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Is there a place for low-priced brands?

By Professor Jim Saker
 

For years on Top Gear, Jeremy Clarkson poked fun at what appeared to be James May’s slightly disproportionate interest in the Dacia Sandero.

Each series managed to produce a new joke about the brand and its product range.

Times, however, have changed and even on Top Gear Dacia is being taken seriously.

Last week at Loughborough we launched a new programme for Renault dealerships and one of the major topics of conversation was the Dacia brand – or ‘Dacha’ as it is supposed to be pronounced.

It is understandable that Renault dealers would be interested in this addition to their portfolio, but it was remarkable just what a debate the new brand generated.

This complemented the recent AM Poll which asked ‘Will Dacia shake up the market and bring in a new segment of car buyers?’

Interestingly, the result of the poll was a split down the middle with a 50/50 result.

We know that in any economic crisis most markets become bi-polar with both upmarket brands and the bottom end doing well.

In academic speak it reflects the work of Michael Porter, from Harvard University, who argued that organisations should adopt generic strategies that are either low cost or differentiated e.g. premium priced.

His argument is that the biggest error in strategy is to get stuck in the middle.

You don’t make a decision and you end up floundering around in a highly-competitive market with little to mark you out from the competition.

This middle ground is the area where large manufacturers fight, usually having to resort to price cutting and highly-expensive incentive programmes. 

In our sector it is fairly obvious where this battle is being fought with the volume brands going head to head.

Towards the top end of the market the premium German brands have had well documented success and this has been coupled with the resurgence of Jaguar Land Rover under Tata’s ownership. 

In tight economic times, the other successful segment is at the bottom end of the market. 

High street retailers such as Primark, Aldi and Lidl have pursued a low-cost strategy focusing on a fairly narrow range of product items.

With less money around the logical choice for consumers is to try and make their money stretch further and companies such as these have prospered.

Will Dacia be a success?

On the surface there appears to be no reason why it shouldn’t grow into a successful brand.

There is evidence with VW and Skoda that it is possible to establish a reputable brand with an East European car company. 

The halo effect of VW plus some heavy investment has moved Skoda from being the butt of comedians’ jokes into a well- respected brand that holds its own in the European market.

The Dacia product line, although very limited, looks comparable to other vehicles in the SUV and supermini sector and the badging of the Renault engine helps to provide reassurance for customers.

The winning of a number of awards including Top Gear’s Bargain of the Year in 2012 has further enhanced its status.

The big challenge will be how Renault decides to develop its brand strategy.

Should Dacia stay low price or migrate into the mainstream?
 

Unlike the high street retailers who tend to maintain their branding proposition, the car industry has a track record of brand migration.

Over the years many brands have entered the bottom of the market and subsequently moved into the mainstream.

Probably the most dramatic recent example is the repositioning of Kia from the low end of the market to competing effectively against most of the volume manufacturers.

Kia’s initial growth was hampered by the need to grow its dealer network.

This is something Dacia does not have to do. With the Renault network in place, Dacia has a ready-made distribution system with well-established aftersales and repair facilities.

Dacia has the potential to do large numbers very quickly.

The challenge for Renault is whether to keep the brand at the bottom end of the market or allow it to move upwards as the car becomes more refined. 

If it can keep costs down to allow for the aggressive pricing to continue there is a big opportunity to make serious in roads into the market.

It is noticeable that currently the best-selling Dacia’s are the top end models that suggests customers are buying new in preference to purchasing a used vehicle.

It is foreseeable that the value proposition offered by Dacia is such that the whole range will become accepted by the public.

One is left to speculate that if Renault gets this right it could, as one respondent in the AM Poll suggested, impact heavily on how some of the Chinese manufacturers enter the market. By taking their obvious entry point, Dacia may have slowed the introduction Chinese cars into Europe and in so doing revitalised Renault’s financial position.



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