There are many dynamics to the auto industry that contribute to the success of a brand, including the cohesiveness of management, vehicle pricing, stylistic design, and nowadays even how the brand interacts with the public through social media.
In short, you could say that the success of a brand begins with how well it interacts with and lures in new consumers, as well as how effective it is at retaining existing customers. New consumers are vital to growing the top-line beyond just raising prices, while return customers help deliver consistent cash flow and serve as the storytellers and free advertisers of future generations of car buyers.
Why customer engagement and loyalty matter to automakers
Of course, engaging the customer and making them loyal for life are two very different, and difficult, things to do. For automakers they need to take into account a diverse audience, meaning many now cater to younger drivers with lower-margin vehicles angled at keeping that driver within the brand for many years to come, as well as catering to middle and upper-income individuals looking for affordable luxury. This doesn't even begin to touch on the other concerns car buyers express, such as the need for better fuel-economy, fewer carbon emissions, and more interior space, to name a few requests.
Automakers can't please everyone, but clearly some are better at it than others at engaging with customers and translating that into superior loyalty. Thankfully for us, research firm Brand Keys recently came out with its annual ranking of 22 car brands, listing them from best to worst based on their proprietary Customer Loyalty Engagement Index.
Today we're going to take a closer look at their rankings to decipher what the leading car brands are doing right and what the worst car brand is doing wrong. By better understanding what drives customer loyalty it could give us an edge as investors when it comes down to whether or not we should invest in a particular automaker or not. Remember, loyal customers provide free advertising that pays off for the automaker over the long run.
Ford relies on heft
Ford doesn't come as a huge surprise, at least to me, with the company (excuse the pun) firing on all cylinders. Ford has been introducing new and redesigned models at a breakneck pace around the globe and has focused on delivering sleek designs, improved fuel economy, and a gambit of price points for a diverse group of buyers.
In addition to tying for the top spot in Brand Keys' study, Ford also took top honors in customer loyalty in the Polk Automotive Loyalty Awards. According to Polk's parent IHS Automotive, which named Ford tops in customer loyalty for a fourth consecutive year, it was the company's iconic F-150 pickup that helped bring more return customer than any other vehicle, period!
The F-Series pickup, with the exception of a few months, has been a mainstay atop the best-selling vehicles list for decades. As long as Ford continues to give the truck-buying audience what it wants, it's tough to envision Ford underperforming its peers.
Hyundai relies on technology
Hyundai tying for the top spot was also impressive considering that this is the fourth straight year it has found itself in some way atop the Brand Keys customer engagement and loyalty survey.
At the heart of Hyundai's success has been its meld of personal technology and luxuries within affordably priced sedans and sports cars, as well as the introduction and redesign of key models in order to keep the brands' image fresh and keep consumers interested in owning a Hyundai.
According to Polk's study, the Hyundai Veloster took top honors in the sport car segment when it came to driving return customers. Hyundai, in a statement on receiving the award, attributed customers' satisfaction with the Veloster's unique third-door and advanced technology features as the main reasons why "sporty coupe shoppers" remain loyal to the brand and model.
The newly redesigned Sonata could be another source of rapid growth for Hyundai. Officially introduced in the U.S. at the New York International Auto Show a little more than a week ago, the Sonata has clocked in as one of the top-selling vehicles in the U.S. for years, but saw sales slowed noticeably in 2013 having not overhauled its design since 2009. With a fresh look at clear features which draw consumers back to the brand I believe Hyundai could be set up to surprise investor over the next few years.
Consumers hit the brakes on this car brand
Overall, domestic brands and foreign luxury brands tended to perform well in Brand Keys' survey. This means if you thought models from Jeep, Dodge, Chevrolet, GMC, Mercedes-Benz, Lexus, or Chrysler were anywhere near the bottom you'd be dead wrong.
Perceptually reliable brands also avoided the indignity of ranking dead last in Brand Keys' survey, meaning Toyota, Volvo, and Honda also ranked well in terms of driving customer engagement and loyalty.
The surprising brand that came in dead last in Brand Keys' survey was Volkswagen (NASDAQOTH:VWAGY).
Although its ranking may not come as a shock to some readers given its weak 2013 U.S. sales performance in lieu of the gains witnessed by most of its peers, I was a bit taken back by Volkswagen bringing up the caboose simply because I'm surrounded by VW faithful up here in the Pacific Northwest. As Marketing Daily's Karl Greenberg put it in January, "While the brand has no problem on the recognition side, consumers, especially young people, are not putting Volkswagen on their consideration lists." Just as we saw at last week, catering to young drivers, while potentially a margin-killer, can set a brand up for success down the road when those buyers get better jobs and move up to higher-margin and higher-priced vehicles. If Volkswagen's designs aren't hitting home with today's youth, then its future sales goals are going to be very difficult to meet.
Also, Vinay Shahani, Volkswagen's VP of marketing in America, in an interview with Marketing Daily noted that VW's marketing budget is significantly smaller than that of its peers, forcing it to work more effectively with its ads to reach a broader audience. If those messages fail to reach home, Volkswagen could find itself in trouble.
In response to its weaker brand loyalty, VW is completely redesigning its website which should make it more pleasing and user-friendly to young adults, as well as turning its effort to rebranding its cars as reliable and consistent. Ultimately, most car buyers want good value for their dollar, and by focusing its advertising on instilling a sense of reliability in its brands VW hopes to stem its recent U.S. sales weakness.
It remains to be seen if these changes will be successful for VW in the U.S., but I believe there's enough doubt created from its inability to attract younger buyers that investors may rightly remain cautious of Volkswagen moving forward.
Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
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