Journal of Product & Brand Management

Brand corrosion: mass-marketing's threat to luxury automobile brands after merger and acquisition
Pavel Štrach André M. Everett
Article information:
To cite this document:
Pavel Štrach André M. Everett, (2006),"Brand corrosion: mass-marketing's threat to luxury automobile brands after merger and
acquisition", Journal of Product & Brand Management, Vol. 15 Iss 2 pp. 106 - 120
Permanent link to this document:
http://dx.doi.org/10.1108/10610420610658947
Downloaded on: 04 January 2015, At: 10:32 (PT)
References: this document contains references to 107 other documents.
To copy this document: permissions@emeraldinsight.com
The fulltext of this document has been downloaded 10506 times since 2006*
Users who downloaded this article also downloaded:
Downloaded by UNIVERSITY OF OTAGO At 10:32 04 January 2015 (PT)

Alessandro Brun, Alessandro Brun, Cecilia Castelli, (2013),"The nature of luxury: a consumer perspective", International Journal
of Retail & Distribution Management, Vol. 41 Iss 11/12 pp. 823-847 http://dx.doi.org/10.1108/IJRDM-01-2013-0006
Oriol Iglesias, Jatinder J. Singh, Mònica Casabayó, Kuang-peng Hung, Annie Huiling Chen, Norman Peng, Chris Hackley,
Rungpaka Amy Tiwsakul, Chun-lun Chou, (2011),"Antecedents of luxury brand purchase intention", Journal of Product &
Brand Management, Vol. 20 Iss 6 pp. 457-467 http://dx.doi.org/10.1108/10610421111166603
Stuart Roper, Robert Caruana, Dominic Medway, Phil Murphy, (2013),"Constructing luxury brands: exploring
the role of consumer discourse", European Journal of Marketing, Vol. 47 Iss 3/4 pp. 375-400 http://
dx.doi.org/10.1108/03090561311297382

Access to this document was granted through an Emerald subscription provided by 203778 []
For Authors
If you would like to write for this, or any other Emerald publication, then please use our Emerald for Authors service
information about how to choose which publication to write for and submission guidelines are available for all. Please visit
www.emeraldinsight.com/authors for more information.
About Emerald www.emeraldinsight.com
Emerald is a global publisher linking research and practice to the benefit of society. The company manages a portfolio of
more than 290 journals and over 2,350 books and book series volumes, as well as providing an extensive range of online
products and additional customer resources and services.
Emerald is both COUNTER 4 and TRANSFER compliant. The organization is a partner of the Committee on Publication Ethics
(COPE) and also works with Portico and the LOCKSS initiative for digital archive preservation.

*Related content and download information correct at time of download.

 Brand corrosion: mass-marketing’s threat
to luxury automobile brands after
merger and acquisition
Pavel Štrach
University of Economics, Prague, Czech Republic, and
André M. Everett
University of Otago, Dunedin, New Zealand

Abstract
Purpose – The purpose of this research is to explore the practical implications of brand management decisions, particularly those involving the
combination of luxury and mass-market brands within the same organization through merger or acquisition. The aim of the paper is to expand brand
theory by linking it to administrative heritage in the context of the increasingly integrated global automobile industry.
Design/methodology/approach – Integrated case studies of Jaguar, Mercedes-Benz, and Saab illustrate the effects of brand extension and dilution
Downloaded by UNIVERSITY OF OTAGO At 10:32 04 January 2015 (PT)

through the lenses of brand development, luxury brands, and administrative heritage theories. The recent history of acquisitions and mergers involving
luxury automobile brands provides background to the in-depth examination of these three specific instances. Conclusions are reached by comparing
and contrasting the experiences of these firms relative to their mass-market siblings.
Findings – The blending of luxury and mass-market automobile brands in one corporate portfolio engages advantages of scale and scope economies,
but induces potentially fatal brand corrosion. Consumer perceptions of luxury brands are influenced by the degree of commonality with the associated
mass-market brands, independent of whether the luxury brand or the mass-market brand is the dominant corporate vehicle.
Originality/value – The paper provides insights useful to practitioners as well as academic researchers. The novel juxtapositioning of the concepts of
luxury brands, administrative heritage, and global strategic management through mergers/acquisitions demonstrates the unintended consequences of
complex interactions in a dynamic industry. The paper concludes with suggestions for further research.

Keywords Brands, Acquisitions and mergers, Brand extensions, Globalization, Automobile industry

Paper type Research paper

An executive summary for managers and executive
readers can be found at the end of this article.
Introduction
Recent empirical research indicates that mergers and
acquisitions can induce innovation (Prabhu et al., 2005),
which leads to higher firm and brand value (Pauwels et al.,
2004). This contrasts with the results of acquisition processes
in the automotive luxury segment, where new up-market
models based on their mass-market sister products have failed
to boost the premium brand’s market value. Attempts to
create mass-luxury are an inherent consequence of the
strategic direction implemented by major multinational car
manufacturers with respect to their premium-brand
acquisitions. The strategies resulting from such mergers or
acquisitions can inadvertently lead to “brand corrosion” –
evaporation of distinctive features, attempts to appeal to new
customer segments while not building on brand heritage, and
boosting production figures through less expensive models or
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1061-0421.htm
Journal of Product & Brand Management
15/2 (2006) 106– 120
q Emerald Group Publishing Limited [ISSN 1061-0421]
[DOI 10.1108/10610420610658947]
reduced attention to quality. Such strategies, emphasizing cost
savings and operational efficiencies rather than market-related
performance, are the result of insufficient customer
orientation during integration (Homburg and Bucerius,
2005).
Nearly all new car models constitute brand extensions,
capitalizing on current consumer perceptions and positioning
the new model within the brand family. In some cases,
established model names have been continued for essentially
new products (e.g. the Toyota Corolla, Volkswagen Golf, and
Ford Mustang have been marketed for more than two
decades, with substantial changes). Step-down vertical brand
extension (Kim and Lavack, 1996) can partly explain the
resulting brand corrosion. Brand dilution, caused by over-
extension of models and production quantities, has been
observed in more prestige brands, including automobiles
(Chen and Chen, 2000; Kirmani et al., 1999), although this
same effect was not confirmed in the case of master brands
(Leong, 1997). The negative impact of extensions on brand
dilution has been researched through focus groups and
market experiments in fast-moving consumer goods (FMCG)
(e.g. Martı́nez and Pina, 2003; Glynn and Brodie, 1998; John
et al., 1998; Loken and John, 1993).
Generation of a new theoretical perspective, rather than
confirmation and verification, indicates that a qualitative
paradigm should be employed (Deshpande, 1983). The
examination presented here is based on case studies, an
established research methodology (Whitley, 1932) recognized
in mainstream academic literature in domains such as

106
 Brand corrosion
Pavel Štrach and André M. Everett
sociology (Kiser, 1997), law, economics, and history. Case
studies are used for in-depth contextual analysis of events or
conditions which, although significant, occur only in small
numbers (Cooper and Emory, 1995), or concern marketing
cognition and symbolism (Deshpande and Webster, 1989).
Yin (2003) suggests picking cases with diverse initial
conditions (literal replication), which are represented here
by different ownership, company size, and country of origin.
Eisenhardt (1989, 1991) proposes that cases should be
presented until “theoretical saturation” is reached.
This paper integrates three otherwise separately presented
fields – brand development, luxury brands theory, and
administrative heritage of large transnational companies. The
latter term builds on Bartlett and Ghoshal’s (2000) suggestion
that multinational corporations (MNCs) are captives of their
past and therefore their administrative heritage can
significantly inhibit their attempts to change. Three
premium brands – Jaguar, Mercedes-Benz, and Saab – are
utilized as examples, examining relevant aspects of their
Downloaded by UNIVERSITY OF OTAGO At 10:32 04 January 2015 (PT)
corporate and brand histories preceding and following
mergers with and/or acquisitions by mass-market
corporations. While Jaguar and Saab were acquired by the
two largest US auto makers, the parent of Mercedes-Benz
reversed this situation by taking over the third of the US Big
Three. All three situations represent a clash between
American and European perceptions of brand management,
with divergent outcomes. The nature of premium brands is
not based purely on their boutique status (e.g. Jaguar and
Saab), as demonstrated by the annual million-vehicle sales of
Mercedes-Benz, supporting the optimistic sales growth
expectations of the two US parents. However, the
distinctiveness of exclusivity is a material component of
brand perceptions, as confirmed in a recent study of car brand
communities (Algesheimer et al., 2005).
Substantial acquisition, and even some divestment, of
established automotive luxury brands became a central part of
the strategic game among the dominant car manufacturers
beginning in the mid-1980s, featuring ownership transitions
of premium marques such as Rolls Royce, Bentley, Ferrari,
Maserati, Lamborghini, Bugatti, and Lotus, as well as
somewhat less exclusive makes such as Jaguar, Aston
Martin, Volvo, Alfa Romeo, and Saab. Brand management
at Detroit’s Big Three (General Motors, Ford, and Chrysler)
became a focus of interest in the early 1990s (Lienert, 1998).
Recognition arose that automobile brands were less developed
than brands in other sectors such as FMCG (Goodyear,
1996).
This paper is organized as follows. First, the history of
luxury automobiles is briefly introduced, indicating why they
differ and what is occurring in the premium brand market.
Next, the brand development model introduced by Goodyear
is overviewed. Subsequent sections are devoted to in-depth
analyses of three case brands (in alphabetical order): Jaguar,
Mercedes-Benz, and Saab. The paper concludes with a
discussion of lessons that may be learned from these three
stories, providing links to both theory and practice.
Literature review
Luxury items are typically expensive (both in relative and
absolute terms), somewhat “trivial”, and without any clear
functional advantage over their counterparts (Dubois and
Duquesne, 1993). They feature a unique set of
107
Journal of Product & Brand Management
Volume 15 · Number 2 · 2006 · 106 –120
characteristics, including consistently premium quality,
craftsmanship, recognizability, exclusivity, reputation,
distinctive variation, timing, and a clear reflection of
personality, values, and heritage, as well as “association with
a country of origin that has an especially strong reputation as
a source of excellence in the relevant product category”
(Nueno and Quelch, 1998, pp. 62-63). Five dimensions
differentiating luxury brands were empirically derived by
Vigneron and Johnson (2004), resulting in factors they
labeled conspicuous, unique, quality, extended self, and
hedonic. Important features of luxury products include
superb quality, aesthetic design, and excellent service
(Dubois and Duquesne, 1993). Additionally, luxury brands
must be perceived as luxurious, because they act not only as
standards of excellence but also as social codes. Luxury
brands typically combine an international reputation,
elements of fantasy and desire, and limited distribution,
imbuing them with rarity and desirability (Kapferer, 2001).
Not all luxury goods possess the same degree of
distinctiveness and exclusivity. “For instance, a Cadillac and
a Rolls-Royce may be both perceived as luxury cars, but one
compared with the other would be considered more
luxurious” (Vigneron and Johnson, 2004, p. 485). Following
demographic and economic trends including smaller family
sizes in developed nations and increasing consumer
purchasing power in developing countries, luxury markets
have expanded over the previous decade (Fiske and
Silverstein, 2004). Higher accessibility and wider circulation
of luxury goods led some professionals to distinguish between
“supraluxury” and “mass luxe” (Jordan Keane and McMillan,
2004) or to talk about “the mass marketing of luxury”
(Nueno and Quelch, 1998). This study examines the set of
automobile brands with a low ratio of function to price,
regarded as status symbols while simultaneously being
manufactured by the thousands on traditional assembly
lines. The terms “luxury” and “premium” are utilized
interchangeably here to reflect the nature of these brands,
located below the supraluxury market.
The notion of a luxury car varies widely in the literature.
For example, Rosecky and King (1996) cite five different
definitions and limit their study to owners of Mercedes,
BMW, Jaguar, Cadillac, Lincoln, Lexus, Infinity, and Acura
brands. Is a $50,000 Ford a luxury? What about a $20,000
BMW? It is probable that no strict financial criterion can be
applied. Luxury car drivers are usually status seekers, older or
retired males, highly educated, and high income people
(Choo and Mokhtarian, 2004). Although only 20 percent of
the sales of luxury products are men’s products, most luxury
goods are purchased by men (Nueno and Quelch, 1998).
Older consumers search for less information before they
realize a purchase (Srinivasan and Ratchford, 1991) and
consider fewer brands (Lambert-Pandraud et al., 2005),
making them more susceptible to traditional brand-heritage
considerations (Ewing et al., 1995); in turn, this makes their
purchase decisions more vulnerable to strategic brand
repositioning.
Overview of the luxury car market
The combined market share for all premium brands in the
world’s largest car market (the USA) has increased steadily
since 1986. Up to 1996, total sales accounted for 5 to 7
percent, but unit sales grew by 17 percent annually between
1997 and 2002 (Mintel, 2003), lifting luxury brands’ market
 Brand corrosion
Pavel Štrach and André M. Everett
share to 10.2 percent in the first half of 2003 (Ward’s Auto
World, 2003). By 2009 the North American luxury car
segment is expected to rise a further 69 percent to 1.26
million vehicles annually (Henderson, 2005). Several newly-
created luxury brands (including Lexus, Acura, and Infiniti)
were originally developed for and marketed only in the USA,
taking advantage of market characteristics attributed to both
cultural adolescence and a generally shorter memory among
American consumers (Simister, 2004a).
This examination of the recent dramatic changes of
ownership of luxury automobile brands focuses on the past
two decades; some brief highlights follow. Toyota made its
first move into the premium segment by purchasing Lotus in
1984. This brand was sold to GM in 1988, once Toyota had
absorbed Lotus’ multivalve engine technology and adapted it
for mass production. GM subsequently shunted the brand
into near-bankruptcy before taking its hands off in 1996,
happily leaving the company to be acquired by Proton of
Malaysia (which is now using Toyota engines in some Lotus
Downloaded by UNIVERSITY OF OTAGO At 10:32 04 January 2015 (PT)
models). From 1988 to 1993, GM-owned Bugatti
experienced a similar troublesome story. Bugatti became a
part of the Volkswagen (VW) Group, together with
Lamborghini, in 1998. Lamborghini was originally
purchased by Chrysler (1987), but sold off to Indonesian
investors in 1994. Fiat began its luxury acquisitions in 1969
with a 50 percent stake in Ferrari, purchased from its founder
Enzo Ferrari; buying an additional 40 percent in 1988 gave it
nearly complete control. Fiat gained further experience with
the sporty brand Alfa Romeo, obtained in 1986, before
purchasing Maserati in 1993.
Ford has accumulated specialty brands consistently since
1987, when it purchased Aston Martin. More recent
acquisitions by the Premier Automotive Group (a division
of Ford) include Land Rover (2000), Volvo (1999), and
Jaguar (1989). Since 1998, the Volkswagen group has owned
Bugatti, Bentley, and Lamborghini. In 2000, BMW withdrew
from its six-year marriage with MG-Rover, retaining the right
to produce an upwardly re-priced Mini. BMW added Rolls
Royce to its portfolio in 2003 (from 1998 to 2003, this brand
was managed by Volkswagen). Such acquisitions and their
management have been far from trouble-free, since their
inception (Feast, 1998).
The inherent aim of luxury acquisitions – creating mass
demand for niche products by capitalizing on large-scale
production efficiencies – is intrinsically illogical for luxury
brands, although it appeals economically. For example, losing
a niche orientation by sharing platforms and engines with
humdrum sister marques at Ford and GM has led some
customers to express concerns that new models are not real
Saabs or Jaguars (Stones, 2004). A parallel situation has
occurred at DaimlerChrysler, where some Mercedes-Benz
models have been perceived as too similar to Chryslers or
Mitsubishis due to shared features and components.
An emerging relationship between country of (group) origin
and treatment of premium brands can be identified in Table I.
Over the past 20 years US automotive multinationals have
preferred to acquire established premium brands rather than
developing their own. However, they force their luxury
divisions to share platforms with the mainstream divisions.
This is consistent with the findings of Bartlett and Ghoshal
(2000), who describe US-based MNCs as coordinated
federations, where formal control procedures over
subsidiaries are in place. A major bottleneck affecting this
108
Journal of Product & Brand Management
Volume 15 · Number 2 · 2006 · 106 –120
type of organization is hypothesized to be “a parochial and
even superior attitude towards international operations,
perhaps because of the assumption that new ideas and
developments all came from the parent” (Bartlett and
Ghoshal, 2000, p. 509).
European MNCs typically configure themselves as
decentralized federations, with national subsidiaries loosely
controlled and primarily focused on their local markets. They
also display distinctively national characteristics. In the case of
German-American DaimlerChrysler and German BMW, the
parent company is the birthplace of the group’s luxury
brands, fostering a perception of credibility and engineering
quality. The German VW Group supports individual
development of Bentley, Bugatti, and Lamborghini models,
but the engines and platforms of its Audi models are shared
with its other core brands, Volkswagen, Seat, and Škoda.
Neither of the two remaining French manufacturers, PSA
(Peugeot and Citroën) and Renault, offers its own luxury
brand, which is noteworthy considering that Moët Hennessy,
Louis Vuitton, Coco Chanel, Christian Dior, and many other
distinctive luxury marques originate in France. Fiat’s
approach can be seen as a continuation of Italy’s famous
sports car tradition, where Ferrari and Maserati share hardly
anything with their cheaper siblings; Italy does not produce
non-sporty luxury vehicles. In this context, Yamawaki (2002)
differentiates the pricing strategies of European car makers
based on their country of origin.
MNCs of Japanese origin tend to exhibit the organizational
structure termed centralized hub (Bartlett and Ghoshal,
2000). Centrally controlled units produce global products,
aiming at efficiency and quality, with a strong emphasis on
engineering design (through quality function deployment and
similar approaches) at their headquarters. Although Japanese
cars of the 1970s were patterned after American limousines,
their manufacturers did not introduce upscale versions,
developed internally, until 1986 (Acura) and 1989 (Infiniti
and Lexus). All three brands maintain a sharp distinction
from their parent companies in the North American market,
although Lexus is still sold in Japan under the Toyota badge,
while Infiniti and Acura are marketed as models within the
Nissan and Honda range elsewhere.
Since the initial announcement of the merger, the situation at
DaimlerChrysler has been reported as a classic example of a
potentially successful merger in terms of minuscule internal
cannibalism threats, although as a flipside of this argument it
was deemed barely economically viable due to minimal overlap
in models and markets. DaimlerChrysler was established on the
belief that purchasing power would reduce overall operational
costs. However, the two companies were producing vastly
different products – Daimler focused on the upper end of the
international market while Chrysler produced vehicles targeted
at the middle of the US market. “Although the expensive parts
of Daimler’s vehicles could be used for more affordable
Chrysler cars and the cheaper Chrysler parts be used on
Daimler vehicles; both these moves were likely to reduce the
competitive advantage on each of the markets in which the
original companies operated. Chrysler cars could have become
less affordable while Daimler’s brand might have lost its
reputation for quality” (Rugman and Collinson, 2004, p. 478).
Car brands currently represent almost 10 percent of the
world’s most valued and respected global brands (see Table
II). Toyota is presently the most valuable car brand; in 2004 it
passed Mercedes, which held the top spot among car brands
 Brand corrosion Journal of Product & Brand Management
Pavel Štrach and André M. Everett Volume 15 · Number 2 · 2006 · 106 –120

Table I Luxury brands of the top 12 auto manufacturers

Productiona
Company (parent, alliance, or group) (million, 2004) Origin Luxury brands
General Motors 11.7 USA Cadillac, Hummer, Saab
Ford 7.8 USA Aston Martin, Jaguar, Land Rover, Lincoln, Volvo
Toyota 7.5 Japan Lexus
Renault-Nissan 5.9 France and Japan Infiniti
VW Group 5.0 Germany Audi, Bentley, Bugatti, Lamborghini
Daimler-Chrysler 4.8 Germany and USA Mercedes-Benz, Maybach
PSA 3.3 France –
Honda 3.2 Japan Acura
Hyundai-Kia 3.1 South Korea –
Fiat 2.0 Italy Alfa Romeo, Ferrari, Maserati
Mitsubishi 1.5 b Japan –
BMW 1.3 b Germany BMW, Rolls-Royce, Mini
Notes: a PriceWaterhouseCoopers (2005); b International Organization of Motor Vehicle Manufacturers (2005)
Downloaded by UNIVERSITY OF OTAGO At 10:32 04 January 2015 (PT)

Table II Most valued global car brands (2000-2005, $ millions) major auto market in terms of volume, is beginning to show
both the intention and capability of producing its own luxury
Brand 2005 2004 2003 2002 2001 2000 2005/2000 brands, as evidenced at the Beijing Autoshow 2004, where
Toyota 24,837 22,673 20,784 19,448 18,578 18,824 þ 32% Daimler-Chrysler broached plans to sell in China 1,000
Mercedes-Benz 20,006 21,331 21,371 21,010 21,728 21,105 2 5% Maybachs per year; Porsche echoed that goal a year later at
BMW 17,126 15,886 15,106 14,425 13,858 12,969 þ 32% the Auto Shanghai show, aiming to sell 1,000 in China during
Honda 15,788 14,874 15,625 15,064 14,638 15,245 þ4% 2005 (Li, 2005). Ferrari (2005) claimed that, for calendar
Ford 13,159 14,475 17,066 20,403 30,092 36,368 2 64%
year 2004, “New and growing markets (China, Russia,
Eastern Europe and South America) contributed substantially
Volkswagen 5,617 6,410 6,938 7,209 7,338 7,834 2 28%
to volumes increase, without jeopardizing the exclusivity of
Porsche 3,777 3,646 a a a a
a a a a the brand.” Production of Cadillacs officially commenced in
Audi 3,686 3,288
a a a a a GM’s new Shanghai factory on 25 May 2005 (General
Hyundai 3,480
Motors, 2005).
Nissan 3,203 2,833 2,495 a a a

Note: a Not featured among top 100 global brands for the year
Source: Annual research compiled by Interbrand and published in Business
Week (2001, 2002, 2003, 2004, 2005)
for the two preceding years. Prior to that, Ford was far and
away the leader, peaking at the world’s seventh most valuable
brand in 2000. Volkswagen also faced a sharp brand value
decrease, although its luxury Audi brand more than offset the
loss while entering the chart in 2004 and increasing in value in
2005. Among luxury car brands, only four (all German)
ranked among the top 100 most valued global marques of
2005. Mercedes-Benz maintained its absolute value while
BMW added substantially to its brand value. The German
origin of the most valued global luxury car brands supports
the importance of administrative heritage and demonstrates
country of origin effect. Toyota’s and Nissan’s gains may be
connected to the rising reputation of their luxury divisions,
which badge cars under the main brand, whereas Ford’s
Premier Automotive Group vehicles are sold under their own
brands and therefore do not affect the value of the Ford brand
itself (although they do affect the value of the company).
Korean and Chinese car makers will probably have their
luxury say in the near future. The Koreans are now selling
locally their President, Equus, Chairman, and similar
(licensed and un-licensed) emulations of American,
German, and Japanese limousines, and the drive to establish
their own luxury makes is strongly evident. China, as the third
Contextualizing brand development
Brands and branding strategies affect the value of companies
and thereby serve as a measure of their success (e.g. Aaker
and Jacobson, 1994; Rao et al., 2005), and are even
considered a key to their survival (Aaker, 1997).
Development of a brand usually takes three to five years
and is of critical importance for the success of car
manufacturers (A.T. Kearney, 2001). Goodyear (1996)
recognized six stages in brand development, in this context
applied to luxury car marques (see Table III). According to
Goodyear, perception and strength of a brand will depend on
the maturity of consumerism in the market, on brand
marketing, and on the level of customer loyalty. Customer
loyalty depends on both market maturity and brand
marketing, which in turn includes aspects such as customer
service and trust (Reast, 2005; Delgado-Ballester and
Munuera-Alemán, 2001, 2005; Andreassen and Lindestad,
1998). Empirical research has shown that luxury car
purchasers are more loyal to the segment at large than to
any particular luxury brand (Colombo et al., 2000). As an
example of a strategy designed to counter this effect, Volvo
attempts to implant the company’s core values into customers
and create the brand through personal identification of buyers
with the brand (Urde, 2003).
This study explores the impacts of a change in the form of
ownership of luxury brands, from independent firms targeting
top-end markets to global giants intent on capitalizing on the
brand while gaining economies of scale. The number of

109
 Brand corrosion Journal of Product & Brand Management
Pavel Štrach and André M. Everett Volume 15 · Number 2 · 2006 · 106 –120

Table III Six stages of brand development

Stage Attributes Luxury car brandsa
Unbranded Commodities, packaged goods –
Major proportion of goods in non-industrialized contexts
Minor role in Europe/USA
Supplier has power
Brand as a reference Name used for identification Acura, Hummer, Infiniti, Land Rover, Lexus, Lincoln
Any advertising support focuses on rational attributes
Name over time becomes guarantee of quality/consistency
Brand as personality Brand name may be “stand-alone” Alfa Romeo, Aston Martin, Jaguarb, Maserati, Mini, Saabb, Volvo
Marketing support focuses on emotional appeal
Product benefits
Advertising puts brand into context
Brand as icon Consumer now “owns” brand Audi, BMW, Cadillac, Lamborghini, Mercedes-Benzb
Brand taps into higher-order values of society
Advertising assumes close relationship
Use of symbolic brand language
Downloaded by UNIVERSITY OF OTAGO At 10:32 04 January 2015 (PT)

Often established internationally

Brand as company Brands have complex identities; consumer assesses them all Bentley, Bugatti, Ferrari, Maybach, Rolls Royce
Need to focus on corporate benefits to diverse “customers”
Integrated communication strategy essential though-the-line
Brand as policy Company and brands aligned to social and political issues –
Consumers “vote” on issues through companies
Consumers now “own” brands, companies and politics
Notes: a Only brands from Table I, belonging to the top 12 companies, are included; b As the focus of this study, the placement of Saab, Jaguar, and Mercedes-
Benz is examined in greater detail within the text
Source: Adapted from Goodyear (1996, pp. 114 and 119) (car brands column added)

luxury automobile brands today is relatively small, and each
has a unique story to tell; three will be addressed in the case
studies presented here. First, Jaguar’s fluctuating sales,
divergent model releases, and recently announced plant
closures (with redundancies) are only the most evident issues
Jaguar has had to deal with. Second, Daimler-Benz’s
acquisition of Chrysler continues to produce unforeseen
consequences and periodic reversals of fortune. It also
constitutes the unique occurrence in the automobile
industry of a luxury brand buying a mass-market
manufacturer. The dramatic decline in consumer
evaluations of Mercedes-Benz automobiles and speculation
that cross-brand sharing is to blame adds tension to the
situation. Finally, Saab is of particular interest as its
acquisition by General Motors began relatively early, and
remains an ongoing saga with direct links to research on the
impacts of administrative heritage on luxury branding.
General Motors recently announced that it will relocate
manufacturing mid-size and development of all Saab cars
away from Sweden, leading to speculation about the possible
discontinuation of the brand.
Case 1: Jaguar
Since its founding in the 1920s, the name of Jaguar has been
inextricably linked with high performance, as exemplified by
its championships beginning in the 1930s at Le Mans (seven
times), the Monte Carlo Rally (twice), and countless other
events. Luxury and performance intertwine to form the
personality of the marque, sometimes described more as a
mystique or a phenomenon than “just” another brand.
Treated as an iconic brand in its English homeland, Jaguar
has attained the status of “brand as personality” (based on
Goodyear’s classification) in the USA, its major market by
volume, since its acquisition by Ford in 1989. However, it
seems that the brand has been personally identified with old
upper-class male drivers (Stones, 2004).
Prior to its acquisition by Ford in 1989, Jaguar experienced
major restructuring, passing through the bureaucratic hands
of British Leyland, which discontinued perhaps the most
famous Jaguar model (E-Type), presented Jaguars jointly with
other brands at auto shows, and induced a lengthy, painful
strike in 1980. Jaguar was reasonably profitable after
separation from Leyland, reporting record sales of 49,500
vehicles in 1988, the year before its acquisition by Ford. The
workforce numbered 12,000. A widely recognized and real
problem was the infamous sloppy quality and outdated work
practices throughout the company (Feast, 1998). Quality
issues permeated public anecdotes about the brand. Difficult
trading conditions led Jaguar to consider potential
collaboration with a larger car manufacturer. General
Motors and Jaguar discussed cooperation in manufacturing
and marketing, and acquisition of a minority stake in Jaguar
by GM. At the time, Ford was racking up experience with
second-hand sports car brands. In 1970, it acquired Ghia
(producer of Ghia and De Tomaso cars), a famous design
studio in Torino, Italy – and promptly downgraded the brand
into a mere label for Ford’s own top lines. In 1987, it
purchased three-quarters of sports car maker Aston Martin,
completing the acquisition in 1993. Ford opened negotiations
with Jaguar in September 1989, and repeatedly announced its
intention to make a full bid for the company. Ford’s offer of

110
 Brand corrosion
Pavel Štrach and André M. Everett
$2.55 billion was hard to resist and swiftly extinguished the
prospects for GM.
In 1992, Jaguar sold just 22,478 cars, half of the pre-Ford-
takeover number. In 1993 the new owner installed a new
assembly line at the Browns Lane factory in Coventry. Jaguars
started improving in quality and reliability. However,
production figures did not recover to the 1988 level until
1998, and then shot upwards to attain 120,570 vehicles sold
in 2003. The challenging era for the Jaguar name began with
Ford’s $1.3 billion development of the S-Type and X-Type
models, which would lead the brand into the twenty-first
century.
The S-Type, mid-sized sports saloon joined the Jaguar fleet
in 1998 as the first model fully developed under Ford’s
stewardship. Before this model, Jaguar sourced about 65
percent of its parts within the UK, a figure which dropped to
40 percent for the new model, showing the larger share of
foreign (Ford) components (DTI/SMMT, 1999). The vehicle
shared its platform with sisters Lincoln LS, Ford
Downloaded by UNIVERSITY OF OTAGO At 10:32 04 January 2015 (PT)
Thunderbird, and the new Ford Mustang (announced for
2005). Jaguar crossed the magic line of 50,000 units sold in
one year and sales were predicted to climb to 85,000 in 1999
and 90,000 in 2000 (Bruce, 1998). Anticipating the arrival of
the X-Type, sales for 2002 were forecast to skyrocket to
200,000 units (Jaguar USA, 2004).
Ford’s Halewood (UK) plant was built in 1962 and
assembled its last Ford Escort in June 2000. The
plant underwent a large scale transformation to support the
new X-Type, which was unveiled during the Geneva Motor
Show in 2001 and promptly labeled “baby Jag”. The X-Type
shared its platform with the markedly cheaper Ford Mondeo
and was the first model for the brand featuring four wheel
drive technology. The X-Type has suffered build quality issues
since its launch (Richards-Carpenter, 2003). The model
should have attracted younger buyers and should have opened
up a bright future for the established make (Burt, 2001a).
However, elderly customers downsized to the cheaper car and
the perception of Jaguar being an old man’s car was not lifted
(Stones, 2004).
A few months later, the 1.5 millionth automobile bearing
the Jaguar badge was celebrated in Browns Lane. Not far
away, a new 40-hectare design and development center
opened in Whitley, accommodating an additional 2,500
engineers. In 2002, the company admitted it had over-
estimated the sales volume for the X-Type (Grant, 2002) and
production was slowed for several weeks in September and
October to clear unsold stock. The 2002 model year featured
another new arrival to the product range; the traditional body-
type XJ saloon replaced the previous XJ8 model. The new XJ
made heavy use of aluminum parts, resulting in a light, strong
chassis. An extension to the regular sedan series, the S-Type R
was one of the most powerful mass-produced saloons in the
world, featuring a 4.2 liter eight-cylinder turbocharged engine
capable of accelerating from 0 to 60 mph in just 5.3 seconds.
Jaguar sales surged from around 50,000 at the time of
Ford’s acquisition to 130,000 in 2001, but then began to
contract. The cardinal change in the sales pattern was
achieved with introduction of the S-Type and X-Type, the
first Jaguar vehicles attracting mass attention. However,
tripling sales logically implies less distinctiveness and
exclusivity for the marque.
Jaguar today has facilities located at Castle Bromwich in
Birmingham (production of S-Type), Whitley in
111
Journal of Product & Brand Management
Volume 15 · Number 2 · 2006 · 106 –120
Coventry (engineering), Halewood on Merseyside
(production of X-Type), and Browns Lane in Coventry
(production of XJ limousine and XK sports coupe). Some
engines are produced in the Ford engine factory at Bridgend,
South Wales. Jaguars are marketed in over 70 countries with
the most important single market being the USA followed by
domestic sales within the UK.
The year 2004 was particularly colorful and critical for the
British marque. Two Peugeot-engineered diesel engines
were introduced in the X-Type (four-cylinder) and S-Type
(six-cylinder). Ford relinquished its own engineering efforts
targeting such engines, which previously occurred at the
Whitley development center. As diesel fueled vehicles have
become increasingly popular, these models should boost the
company’s coffers by attracting more European customers.
In order to expand sales of the X-Type, Jaguar introduced
its first-ever station wagon in the 2004 season. Originally, this
vehicle was not intended to be marketed in the USA, but
lower than expected sales of the X-Type there reversed this
decision, and the X-Type sports wagon faced American
customers starting in October 2004. The Jaguar S-Type
received extensive exterior modifications as well as a new
aluminum hood, a more luxurious interior, and a new
suspension system (Hammonds, 2004).
In the second quarter, Ford reported a $362 million loss for
its Premier Automotive Group (consisting of Jaguar, Land
Rover, Volvo, and Aston Martin), out of which Jaguar
accounted for about half, $178 million. In September, Ford
announced a $450 million restructuring plan for Jaguar,
featuring closure of the Coventry factory. 400 voluntary
redundancies were expected as a result of shifting production
to Castle Bromwich. 750 white collar jobs would be lost at
Coventry and in other parts of the company. 300 jobs would
shift to the Aston Martin factory in Gaydon. Jaguar’s
headquarters and wood veneer manufacturing (with about
310 staff in total) would remain at Browns Lane. General
secretary of the Amicus labor union Derek Simpson claimed
that “Ford’s decision may kill off Jaguar” (BBC, 2004). Ford
also considered closing the Land Rover plant in Solihull.
Some industry experts suggested that Jaguars should be made
at only one plant, potentially outside the UK (BBC, 2004).
Coventry’s new city stadium, under construction, was
intended to be named Jaguar Arena, given the company’s
approximately £7 million pound sponsorship. However, three
months after announcing the closure of its factory there,
Jaguar withdrew from the deal, leaving some locals with a
bitter impression. One wrote the following on a BBC “Have
Your Say” web site:
When jaguar announced it was to sponsor the arena it appeared they were
leaving a legacy in the city after announcing the closure of the Browns Lane
factory, withdrawing this sponsorship is a kick in the teeth to the people of
Coventry, though why should Ford care, I suggest that everyone associated
with the city SHOULD NEVER BUY A FORD AGAIN (Sutherland, 2005).
Ford’s restructuring included Jaguar’s exit from the Formula
One championship following the last race of the 2004 season,
when the Jaguar Racing team placed seventh in
the constructor’s championship with ten points, far behind
first-place 262-point Ferrari (as well as BAR-Honda, Renault,
BMW-Williams, McLaren-Mercedes, and Sauber-Petronas)
(Formula1, 2004). Nonetheless, engagement in Formula One
racing was seen by some customers as a major factor in
recreating the Jaguar brand as it symbolized performance and
technological superiority.
 Brand corrosion
Pavel Štrach and André M. Everett
It was believed that Jaguar cost Ford more than $6 billion
by 1998 in terms of purchase price, investments, loans, and
accumulated annual losses (Feast, 1998). The rise in sales
figures is attributed to the downmarket X-Type, which some
believe has destroyed the brand’s values without increasing its
long-term sales potential (Stones, 2004). The S-Type and X-
Type were both reported among the least reliable cars on the
market (Garsten, 2002), but performed well in some quality
rankings. Since 2001, studies by J.D. Power (2004) cited
Jaguar among the three top brands sold in the USA, together
with Lexus and Cadillac, in terms of initial quality.
Case 2: Mercedes-Benz
The history of Mercedes-Benz constitutes the history of the
automobile in significant ways. Two inventors – Gottlieb
Daimler (1834-1900) and Karl Benz (1844-1929) – laid
down independently of each other the foundations for some
680 million motor vehicles running worldwide by the year
Downloaded by UNIVERSITY OF OTAGO At 10:32 04 January 2015 (PT)
2000 (Soubbotina and Sheram, 2000), with another 40-plus
million added annually since then. It was Karl Benz who,
on 29 January 1886, applied for a patent for his three-wheel
gas-engine vehicle – a patent considered as the birth
certificate of the automobile. Daimler’s four-wheel
motorized carriage patented on 28 August in the same year
followed immediately in his tire tracks.
Karl Benz developed a two-stroke engine (1879) and
patented many other original solutions including an engine
speed regulation system, axle-pivot steering, and a battery
ignition system for combustion engines. Gottlieb Daimler
created and patented an uncooled, heat-insulated engine with
unregulated hot-tube ignition. This one-horse-power engine
was capable of 600 revolutions per minute (rpm), while
previous engines could achieve a maximum of 180 rpm. This
engine was installed in the world’s first motorcycle, in 1885.
The Mercedes brand was established in 1901, chosen by key
investor and dealer Emil Jellinek after the name of his
daughter. Eight years later, the three-pointed star appeared as
a Daimler trademark and from 1910 it has been a distinctive
feature of Mercedes cars. The three-pointed star (later
enclosed in a circle) was supposed to symbolize a passion for
motorization “on land, on water and in the air.” Further
engineering innovations followed, including an occupants’
safety cell (patented in 1951) and the unique 1954 gullwing
coupe with vertically-opening doors. In 1979, the company
entered a new segment with the G-series, an off-road vehicle
combining high all-terrain performance with exclusivity – a
precursor to the M-class sport-utility vehicle (SUV),
manufactured in a new plant in Tuscaloosa, Alabama since
1997. In 1988, the post-war production total of Mercedes-
Benz vehicles reached ten million.
Daimler-Benz set up a joint venture in 1994 with the Swiss
watchmaker Swatch to build a mini-car. Swatch left the mini-
car partnership in 1998, and Daimler-Benz launched the
Smart two-seat mini-car to European customers later that
year. However, its 9,000 euros price tag did not prove overly
appealing. In 1997, Daimler-Benz survived a catastrophe as
the long-awaited small A-class vehicle was flipped by a
Swedish journalist during the infamous “elk test” (swerving
around an elk on a slippery road), prompting significant
design adjustments. The A-class was re-launched a few
months later, labeled “Baby-Benz” by the press, but has not
yet become a financial success.
112
Journal of Product & Brand Management
Volume 15 · Number 2 · 2006 · 106 –120
In 1998, Chrysler, one of Detroit’s Big Three auto makers,
was just returning to financial stability; its models (such as the
retro-styled PT Cruiser and four-wheel-drive Jeep Cherokee)
were again popular, and lean production and a new, friendly
approach to customers finally made an impact. However,
vulnerability to a hostile takeover proposed by shareholder
Kirk Kerkorian was high. Daimler-Benz was actively seeking
expansion opportunities, particularly beyond the European
horizon where the company’s traditional strength lay. The
unusual combination of circumstances, managerial egos, and
dynamism of the automotive sector pointed towards future
consolidation on both sides of the Atlantic.
The date 6 May 1998 gained fame as the day of the biggest
industrial merger ever, with the new DaimlerChrysler
company valued at $75 billion. Shortly after the
announcement, analysts pointed out that in theory the
merger would lower costs through volume purchases and
slashed redundancies. On the other hand, it was evident that
Daimler-Benz’s key advantages lay in quality, innovation, and
exclusivity while Chrysler’s success was based on size, rapid
decision-making, and flexibility (Smith, 1998). Additionally,
American and German ways of running an auto maker are
based on different administrative and cultural heritages.
DaimlerChrysler was incorporated in Germany, with
Daimler-Benz shareholders receiving 58 percent of the new
firm while Chrysler shareholders received the remaining 42
percent of shares plus a cash premium of 28 percent of their
shareholding’s value (Vlasic and Stertz, 2001). On
17 November 1998, DaimlerChrysler introduced the first-
ever global registered share (GRS) under the symbol DCX,
launched simultaneously on 21 world markets (Karolyi,
2003). Both CEOs Jürgen Schrempp of Daimler-Benz and
Robert (Bob) Eaton of Chrysler became co-leaders of the
newly established company.
Within a few months Bob Eaton vacated his role of co-
chairman, leaving Mr Schrempp as sole emperor. Two years
after the merger, Jürgen Schrempp told The Financial Times
that “he never envisaged the merger as a partnership of
equals” (Burt and Lambert, 2000). Chrysler’s original
management team had been dispersed and key positions
had been occupied by German expatriates. Chrysler’s
renewed financial difficulties provided ample argument for
such an upheaval. The merger has been retrospectively
labeled a cultural fiasco (Priddle, 2000). Complicating the
situation, DaimlerChrysler acquired a controlling 34 percent
stake in enormously indebted Mitsubishi Motor Company for
$2.1 billion in 2000.
The Mercedes Car Group became a special division of
DaimlerChrysler responsible for production and marketing of
the Mercedes-Benz, Maybach, and Smart brands, while the
Chrysler Group handled Chrysler, Dodge, Plymouth, and
Jeep (Plymouth was discontinued at the end of 2000). The
merged company reported its first-ever quarterly loss due to
the poor performance of its Chrysler division in 2001.
Consequently, DaimlerChrysler announced one of the largest
restructuring plans ever undertaken by any company. 26,000
employees were “downsized” and six plants shut in the
Americas. There were rumors that the company might be
broken into parts and sold. “There is little doubt we would be
interested in parts of the business. Of course, Mercedes and
some parts of Chrysler are very attractive to any buyer,” a GM
executive said (Hickey, 2001). In 2002 DaimlerChrysler
revealed a ten-year plan to integrate more closely the
 Brand corrosion
Pavel Štrach and André M. Everett
Mercedes-Benz, Chrysler, and Mitsubishi brands, which
would cut the number of different engines and transmissions.
The overall impact of the merger on Daimler-Benz has been
reported as negative due to the loss of talent it had to divert to
both Chrysler and Mitsubishi (Chambers, 2003). A media
leak that Mercedes bought leather from Bulgaria brought
fears that its cost-cutting strategy could result in substandard
products. In terms of consumer satisfaction, Mercedes-Benz
ranked first in 1999 and 28th in 2005 out of 37 brands
(Simon and Mackintosh, 2005). In the most recent J.D. Power
customer satisfaction survey of British executive and luxury
car owners, it was revealed that the Mercedes-Benz E-Class
finished next to last and barely made the top 100 overall, with
the C-Class being only two places above the E in this sector
(What Car, 2005). Mercedes-Benz cars scored well below
industry average and shared 21st place with Seat of Spain.
Customers were particularly unhappy with the M-Class SUV
and S-Class sedan (Kelly, 2003). In 2004, DaimlerChrysler
ran into troubles again; currency effects, product changes,
Downloaded by UNIVERSITY OF OTAGO At 10:32 04 January 2015 (PT)
and quality improvement efforts were blamed for financial
difficulties in the Mercedes Car Group, and the company
reduced its stake in Mitsubishi following recalls and profit
problems there. Profits coming from the Mercedes-Benz
brand slid from 784 million Euros in 2003 to 20 million in
2004 (Smith, 2005) and declined further to an operating loss
of 954 million in the first quarter of 2005 (including Smart
restructuring costs of 800 million) (BBC, 2005a).
The quality shift which resulted from closer integration in
later stages of the merger is illustrated in Table IV, which
shows a steady decline in initial mechanical quality since
2000. (The J.D. Power Initial Quality Study looks at owner-
reported problems in the first 90 days of ownership; this score
is based on problems reported with the engine, transmission,
steering, suspension, and braking systems.)
To regain its reputation, the Mercedes Car Group
announced in 2004 that it would aim to top the J.D. Power
US survey in 2006. However, this goal was subsequently
placed under review as admittedly the J.D. Power survey may
too closely reflect American tastes, which might not be
desirable for a global car brand (Reuters, 2005). In early
2005, the new B-class sports hatchback was introduced,
increasing the number of Mercedes-Benz passenger models to
13 (smaller hatchbacks A- and B-class, classic C-, E-, and S-
class, roadsters and coupes SLK, SL, CLK, CL, SLR, and
CLS, and off-roaders M- and G-class). The company is
expected to launch its R-class sports station wagon in 2006.
Mercedes-Benz’ star decorates the grill of multi-purpose-
Table IV Initial mechanical quality of selected Mercedes-Benz models
Model 1998 1999
C-Class **** ****
E-Class ***** ****
S-Class ***** *****
M-Class **** ****
Total *s 18 17
a
*s above minimum possible 10 9 10
Notes: ***** among the best, **** better than most, *** about average, ** the rest (there is no single * rating); a maximum possible ¼ 20 *s; minimum
possible ¼ 8 *s
Source: Data from J.D. Power Consumer Center (2005)
Journal of Product & Brand Management
Volume 15 · Number 2 · 2006 · 106 –120
vehicles, campervans, vans, buses, trucks, and Unimog
vehicles for extreme conditions.
Smart cars have had a significantly negative financial effect
on the Mercedes Car Group (Smith, 2005). In April 2005, it
was announced that the Smart division would eliminate two
out of its four models and lay off 700 employees; a
restructuring charge of 800 million Euros was taken in early
2005 (BBC, 2005a). It was believed that Smart’s problem was
not the vehicle’s lack of appeal but its high production and
distribution costs (Landler, 2005). At the same time,
Mercedes recalled the largest number of vehicles in its
history – 1.3 million – to modify braking systems on E-, SL-,
and CLS-class cars built since July 2001, the voltage regulator
in alternators in six and eight cylinder vehicles built between
June 2001 and November 2004, and the battery unit software
in E- and CLS-class models made from January 2002 to
January 2005 – all of which occurred during the new era of
parts commonality across brands.
Case 3: Saab
In April 1937, a new company, Svenska Aeroplan
Aktiebolaget (Swedish Aeroplane Stock Company), later to
be known as Saab, was founded in Trollhättan in response to
governmental support for the establishment of a national
defense industry in Sweden. Within a few months, the
company launched licensed production of the German-
designed Junkers medium-heavy bombers for the Swedish
army. The company rapidly established itself as a success in
the military aircraft industry. However, the approaching end
of the Second World War implied that if the company wished
to continue operations, a search for new market opportunities
in civilian sectors would be in order. In 1946, the company
introduced a passenger car, the Saab 92. The first Saab car
was a true eye-opener, both technically and aesthetically.
Since December 1949, when the first bottle green Saab 92 left
the production line in the Swedish provincial town of
Trollhättan, almost four million Saab cars have cruised
roads worldwide, symbolizing luxury, safety, and
innovativeness. Saabs were the first cars with standard
turbocharged engines (1978), heated front seats (1971),
dual-circuit brake systems (1963), halogen headlights (1969),
side-impact bars (1972), CFC-free air-conditioning (1991),
and headlamp washers (1970). Since then, many things have
changed; nowadays the marque is battling to retain its very
nature.
Production in the 1970s peaked at 90,000 annually before
falling back to 65,000 in 1980. A new, still-standing annual
2000 2001 2002 2003 2004 2005
**** *** *** **** *** ***
***** ***** ***** ** *** ****
***** ***** **** *** ** ***
**** *** ** *** **** **
18 16 15 12 12 12
8 7 4 4 4
113
 Brand corrosion
Pavel Štrach and André M. Everett
record was reached in 1987, when 134,112 cars rolled off the
production lines. In addition to Trollhättan, by 1990 Saabs
had also been assembled in Linköping, Arlöv, Malmö (all in
Sweden), Mechelen (Belgium), and Nystad/Uusikaupunki
(Finland).
At the end of the 1980s, the high-end car market was
increasingly important, profitable, and attractive. Smaller car
manufacturers were on the block worldwide. Fiat bought Alfa
Romeo; Chrysler bought Lamborghini; GM acquired Lotus;
Ford took over Jaguar. Simultaneously, the Saab-Scania
division of the Saab Group declined negotiations with Mazda
over possible cooperation in 1989, instead signing an
agreement with Fiat. Disappointed but enlightened by its
failed Jaguar courtship, GM started secretly dating Saab.
Surprised and bewildered Fiat was suddenly left out of the
game and GM became a half-equity partner in the newly-
established joint venture Saab Automobile AB in 1990. Saab
Automobile AB was placed under the exclusive management
of General Motors Europe in Zürich (Switzerland).
Downloaded by UNIVERSITY OF OTAGO At 10:32 04 January 2015 (PT)
However, both joint venture partners subsequently claimed
continuous disappointment with company performance and
corporate governance. By the end of 1998, Saab Automobile
AB’s cumulative deficit had reached $2 billion, and additional
infusions of capital and loans from its two shareholders
totaled $1.45 billion. In January 2000, GM decided to
exercise its option to buy the remaining 50 percent share. The
acquisition was completed for $125 million, which indicates
just how sharply the company’s value had dropped when
compared with the first half bought by GM for $500 million
ten years earlier. GM, as a new owner, chose to target a new
kind of customer. GM’s idea was to build another BMW, but
18 months after acquisition, GM admitted that Saabs would
never be like the vehicles from Munich (Flint, 2002). Instead,
it decided to ramp up production, from 1990’s 100,000 to a
target of 250,000 annually.
Under GM ownership, the Saab 900 was introduced in
1994, based on the Opel Vectra. It “handled clumsily,
suffered alarming quality lapses and was later reported to have
done poorly in Swedish crash testing” (Kitman, 2004). A
refurbished Saab 900, designated Saab 9-3, was introduced in
1999 with over 1,100 improvements and changes in reaction
to the previous non-Saabish model. The 9-5, introduced in
1997 and still being manufactured in 2005, is based on Opel
platforms as well. The 9-5 retained the company’s classic
center-console ignition switch – which some critics scoffed
was the sole remaining distinctively Saab characteristic in this
model.
Hopes to lift annual production were voiced several times
during the GM era. In 2001, Saab predicted an annual output
of 230,000 to 250,000 vehicles by 2006 (Burt, 2001b). In
2002, GM revealed 135,000 to 200,000 as an optimal target
for the next five years. However, annual production remained
steady with an average of 124,000 units assembled annually
from 2001 to 2004 (International Organization of Motor
Vehicle Manufacturers, 2005).
With reduced R&D expenditure, Saab introduced fewer
innovations since 1990 (seats with active head restraints and
internal fans, with the Alcokey alcohol-sensing ignition system
being tested). In 2003, GM eliminated the 1,300 engineers
and designers at Saab’s headquarters. The engineering
department merged with GM’s Opel-Vauxhall operations
and was relocated to Rüsselsheim (Germany). As a result,
Saab’s head designer quit, joining Porsche (which remained
114
Journal of Product & Brand Management
Volume 15 · Number 2 · 2006 · 106 –120
an independent, performance-focused, luxury brand). GM
Europe confirmed integration of its sales and marketing
offices for Opel, Vauxhall, and Saab in several European
countries at its Zürich headquarters in mid-2004.
The entirely new Saab 9-3 was designed mainly by Opel,
and released in 2003; it shares a common platform with the
Opel Vectra, Pontiac G6, and Chevy Malibu. The 9-3 sedan
features a unique rear suspension which makes driving
sportier; this seems to be a substantial engineering
differentiation, but within GM it is treated as an example of
how things should not be done (Simister, 2004b). GM shifted
production of the Saab 9-3 Convertible from Finnish
Uusikaupunki to Austrian Graz, where Magna Steyr AG &
Co KG became responsible for the entire development and
production process. This was the first convertible produced
by Magna Steyr, which had purchased the production facility
in Graz from DaimlerChrysler just a few months earlier. The
plant also assembles Jeep Grand Cherokee, Chrysler PT
Cruiser and Voyager, and Mercedes Benz E-, M-, and G-class
automobiles for DaimlerChrysler.
Saab’s lineup was traditionally limited to sedans, station
wagons, and convertibles. Like most luxury brands, it had
never offered sport utility vehicles (SUV) or four wheel drives
– which are driving demand in the U.S. Because that market
is the most important one for the Saab brand, the small four
wheel drive Saab 9-2X was introduced to the US market in
June 2004 as a reaction to the similar Audi A3, BMW 1
series, Volvo S40, Mercedes A-class, and Jaguar X-Type, the
entry-level models of otherwise upper-class manufacturers.
The 9-2X is a slightly upgraded Subaru Impreza WRX sedan
and wagon built in Japan by Fuji Heavy Industries (of which
GM owns 20 percent). It is a good example of a car that Saab
might have offered today if it had had enough finances in the
1990s – light weight, quiet, high powered, with excellent road
holding capabilities and firm handling. Journalists promptly
relabeled the new model “Saabaru” – it has a Subaru engine,
a Mitsubishi turbocharger, and a five-speed manual
transmission, yet manages to maintain a kind of Saab
solidity and style (Ford, 2004).
“Broadening Saab’s brand appeal” (GM, 2004), the 9-7X
SUV joined the Saab fleet in the USA in 2005. This model is
a restyled Chevrolet TrailBlazer built in Ohio; it cannibalizes
other GM SUVs such as the Buick Rainier, Cadillac Escalade,
GMC Jimmy, GMC Envoy, and Isuzu Ascender. The 9-7X
features a non-turbo-charged six- or eight-cylinder engine and
the obligatory Saab-style center ignition. Saab Cars USA
recorded sales success in 2003 with 47,914 Saab 9-3 and 9-5
sold. It was the best year in Saab’s history in the US auto
market, surpassing the previous best year of 1986. Although
2004 sales declined significantly, 2005 rebounded, heading
for figures similar to 2003 (Auto Channel, 2005). In 2004,
Saab Cars USA head office relocated from Norcross, Georgia,
to GM’s world headquarters in Detroit (Atlanta Business
Chronicle, 2004). The president of Saab Cars USA
commented:
As is true for Cadillac or Hummer, Saab will retain its unique brand identity
and heritage, and continue to provide its customers the same excellent
ownership experience.
Under GM, Saab Automobile AB has recorded almost only
losses (except for 1994 and 1995, when small profits were
achieved). In 2002, GM’s estimated total bill for Saab was
around $4 billion (Flint, 2002). In September 2004, GM
 Brand corrosion
Pavel Štrach and André M. Everett
announced further downsizing of its European operations,
with the most vulnerable plant identified as the Saab plant in
Trollhättan. When the knife finally fell in March 2005,
Rüsselsheim (Germany) won manufacturing of all mid-sized
Opels and Saabs, with a reduced Trollhättan factory retaining
other Saab models and gaining a new model Cadillac (BBC,
2005b; Deutsche Welle, 2005).
Discussion
Building on the notion of luxury brands, it can be concluded
that all three of the examined brands lost part of their luxury
as a result of a merger or acquisition among companies with
divergent administrative heritages. All three marques
encountered overwhelmingly negative effects on two of the
objective luxury dimensions of conspicuousness and
uniqueness identified by Vigneron and Johnson (2004).
Luxury car brands and luxury car buyers cannot be treated as
mass-market goods and consumers; the distinguishing feature
Downloaded by UNIVERSITY OF OTAGO At 10:32 04 January 2015 (PT)
of both the cars and their purchasers is that they are “not
average”. While mass-market owners salivate at the potential
for profiting from the de-customization of their luxury brand
acquisitions, the buyers of such vehicles reject any attempts to
impinge on the distinctiveness and quirkiness of “their”
brands. Platform sharing is seen as one of the greater evils
(termed “prostitution” by one commentator (Kerwin, 2004)).
Vigneron and Johnson’s third objective dimension of luxury,
quality, evidently decreased at both Mercedes-Benz and Saab.
In the case of Jaguar, however, the sharing of engines and
component suppliers with other Ford brands has actually
increased Jaguar’s quality ratings in recent J.D. Power (2004)
annual new-car evaluations.
The relationship between function and price has been
termed rarity value (Kapferer, 2001) or exclusivity (Nueno
and Quelch, 1998). Jaguar, Mercedes-Benz, and Saab all tried
to ramp up sales figures through models with a higher ratio of
function to price and the addition of some unusual models
(e.g. the “Saabaru,” Jaguar station wagon, and the Mercedes-
Benz M Class), together with economically-grounded
platform and parts sharing, which increased their
affordability. Increasing affordability has an inverse effect on
uniqueness and conspicuousness, thereby diminishing
perceived luxury. The net effect of such strategic decisions
has been brand corrosion.
From a brand management perspective, it is difficult to
justify acquisitions such as those of Saab by GM or Volvo by
Ford. “Saab was a niche player and not regarded as a
worldwide luxury brand. With a lot of work Saab might break
even. And can Ford expand Volvo enough to recoup all its
costs, and can it avoid encroaching on Jaguar’s customers?”
(Flint, 2004). Additionally, Ford has recently strongly advised
Aston Martin to switch from a boutique to a mass-production
strategy and increase volume significantly (Priddle,
2004), while Fiat has called for greater parts sharing
between Alfa-Romeo and Maserati (Green, 2005), following
advice from Fiat’s erstwhile strategic partner GM. Although
making perfect sense from the perspective of mass-marketers,
such prescriptions are anathema to the administrative
heritage – and therefore the philosophy, strategy, and
organization structure – of the established niche luxury
brand manufacturers.
Combining mass and niche products would presumably
result in losing the niche image. In 1960, a brand new Mark II
115
Journal of Product & Brand Management
Volume 15 · Number 2 · 2006 · 106 –120
(the smallest saloon produced by Jaguar at that time) was sold
at one-third the price of a Ferrari (sole model), while the 2004
X-Type is priced at less than one-fifth of the least expensive
contemporary Ferrari (the Modena). Devaluation of a brand
through a lower pricing strategy will result in image erosion
and will decrease the brand’s potential (Greyser, 1999). A
luxury brand will typically attract diverse buyers who are not
loyal to a particular marque over a sequence of purchases, but
who remain loyal to the luxury segment (Ehrenberg et al.,
2004). This leads to the potentially deceptive assumption that
attracting new customers while losing existing ones should not
necessarily be seen in a negative light. Perhaps Ford has seen
the light with respect to Jaguar, enhancing quality while
increasing sales to a potentially sustainable level, despite some
mis-steps (Kerwin, 2004).
From tens (or even hundreds) of car producers in each
industrialized country at the beginning of the twentieth
century, only about a dozen global players remain today. The
manufacturer of the first patented automobile is still in
business, a survivor in a graveyard littered with once-famous,
once-profitable, once-independent symbols of industrial
power. Its Mercedes-Benz brand has traditionally been the
car of preference for heads of state, the rich, and the famous.
Nowadays, the Mercedes division accounts for the bulk of the
value of DaimlerChrysler, the fourth-largest car maker in the
world by value (sixth by volume). However, Mercedes-Benz is
in trouble. Quality and reputation difficulties have tarnished
the brand, and it is becoming conceivable that arch-rivals
BMW and Audi will surpass the three-pointed star in sales
volume in the near future. Much of the blame lies with after-
effects of the Daimler-Chrysler “merger,” in particular the
sharing of platforms, major components, and suppliers across
brands. The underlying reason for sharing is cost reduction
through enhanced scale and scope efficiencies, which appear
advantageous until examined from a luxury branding
perspective. Exclusivity and compatibility may well be
mutually exclusive.
Sporting a similar administrative heritage to both Jaguar
and Mercedes-Benz, Saab focused first on innovation and
distinctiveness in design, with a side emphasis on safety.
While the first two “rough edges” have been smoothed out by
association with General Motors, the industry has responded
to a multitude of governmental requirements for enhanced
safety, making many of Saab’s inventions standard practice.
Without the compassionate largesse of an abundant research
budget and an independent design facility, Saab will not
regain its traditional uniqueness, thereby corroding the brand
to the point where its continuation cannot be justified in an
admittedly overpopulated stable.
Limitations and suggestions for further research
The three examples presented here are not pervasively
representative, and therefore cannot claim to produce a
generalizable theory. These brief overviews do, however,
exhibit consistency with each other and among the notions of
luxury brands, administrative heritage, and brand corrosion.
Subsequent research, including examination of other brands
(both within the automobile sector and in other markets) that
have undergone similar and dissimilar transformations in
ownership, may serve to confirm or negate the directions
indicated here. Longitudinal studies with consistent empirical
measures would be particularly appropriate.
 Brand corrosion
Pavel Štrach and André M. Everett
The arena of competition among luxury automotive brands is
undergoing rapid change, both in terms of consolidation of
established marques and in the entrance of new ones,
particularly from East Asia (which will doubtless be the
launchpad for a number of new premium badges in the next
decade). Reversals of fortune are by no means excluded;
likewise, the current owners of the brands described here have
increasingly demonstrated awareness of the issues they must
address if they are to profit from their expensive purchases, and
some changes in strategy should be evident in the near future.
In a market as dynamic and economically dominant as the
automotive industry, no possibility should be excluded lightly.
Numerous questions arise directly and tangentially from the
summaries presented here, affording multiple avenues for
further research. For example, why are the images of many
European premium brands languishing under the stewardship
of the American giants – despite widely-acknowledged quality
improvements in makes such as Jaguar? Why do Japanese
carmakers prefer to develop their own luxury badges instead
Downloaded by UNIVERSITY OF OTAGO At 10:32 04 January 2015 (PT)
of acquiring or merging with an established make? Why do
German car companies apparently excel at creating luxury
models and brands? Why do the French – the world
headquarters of luxury brands (Dubois and Paternault, 1995)
– neither acquire nor offer any luxury automobile brands at
all? Which path will the Chinese and Koreans choose, once
they stop “emulating” foreign models? Given the scale and
traditional leadership of the automotive industry, how far can
conclusions from this sector guide strategic decisions in
markets for other goods and potentially services? These
questions focus on the impacts of administrative heritage and
country-of-origin effects, and deserve investigation by
international business as well as marketing researchers.
Conclusion
The lump sum expenditure for a car forces customers to be
wise, to compare, and to distinguish among diverse marques
in the search for their desired ratio of function to price.
Component sharing enhances production and purchasing
efficiency but dissipates uniqueness. This is threatening for
distinctive smaller brands, which are subsumed in the
portfolios of giants who intend to charge extra for little
more than image. Volkswagen customers have realized that
they can buy the same features and quality for less money if
the car is branded as a Škoda or Seat (Stones, 2004). The
same logic inherently applies to dyads such as Saab and Opel,
Jaguar and Ford, or Mercedes-Benz and Chrysler, where
some of the latter brand’s top models now sport the vaunted
engines of the former (and are selling accordingly).
Struggling between reaching a critical mass and still
appealing to customers as special, distinctive, and unique
poses a dilemma. Luxury brands must fascinate one group of
customers and give legitimacy to another (Dubois and
Duquesne, 1993). As identified by the head of Ford’s
Premier Automotive Group, “mass-market luxury is an
oxymoron” (Kerwin, 2004). Premium car makes cannot be
treated as average brands by mass-producers, since they
attract non-average buyers. Post-acquisition attempts by
mass-market owners to adjust new models of a premium
marque to the prevailing platform- and parts-sharing logic
without due respect to their distinctive traditions and
administrative heritage constitute an attack on the very
nature of the brand, inevitably leading to brand corrosion.
116
Journal of Product & Brand Management
Volume 15 · Number 2 · 2006 · 106 –120
References
Aaker, D.A. (1997), “Should you take your brand where the
action is?”, Harvard Business Review, Vol. 75 No. 5,
pp. 135-43.
Aaker, D.A. and Jacobson, R. (1994), “The financial
information content of perceived quality”, Journal of
Marketing Research, Vol. 31 No. 2, pp. 191-201.
Algesheimer, R., Dholakia, U.M. and Herrmann, A. (2005),
“The social influence of brand community: evidence from
European car clubs”, Journal of Marketing, Vol. 69 No. 3,
pp. 19-34.
Andreassen, T.W. and Lindestad, B. (1998), “Customer
loyalty and complex services impact of corporate image”,
International Journal of Service Industry Management, Vol. 9
No. 1, pp. 7-23.
A.T., Kearney (2001), Growth and Innovation: Key Challenges
for the Auto Industry, A.T. Kearney, London.
Atlanta Business Chronicle (2004), “Saab USA moving
headquarters from Norcross to the Motor City”, Atlanta
Business Chronicle, 20 May, available at: http://atlanta.
bizjournals.com/atlanta/stories/2004/05/17/daily40.html
(accssed 11 August 2004).
Auto Channel (2005), “GM July 2005 Sales Climb 19.1
Percent”, The Auto Channel, Inc., available at: www.
theautochannel.com/news/2005/08/02/139200.html
(accessed 19 August 2005).
Bartlett, C. and Ghoshal, S. (2000), Transnational
Management: Text, Cases, and Readings in Cross-Border
Management, Irwin/McGraw-Hill, Boston, MA.
BBC (2004), “Jaguar ends car making in Coventry”, BBC
News, 17 September, available at: http://news.bbc.co.uk/1/
hi/ business/3664850.stm (accessed 18 September 2004).
BBC (2005a), “Smart car dents DaimlerChrysler,” BBC
News, 28 April, available at: http://news.bbc.co.uk/1/hi/
business/4494873.stm (accessed 6 August 2005).
BBC (2005b), “Saab chief goes after GM decision”, BBC
News, 9 March, available at: http://news.bbc.co.uk/1/hi/
business/4332537.stm (accessed 20 April 2005).
Bruce, D. (1998), “Medium-sized sports Sedan from Jaguar”,
Otago Daily Times (New Zealand), 31 October, p. 61.
Burt, T. (2001a), “Jaguar gears up for image makeover”,
Financial Times, 15 July, available at: http://news.ft.com/ft/
gx.cgi/ftc?pagename ¼ View&c ¼ Article&cid ¼ FT3UCLA
47PC (accessed 3 August 2001).
Burt, T. (2001b), “General Motors invests to lift volumes at
Saab subsidiary”, Financial Times, 28 February, available at:
http://news.ft.com/ft/ gx.cgi/ftc?pagename ¼ View&c ¼
Article&cid ¼ FT3USM5ERJC (accessed 21 March 2002).
Burt, T. and Lambert, R. (2000), “The Schrempp Gambit”,
Financial Times (London), accessed 30 October, p. 26.
Business Week (2001), “The global brand scoreboard”,
Business Week, 6 August, available at: http://bwnt.
businessweek.com/brand/2001/ (accessed 10 May 2005).
Business Week (2002), “The global brand scoreboard”,
Business Week, 5 August, available at: http://bwnt.
businessweek.com/brand/2002/ (accessed 10 May 2005).
Business Week (2003), “The global brand scoreboard”,
Business Week, 4 August, available at: http://bwnt.
businessweek.com/brand/2003/ (accessed 10 May 2005).
Business Week (2004), “The global brands scoreboard”,
Business Week (Asian edition), 2 August, pp. 68-71.
 Brand corrosion
Pavel Štrach and André M. Everett
Business Week (2005), “The global brand scoreboard”,
Business Week, 1 August, pp. 90-4.
Chambers, M. (2003), “Mercedes looks back to the future”,
Reuters, on XtraMSN, 13 November, available at: http://
xtramsn.co.nz/business/0,5007-2826417,00.html (accessed
19 November 2003).
Chen, A.C.-H. and Chen, S.K. (2000), “Brand dilution effect
of extension failure: a Taiwan study”, Journal of Product &
Brand Management, Vol. 9 No. 4, pp. 243-54.
Choo, S. and Mokhtarian, P.L. (2004), “What type of vehicle
do people drive? The role of attitude and lifestyle in
influencing vehicle type choice”, Transportation Research
Part A, Vol. 38, pp. 201-22.
Colombo, R.A., Ehrenberg, A.S.C. and Sabavala, D. (2000),
“Diversity in analyzing brand-switching tables: the car
challenge”, Canadian Journal of Marketing Research, No. 19,
pp. 23-36.
Cooper, D.R. and Emory, C.W. (1995), Business Research
Methods, 5th ed., Irwin, Chicago, IL.
Downloaded by UNIVERSITY OF OTAGO At 10:32 04 January 2015 (PT)
Delgado-Ballester, E. and Munuera-Alemán, J.L. (2001),
“Brand trust in the context of consumer loyalty”, European
Journal of Marketing, Vol. 35 Nos 11-12, pp. 1238-58.
Delgado-Ballester, E. and Munuera-Alemán, J.L. (2005),
“Does brand trust matter to brand equity”, Journal of
Product & Brand Management, Vol. 14 No. 3, pp. 187-96.
Deshpande, R. (1983), “‘Paradigms lost’: on theory and
method in research in marketing”, Journal of Marketing,
Vol. 47 No. 4, pp. 101-10.
Deshpande, R. and Webster, F.E. Jr (1989), “Organization
culture and marketing: defining the research agenda”,
Journal of Marketing, Vol. 53 No. 1, pp. 3-15.
Deutsche Welle (2005), “GM to build mid-size cars in
Germany”, DW-World.de, Deutsche Welle, 4 March, available
at:www.dw-world.de/dw/article/0,1564,1508385,00.html
(accessed 29 July 2005).
DTI/SMMT (1999), Jaguar Cars. Auto Industry, Automotive
Unit of the Department of Trade and Industry,
Government of the United Kingdom, 1 March, available
at: www.autoindustry.co.uk/features/articles/article-JC?s ¼
-136wleknms4imd0r (3 November 2004).
Dubois, B. and Duquesne, P. (1993), “The market for luxury
goods: income versus culture”, European Journal of
Marketing, Vol. 27 No. 1, pp. 35-44.
Dubois, B. and Paternault, C. (1995), “Observations:
understanding the world of international luxury brands:
the ‘dream formula’”, Journal of Advertising Research, Vol. 35
No. 4, pp. 69-76.
Ehrenberg, A.S.C., Uncles, M.D. and Goodhart, G.J. (2004),
“Understanding brand performance measures: using
Dirichlet benchmarks”, Journal of Business Research,
Vol. 57 No. 12, pp. 1307-25.
Eisenhardt, K.M. (1989), “Building theories from case study
research”, Academy of Management Review, Vol. 14 No. 4,
pp. 532-50.
Eisenhardt, K.M. (1991), “Better stories and better
constructs: the case for rigor and comparative logic”,
Academy of Management Review, Vol. 16 No. 3, pp. 620-7.
Ewing, M.T., Fowlds, D.A. and Shepherd, I.R.B. (1995),
“Renaissance: a case study in brand revitalization and
strategic realignment”, Journal of Product & Brand
Management, Vol. 4 No. 3, pp. 19-26.
Feast, R. (1998), “How Ford and GM manage their
European acquisitions”, Automotive Industries,
117
Journal of Product & Brand Management
Volume 15 · Number 2 · 2006 · 106 –120
Looksmart Ltd, April, available at: www.findarticles.com/
p/articles/mi_m3012/is_n4_v178/ai_20499968 (accessed
18 August 2004).
Ferrari (2005), “2005 Ferrari – showing off in Detroit”, Motor
Cities, 10 January, available at: www.motorcities.com/
contents/05AAL313315551.html (accessed 12 August
2005).
Fiske, N. and Silverstein, M.J. (2004), Trading Up: Trends,
Brands, and Practices 2004 Research Update, May, Boston
Consulting Group, available at: www.bcg.com/publications/
files/TradingUp2004ResUpdate51104.pdf (accessed
5 August 2005).
Flint, J. (2002), “Saab story”, Forbes, 2 February, available at:
www.forbes.com/2002/12/02/ cx_jf_1202flint_print.html
(accessed 9 August 2004).
Flint, J. (2004), “Tarnished jewels”, Forbes, 27 January,
Available at: www.forbes.com/2004/01/27/ cz_jf_0127flint_
print.html (accessed 6 October 2004).
Ford, R. (2004), “A Saab atop a Subaru heats things up”, The
Boston Globe, 11 July, available at: www.boston.com/cars/
articles/2004/07/11/ a_saab_atop_a_subaru_heats_things_up/
(11 August 2004).
Formula1 (2004), “2004 constructors championship”,
Formula1, 24 October, available at: www.formula1.com/
archive/team/2004.html (accessed 2 November 2004).
Garsten, E. (2002), “(2002) Vehicle quality gains mixed”,
The Detroit News – Auto Insider, 8 November, available at:
www.detnews.com/2002/autosinsider/0211/09/b01-
5145.htm (accessed 21 October 2004).
General Motors (GM) (2004), General Motor Corporation:
2004 Annual Report, General Motors, Detroit, MI.
General Motors (GM) (2005), “Shanghai GM completes new
plant”, General Motors, 25 May, available at: www.gm.
com/company/gmability/workplace/100_news/120_news/
shanghai_053105.html (accessed 12 August 2005).
Glynn, M.S. and Brodie, R.J. (1998), “The importance of
brand-specific associations in brand extension: further
empirical results”, Journal of Product & Brand
Management, Vol. 7 No. 6, pp. 509-18.
Goodyear, M. (1996), “Divided by a common language:
diversity and deception in the world of global marketing”,
Journal of Market Research Society, Vol. 38 No. 3, pp. 105-22.
Grant, J. (2002), “Jaguar losses pose setback for Ford”,
Financial Times, 28 September, available at: http://news.ft.
com/servlet/ContentServer?pagename ¼ FT.com/StoryFT/
FullStory&c ¼ StoryFT&cid ¼ 1031119743363 (accessed
30 September 2002).
Green, G. (2005), “Exclusive Q&A: Alfa Romeo Chief Karl-
Heinz Kalbfell,” Edmunds.com, Inside Line, available at:
www.edmunds.com/insideline/do/Features/articleId ¼ 106445
(accessed 19 August 2005).
Greyser, S.A. (1999), “Advancing and enhancing corporate
reputation”, Corporate Communications: An International
Journal, Vol. 4 No. 4, pp. 177-81.
Hammonds, D. (2004), “Jaguar offers X-Type Wagon, New
XJ8”, Pittsburg Post-Gazette, 13 October, available at:
www.post-gazette.com/pg/04287/394619.stm (accessed
23 October 2004).
Henderson, T. (2005), “What drives Detroit: the economic
and technological challenges facing the auto industry”,
FACSNet, 19 January, available at: www.facsnet.org/tools/
biz_econ/detroit_auto.php (accessed 6 August 2005).
 Brand corrosion
Pavel Štrach and André M. Everett
Hickey, B. (2001), “GM may bid for Mercedes – Report”,
Financial Times MarketWatch.com (Europe), 15 January.
Homburg, C. and Bucerius, M. (2005), “A marketing
perspective on mergers and acquisitions: how marketing
integration affects postmerger performance”, Journal of
Marketing, Vol. 96 No. 1, pp. 95-113.
International Organization of Motor Vehicle Manufacturers
(2005), OICA Statistics, available at: www.oica.net/htdocs/
Main.htm (accessed 19 August 2005).
J.D. Power (2004), J.D. Power and Associates Reports: Korean-
Branded Vehicles Overtake Europeans and Domestics in Initial
Quality, 28 April, J.D. Power and Associates, Westlake
Village, CA.
J.D. Power Consumer Center (2005), Performed Database
Inquiries., available at: www.jdpower.com/cc/index.jsp
(accessed 31 October 2005).
Jaguar USA (2004), Jaguar USA Website: Company History,
available at: www.jaguarusa.com/us/en/company/history
(accessed 20 October 2004).
Downloaded by UNIVERSITY OF OTAGO At 10:32 04 January 2015 (PT)
John, D.R., Loken, B. and Joiner, C. (1998), “The negative
impact of extensions: can flagship products be diluted?”,
Journal of Marketing, Vol. 62 No. 1, pp. 14-32.
Jordan Keane, M. and McMillan, Z. (2004), “Above and
beyond (brand papers)”, Brand Strategy, No. 187, p. 30.
Kapferer, J.-N. (2001), Reinventing the Brand: Can Top Brands
Survive the New Market Realities?, Kogan Page, London.
Karolyi, G.A. (2003), “DaimlerChrysler AG, the first truly
global share”, Journal of Corporate Finance, Vol. 9 No. 4,
pp. 409-30.
Kelly, K. (2003), “Quality: Priority Ein”, WardsAuto.com –
Primedia Business Magazines and Media, 1 March, available
at: http://waw.wardsauto.com/ar/auto_quality_priority
_ein_2/ (accessed 8 May 2005).
Kerwin, K. (2004), “Ford learns the lessons of luxury”,
Business Week (US edition), 1 March, pp. 116-7.
Kim, C.K. and Lavack, A.M. (1996), “Vertical brand
extensions: current research and managerial implications”,
Journal of Product & Brand Management, Vol. 5 No. 6,
pp. 24-37.
Kirmani, A., Sood, S. and Bridges, S. (1999), “The
ownership effect in consumer responses to brand line
stretches”, Journal of Marketing, Vol. 63 No. 1, pp. 88-101.
Kiser, E. (1997), “Comment: evaluating qualitative
methodologies”, Sociological Methodology, Vol. 27, pp. 151-8.
Kitman, J.L. (2004), “For Saab, some see the beginning of
the end. others see the middle”, New York Times, 24 May,
available at: www.nytimes.com/2004/05/24/automobiles/
24dt-autolog.html?ex ¼ 1092456000&en ¼ 14c996f0790f3
aaf& ei ¼ 5070&8dt (accessed 9 August 2004).
Lambert-Pandraud, R., Laurent, G. and Lapersonne, E.
(2005), “Repeat purchasing of new automobiles by older
consumers: empirical evidence and interpretations”,
Journal of Marketing, Vol. 69 No. 2, pp. 97-113.
Landler, M. (2005), “DaimlerChrysler to scale back mini-car
unit”, New York Times, 2 April, available at: www.nytimes.
com/2005/04/02/business/worldbusiness/02daimler.
html?pagewanted ¼ all (accessed 2 April 2005).
Leong, S.M. (1997), “Dominance and dilution: the effects of
extending master brands”, Journal of Consumer Marketing,
Vol. 14 No. 5, pp. 380-90.
Li, J. (2005), “Shanghai gears up in the lane for luxury”,
China Daily, 5 May, available at: www2.chinadaily.com.cn/
118
Journal of Product & Brand Management
Volume 15 · Number 2 · 2006 · 106 –120
english/doc/2005-05/05/content_439625.htm (accessed
12 August 2005).
Lienert, A. (1998), “Brand management at the big three”,
Management Review, Vol. 87 No. 5, pp. 53-7.
Loken, B. and John, D.R. (1993), “Diluting brand beliefs:
when do brand extensions have a negative impact?”, Journal
of Marketing, Vol. 57 No. 3, pp. 71-84.
Martı́nez, E. and Pina, J.M. (2003), “The negative impact of
brand extensions on parent brand image”, Journal of Product
& Brand Management, Vol. 12 No. 7, pp. 432-48.
Mintel (2003), Auto Market Vol. 3: Sports & Luxury Cars – US
– January 2003, Mintel International Group Ltd, Chicago,
IL.
Nueno, J.L. and Quelch, J.A. (1998), “The mass marketing of
luxury”, Business Horizons, Vol. 41 No. 6, pp. 61-8.
Pauwels, K., Silva-Riss, J., Srinivasan, S. and Hanssens, D.M.
(2004), “New products, sales promotions, and firm value:
the case of the automobile industry”, Journal of Marketing,
Vol. 68 No. 3, pp. 142-56.
Prabhu, J.C., Chandy, R.K. and Ellis, M.E. (2005), “The
impact of acquisitions on innovation: poison pill, placebo,
or tonic?”, Journal of Marketing, Vol. 69 No. 1, pp. 114-30.
PriceWaterhouseCoopers (2005), Autofacts Executive
Perspectives – 2005 Q3 Data Release, PriceWaterhouse
Coopers, New York, NY.
Priddle, A. (2000), “A marriage of convenience”,
WardsAuto.com – Primedia Business Magazines and Media,
1 May, available at: http://waw.wardsauto.com/ar/
auto_marriage_convenience/ (8 May 2005).
Priddle, A. (2004), “British auto making needs more than
charm”, WardsAuto.com – Primedia Business Magazines and
Media, 29 September, available at: http://wardsauto.com/ar/
auto_british_auto_making/index.htm (9 October 2004).
Rao, V.R., Agarwal, M.K. and Dahlhoff, D. (2005), “How is
manifest branding strategy related to the intangible value of
a corporation?”, Journal of Marketing, Vol. 68 No. 4,
pp. 126-41.
Reast, J.D. (2005), “Brand trust and brand extension
acceptance: the relationship”, Journal of Product & Brand
Management, Vol. 14 No. 1, pp. 4-13.
Reuters (2005), “Mercedes may drop goal to top quality
survey, chief says”, Detroit News, 6 May, available at: www.
detnews.com/2005/autoinsider/0505/06/1auto-173641.htm
(accessed 9 May 2005).
Richards-Carpenter, T. (2003), “Forthcoming models –
Jaguar X-Type Estate: the two-minute guide”, Top Gear,
BBC, 24 September, available at: www.topgear.com/
content/news/cars_coming_soon/08/ (accessed 21 October
2004).
Rosecky, R.B. and King, A.B. (1996), “Perceptual differences
among owners of luxury cars: strategic marketing
implications”, The Mid-Atlantic Journal of Business, Vol. 32
No. 3, pp. 221-40.
Rugman, A.M. and Collinson, S. (2004), “The regional
nature of the world’s automotive sector”, European
Management Journal, Vol. 22 No. 5, pp. 471-82.
Simister, J. (2004a), “Saab’s Future,” 4Car Writes Series,
Channel 4 (UK), 28 September, available at: www.
channel4.com/4car/feature/features-2004/saab-future
(4 October 2004).
Simister, J. (2004b), “Is GM selling Saab short?”, The
Independent, 10 August, available at: http://motoring.
 Brand corrosion
Pavel Štrach and André M. Everett
independent.co.uk/features/story.jsp?story ¼ 549737
(accessed 11 August 2004).
Simon, B. and Mackintosh, J. (2005), “Hyundai wins ‘most
reliable’ ranking in US”, Financial Times, 7 March,
Available at: http://news.ft.com/cms/s/2cc10586-8eae-
11d9-8aae-00000e2511c8.html (10 March 2005).
Smith, D.C. (1998), “Is bigger really better? DaimlerChrysler
merger faces hurdles”, WardsAuto.com – Primedia Business
Magazines and Media, 1 June, available at: http://waw.
wardsauto.com/ar/ auto_bigger_really_betterdaimlerchrysler/
(accessed 5 May 2005).
Smith, G. (2005), “Daimler reveals collapse in Mercedes
profits”, Financial Times, 10 February, FT.com, available at
ProQuest (accessed 8 May 2005).
Soubbotina, T.P. and Sheram, K. (2000), Beyond Economic
Growth: Meeting The Challenges Of Global Development, The
International Bank for Reconstruction and Development/
The World Bank, Washington, DC.
Srinivasan, N. and Ratchford, B.T. (1991), “An empirical test
Downloaded by UNIVERSITY OF OTAGO At 10:32 04 January 2015 (PT)
of a model of external search for automobiles”, Journal of
Consumer Research, Vol. 18 No. 2, pp. 233-42.
Stones, J. (2004), “Crushed under the weight of car giants”,
Marketing Week, 23 September, p. 24.
Sutherland, I. (2005), in “Have your say on Jaguar’s about
turn,” BBC Coventry and Warwickshire, available at: www.
bbc.co.uk/coventry/content/articles/2004/12/16/
city_jag_pull_out_feature.shtml (1 April 2005).
Urde, M. (2003), “Core value-based corporate brand
building”, European Journal of Marketing, Vol. 37 Nos 7/8,
pp. 1017-40.
Vigneron, F. and Johnson, L.W. (2004), “Measuring
perceptions of brand luxury”, Brand Management, Vol. 11
No. 6, pp. 484-506.
Vlasic, B. and Stertz, B. (2000), Taken For A Ride: How
Daimler-Benz Drove Off with Chrysler, HarperCollins
Publishers, New York, NY.
Ward’s Auto World (2003), “Luxury Share of U.S. Market
Growing”, WardsAuto.com – Primedia Business Magazines
and Media, 1 August, available at: www.findarticles.com/p/
aricles/mi_m3165/is_8_39/ai106587386 (9 October 2004).
What Car (2005), “J.D. Power Survey 2005”, What Car,
14 April, available at: www.whatcar.com/
News_SpecialReport.asp?NA_ID ¼ 214562&EL_ID ¼ 312
1181 (accessed 22 April 2005).
Whitley, R.L. (1932), “The case study as a method of
research”, Social Forces, Vol. 10 No. 4, pp. 567-73.
Yamawaki, H. (2002), “Price reactions to new competition:
a study of US luxury car market 1986-1997”, International
Journal of Industrial Organization, Vol. 20 No. 1, pp. 19-39.
Yin, R.K. (2003), Case Study Research: Design and Methods,
Sage, Thousand Oaks, CA.
Corresponding author
André M. Everett can be contacted at aeverett
@business.otago.ac.nz
Executive summary
This executive summary has been provided to allow managers and
executives a rapid appreciation of the content of this article. Those
with a particular interest in the topic covered may then read the
article in toto to take advantage of the more comprehensive
119
Journal of Product & Brand Management
Volume 15 · Number 2 · 2006 · 106 –120
description of the research undertaken and its results to get the full
benefit of the material present.
The dilution of deluxe automotive brands
The automotive industry is going through a period of global
consolidation. The resulting mergers and acquisitions can be
a source of innovation. Certainly to compete very large
research and development budgets are needed, together with
global distribution infrastructure.
Automotive brands account for almost ten percent of the
world’s most valued and respected global brands. The car has
a central role in many lives and is generally associated with
much, much more than being a mode of transport. Toyota has
just passed Mercedes in being adjudged the most valuable
automotive brand. In previous decades Ford was always top.
Volkswagen (VW) too is in decline when judged on brand
value criteria. A new victor has emerged and to them will go
the spoils.
Much of the ongoing industry consolidation process is
focused on buying up brands. Most new products are in fact
brand extensions, be it the Toyota Corolla, VW Golf or Ford
Mustang. It is a safe way to proceed and has brought many
financial benefits in relatively quick time. There is a downside
though. Brand dilution is one of the most significant concerns
for automotive brand managers.
Success in introducing new models, particularly in entry-
level extensions to prestige brands are beginning erode
consumer perceptions of luxury and performance. In related
case studies focusing on Jaguar, Mercedes-Benz and Saab,
researchers Strach and Everett have focused on the post-
acquisition impact of mass marketing on prestige brands.
From distinctive boutiques to the supermarket shelves
The overwhelming majority of the world’s most prestigious
automotive brands rest now in the hands of the largest
companies. Since the 1980s the ownership of such premium
marques as Rolls Royce, Bentley, Ferrari, Maserati,
Lamborghini, Bugatti and Lotus has changed, becoming
part of the portfolios of the dominant mass-market
manufacturers. Similarly, the less exclusive brands of Jaguar,
Aston Martin, Volvo, Alfa Romeo and Saab have found
themselves under new management.
The luxury car segment is on the march. According to
Mintel research it accounted for 5 per cent to 7 per cent of
total car sales in the years leading up to 1996, but since then
has grown by 17 per cent annually each year between 1997
and 2002. Luxury cars accounted for over 10 per cent of car
sales in the first half of 2003. By 2009 it is anticipated that the
luxury car segment in North America alone will rise by a
further 69 per cent to 1.26 million vehicles sold annually. It is
a growing market, against a backdrop of difficult times in
other segments, and the margins happen to be good too.
Some marriages have been instantly difficult. British sports
car manufacturer Lotus was acquired initially by Toyota.
Engine technology was absorbed by Toyota before the brand
was sold to General Motors (GM) who passed Lotus across to
Proton of Malaysia in near bankruptcy. GM-owned Bugatti
suffered a similar fate before being passed along to VW.
Lamborghini too has been passed along, being initially
acquired by Chrysler before being sold to an Indonesian
group.
 Brand corrosion
Pavel Štrach and André M. Everett
Insights from Jaguar, Mercedes-Benz, and Saab
There has been apparent success for others though. The
mass-market automotive manufacturers have thrived, when
they have thrived, on meeting the needs of, well, the mass-
market. On the surface, investments in new models, new
processes and new equipment are yielding strong dividends.
For Jaguar, since coming under Ford’s ownership as part of its
Premier Automotive Group that includes Land Rover and
Volvo, sales have grown from 49,500 vehicles in 1988 (the
year before the Ford takeover) to 120,570 vehicles sold in
2003. The figures hide a performance that has been far from
linear in its growth. Sales dipped to just 22,478 cars produced
in 1992, and even a massive investment in the production
facility did not see them rise particularly quickly. It was only
by 1998 that results began to significantly improve.
The creation of DaimlerChrysler, combining the
transatlantic giants of Chrysler and Daimler-Benz, created
an automobile company valued at $75 billion in 1998.
Turbulence has followed, and Daimler-Benz had to divert
Downloaded by UNIVERSITY OF OTAGO At 10:32 04 January 2015 (PT)
talent and resources to troubled Chrysler and Mitsubishi
brands. The creation of the Mercedes Car Group as a division
of Daimler-Chrysler provided the focus to the management of
the prestige brand, but has seen customer satisfaction decline
very rapidly. Chief among the problems is one of quality.
Mercedes are currently playing catch up as they try to regain
their reputation.
Saab has worked with a number of partners in recent
decades, often sending out mixed signals to potential suitors.
Under GM ownership attempts to broaden Saab’s appeal
have tended to be problematic. Essentially Saab models have
been based squarely on existing GM ones. For customers,
much of the Swedish distinctiveness has gone.
To purchase reprints of this article please e-mail: reprints@emeraldinsight.com
Or visit our web site for further details: www.emeraldinsight.com/reprints
120
Journal of Product & Brand Management
Volume 15 · Number 2 · 2006 · 106 –120
Prestige brands dilution factors
The big automotive players have often achieved good sales
volumes with their prestige brand acquisitions, yet for
customers things do not seem quite the same for “their”
brand, brand relationships often going deep. Among the
diluting factors are:
.
Platform sharing, which has been termed “prostitution”
by critics. Quality ratings may go up, as they have for
Jaguar, but still the image of the brand is diminished.
.
Rarity value, the relationship between function and price,
is increasingly a factor. Increasing affordability is
diminishing uniqueness.
.
Combining mass and niche products – the large selling
entry-level models with small volume high prestige offers -
eats away at the niche image.
It should be noted that without large scale investment and
collaboration with the major automobile players, then good
old fashioned motoring brands may have gone to the wall,
new models requiring the sort of capital investment that is
only available with international sales. However, in achieving
lasting benefits, the new owners must look hard at their brand
management strategy.
In the world of the prestige automotive brand heritage
matters, uniqueness matters, character matters. . . which
means that a few “rough edges”, well they are just part of
the pleasure.
(A précis of the article “Brand corrosion: mass-marketing’s
threat to luxury automobile brands after merger and acquisition”.
Supplied by Marketing Consultants for Emerald.)
 This article has been cited by:

1. Hsiang-Ming Lee, Tsai Chen, Bonnie S. Guy. 2014. How the Country-of-Origin Image and Brand Name Redeployment
Strategies Affect Acquirers’ Brand Equity After a Merger and Acquisition. Journal of Global Marketing 27, 191-206. [CrossRef]
2. Woo Jin Choi, Karen Page Winterich. 2013. Can Brands Move In from the Outside? How Moral Identity Enhances Out-Group
Brand Attitudes. Journal of Marketing 77:2, 96-111. [CrossRef]
3. Erik L. Olson, Hans Mathias Thjømøe. 2010. How bureaucrats and bean counters strangled General Motors by killing its brands.
Journal of Product & Brand Management 19:2, 103-113. [Abstract] [Full Text] [PDF]
4. Erik L. Olson. 2009. The impact of intra‐brand platform sharing on brand attractiveness. Journal of Product & Brand Management
18:3, 212-217. [Abstract] [Full Text] [PDF]
5. George Baltas, Charalabos Saridakis. 2009. Brand‐name effects, segment differences, and product characteristics: an integrated
model of the car market. Journal of Product & Brand Management 18:2, 143-151. [Abstract] [Full Text] [PDF]
6. Erik L. Olson. 2008. The implications of platform sharing on brand value. Journal of Product & Brand Management 17:4,
244-253. [Abstract] [Full Text] [PDF]
7. Anders Parment. 2008. Distribution strategies for volume and premium brands in highly competitive consumer markets. Journal
of Retailing and Consumer Services 15:4, 250-265. [CrossRef]
Downloaded by UNIVERSITY OF OTAGO At 10:32 04 January 2015 (PT)