Hyundai's "Modern Premium" Gambit

Hyundai has been working its way out of the low-cost, low-quality basement for some time now, but even with the introduction of its Genesis luxury sedan, the brand has maintained a certain amount of working-class value appeal. That image has served Hyundai well over the last several years, when an economic downturn has sent record numbers of customers to Hyundai dealerships in search of a deal. But with a new upscale-looking design language transforming solid but uninspired offerings like the Sonata into memorable designs, Hyundai wasn’t likely to remain the scrappy, more-for-your-money underdog forever. And sure enough, Hyundai tells Automotive News [sub] that it’s getting away from the solid values of quality and practicality, and moving into the tenuous world of “premium” brand placement. Executive Vice President for global marketing Cho Won Hong explains

In the past 10 years, we have been very successful in building an image for quality. From now on, our direction will be defined as new premium or modern premium. We have been doing quite well in building good functional quality. But we still have some room to improve our emotional quality, and that is related to our brand strategy. That’s why we set modern premium as the brand direction for the next five to 10 yearsAnd to some extent, Hyundai has little choice in the matter. Its Kia subsidiary occupies a kind of half-step lower in terms of “premiumness,” but as Kia rides the styling of Peter Schreyer to an ever-more upscale image, Hyundai has to stay one step ahead. Especially now that Hyundai has done the Genesis one better and is now selling its $65k Equus large luxury sedan. According to Cho, Hyundai’s goal is an “attainable premium” positioned above the Japanese mass-market brands, but below established luxury brands like Lexus and the Germans.In pursuit of this new positioning, Hyundai plans on rolling out a new marketing effort, including a new slogan to replace “Drive Your Way.” In addition to marketing and ad efforts, Hyundai is also undertaking a renovation of the brand experience from the dealer level up, including:— A “substantial increase” in marketing funding

— A new dealer and salesperson education program

— An improved global dealer showroom identity.

But none of these upgrades are free, and as a result, Hyundais will become more expensive. Says ChoObviously, there will be some price increase. If we deliver premium value to the customers and they recognize the value, then that’s the time we can increase our prices.Which is not a horrible idea in the short term, considering that Hyundai’s inventories of its best-selling vehicles (Sonata, Tucson, Santa Fe) are below 30 days supply according to AN [sub]. But the strategy isn’t as simple as raising prices either. Hyundai needs to offer the kinds of vehicles that command higher prices and leverage their improved brand experience, and in today’s market that comes down to crossovers. Hyundai’s USA boss John Krafcik tells Bloomberg Cars are where our dramatic volume gains came from, but we’ve been underrepresented on the growth side with crossovers and SUVs We have lots of upside opportunity on the car-based, light truck side of the market, in crossoversIn the short-term, Krafcik isn’t committing to new products, but says Hyundai needs to boost production of the Tucson, Santa Fe and Veracruz. But down the road, moving Hyundai upmarket will require a more thorough approach to the crossover market, a task it now lags behind Kia at.And throughout all the talk of a newly-upscale Hyundai brand image there’s still one major contradiction at the heart of the matter. Hyundai’s global design chief encapsulates the current state of affairs well when he saysOur product is much better than our reputation. People are beginning to realize the real value.Which is the ideal place for a value brand to be. But because Hyundai has been disciplined, and its vehicles are starting to sell out just as its value message is hitting its stride, does not mean that the move upmarket will be without its stumbles. After all, people recognize the “real value’ of Hyundai right now because the designs are fresh and the prices are still quite low. Will consumers continue to clamor for Hyundais when the prices creep closer to the Japanese competition? Hyundai’s maintained its value focus so well for so long, any move upmarket is a major gamble.