really matters, see how that affects the business your in. The results can be very surprising and you may find that you need to do something else altogether.

Is your head swelling yet?

For advice and insight on your marketing initiatives, give a call to Ken Lempit at +1 203 391 3006 or email k.lempit@austinlawrence.com. In the UK, contact James Ollerenshaw at +44 (0) 20 7403 2888 or james@austinlawrence.com.

How many airlines can NY-LON support?

The recent launch of Silverjet into the New York to London business class segment had me wondering how many transatlantic business-class airlines made sense. Also, as a transatlantic marketing pro, I just had to ponder the marketing and branding implications on the existing NY-LON upstarts, Eos and MAXjet.

Silverjet is clearly putting pricing pressure on MAXjet. In my email two weeks ago, I received a tempting offer of $499 one-way fares for all MAXjet transatlantic routes (plus $148 in fees). Eos has business model issues of its own with only 48 seats on a plane that ought to hold 65 to 70 with lie-flat seats. On the other hand, Eos’ expansion to three flights daily between New York and London provide business travelers more reasons to select Eos and a path to generate critical mass in the market.

SwelledHead talked with Henry H. Harteveldt, Vice President & Principal Analyst, Travel Research, at Forrester Research, to gain insight into the dynamics of the transatlantic airline business.

"There is room for the three upstarts in the New York to London market," said Harteveldt. "The majors haven’t responded as quickly to the threat from these players as we might have thought, with BA for example opening routes to Stansted. And there could even be room for a transatlantic JetBlue; whether that’s JetBlue itself or another airline that goes to market with similar brand values." And pricing, while a bit more competitive, is likely to remain at levels that generate fair returns. Harteveldt added, "Our research shows that 1 in 3 leisure travelers are what we call quality-focused travelers, and among business travelers it’s 4 in 10. If the global economy remains healthy, these numbers are likely to grow."

When pressed on the issue of relevancy of these new airlines to the business traveler and their ultimate viability, Harteveldt said, "Part of the challenge for Eos, MAXjet, Silverjet and L’Avion [which just started flights between New York and Paris, with plans to expand to the Middle East, Persian Gulf and Eastern Europe], is that you need to reach a critical mass to provide the utility the traveler needs. JetBlue would be nothing if it hadn’t expanded beyond its initial routes…its impact would be de minimis. The brand has to offer utility to its customer…must represent value and meet emotional and rational needs. In the case of MAXjet, they haven’t mispriced the product, but missed opportunities. Perhaps they would have been better off not adding other airports, but greater frequency to London and new routes from JFK to destinations such as Paris, so it represented greater utility from New York…then added flights to Las Vegas and California to add utility for domestic and international travelers."

SwelledHead’s take on the new competition in this segment is that MAXjet will be forced to reduce its prices on routes where it competes with Silverjet. The MAXjet seat just isn’t as nice (you can’t lie flat). Silverjet will usurp the "premium economy" price point of about $1500 roundtrip. To Harteveldt’s point about a "JetBlue" type airline for this segment, this may be where MAXjet’s best bet lies. The formula seems a lot like JetBlue when you think about it. Decent seats, competitive prices, good service (MAXjet seems to actually care about its customers) and a hip outlook on the business. With a minor change to its strategy, MAXjet could cede the higher price points to SilverJet and Eos, add frequency and destinations, and probably carve a great business out of the most profitable transatlantic routes.  Eos will likely find that it cannot hold premium prices in the face of Silverjet's aggressive push; in fact, I've seen offers in the American Express rewards program where one can use only 85,000 miles for a rountrip on Eos (for comparison, I recently traveled Virgin Premium Economy for 67,000 miles roundtrip and it's nowhere near as luxurious as Eos).

The net result of this increased competition is likely to be greater access to remote markets and more in-person meetings for transatlantic business executives. Harteveldt also sees the possibility of increased real estate sales in markets served by these airlines: "in Europe, budget airlines have fostered the sale of property in warm weather destinations. In the U.S., JetBlue has done the same for ski properties in Vermont. It won’t be long before you consider a flight across the Atlantic as anything different from a domestic flight."

SwelledHead’s faithful reporters are already eyeing country retreats in the south of France and Las Vegas.

VW US needs a strategy that makes sense

It’s nice when one’s predictions appear to be correct. In May of last year, I wrote about “A rare niche in the US car market” that’s ready for VW to exploit. Adrian Hallmark, head of the VW brand in America, is clearly aware of the unrealised potential in his charge and had agreed with product chief Wolfgang Bernhard to expand the US range, adjust pricing and so better compete with Japanese rivals. Unfortunately for Hallmark, Bernhard is out (a victim of corporate politics) so he must pitch his ideas all over again to Volkswagen AG's new chief, Martin Winterkorn. Unfortunately for Hallmark, while his ideas for the brand have merit, he is almost as deluded as the rest of the firm’s management in believing that VW can and should be a luxury brand.

At the time of our last post on this topic, Volkswagen AG had announced it was to pull its luxury Phaeton model from the US after poor sales. SwelledHead remarked on VW’s bizarre approach to brand strategy; it makes no sense to move the VW nameplate upmarket because (a) sister brand Audi already occupies this position, and (b) there are no other European carmakers selling to the US middle market (only premium European brands).

Sales of the VW brand in the US have been stagnant for many years. Hallmark’s plan, as reported in Automotive News, is to:

• Change pricing and reposition the Rabbit, Jetta, New Beetle, Passat and Eos.
• Add a subcompact (supermini) below $15,000.
• Add a Passat coupe priced higher than the sedan.
• Field a truck lineup consisting of a repriced Touareg SUV, the smaller Tiguan crossover and a Chrysler group minivan.

SwelledHead believes this is smart, though our reasoning turns out to be a little different to Hallmark’s.

Our reasoning is that, VW aside, there is no “affordable” European carmaker in the US; all the transatlantic brands – BMW, SAAB, Mercedes and the soon-to-return Alfa Romeo – are pitched upmarket. Hallmark’s strategy makes sense because it removes pricing conflicts between VW and premium European rivals allowing the VW brand to make a huge sector of the huge US car market all of its own.

There’s more than enough evidence that a twin brand strategy works for the US. Japanese makes have successfully marketed their products this way for years (Honda/Acura, Toyota/Lexus, Nissan/Infiniti) and it follows that the same could work for VW/Audi.

There are some hurdles to overcome. Automotive News reports Hallmark as saying he wants to replace either the Jetta or Passat in 2010, but for now he has to settle for dropping inappropriate specifications. Already the most expensive Jettas and the cheapest Passats have been deleted. That means selling fewer Passats, but Hallmark believes he will make more money on the improved product mix. And importing a subcompact, like Europe’s Polo, would be too costly due to the Dollar/Euro exchange rate – a problem GM’s Saturn brand is experiencing as it introduces its own version of Europe’s Astra.

Where Hallmark goes wrong, is doggedly keeping to the notion that VW can be a luxury brand. By losing the basic models he believes the Passat can perform as an entry luxury product and that this would support a return of the Phaeton.

One can understand this way of thinking, but really, what’s the point? Trying to turn VW a luxury brand means competing in a crowded sector that’s getting ever more so. It’s doubly daft while the distinction of being the only mass market European brand in the US is there for the taking.

Indeed, other makers are aware and the opportunity may not last long. Renault has indicated that it will need to be present in the North American market by 2010 as part of its strategy of achieving half of its car sales outside of Western Europe in the long term. Its alliance with Nissan will no doubt aid this objective, giving the brand a ready network of dealers and service centres. Chief executive, Carlos Ghosn, has expressed his desire to extend his American interests and with the proposed GM deal off the table, his attention is now likely to be turning to troubled Chrysler. SwelledHead sees potential for the Peugeot brand, though it lacks a distribution arrangement (but does have some relations with Ford), and a successful return for Alfa Romeo could even pave the way for Fiat.

By following Japan’s example of developing or modifying models to appeal to US consumer tastes, and presenting them via two differentiated brands, VW AG could build upon its existing presence, US history and heritage and take a share of the larger mass market instead of attempting to compete against established premium brands.

Even if a move upmarket could be effected, there is a serious danger of cannibalising sales from Audi. VW should stay true to its “people’s car” roots and focus on a distinctly European sense of value. Remember the “Lemon” ad for the VW Beetle? It appeared in 1959, but is oft quoted in marketing text books as heralding a new era in advertising culture. Its honest style won credibility with buyers and was the antecedent of the brand’s image of bringing reliability and affordable quality to the mass market.

To read more about the confusion of VW’s US strategy, check out this post on The Truth About Cars.