Toyota and Geely – Provenance Paradox

The Harvard Business Review recently made me aware of the effect provenance paradox has on a brand’s positioning. Provenance paradox is the issue marketers have to deal with when their brand is assessed by consumers according to the country of origin. Hence, if I ask you who makes the best chocolate, you’re likely to think Switzerland or Belgium; likewise, France make the best wines, Cuba make the best cigars and Germany make the best cars. In the previous examples, this benefits brands associated with their country’s reputation – such as Volkswagen of Germany.

But, what happens if a company does not want their brands judged according to their origin? As positioning of a brand in consumers is fundamental to successful marketing –  provenance paradox can be a critical weakness in any the most fool-proof of marketing strategies. In this post, I will contrast two different responses that two different car manufacturers have adopted to over-come this negative brand association.

The first way of countering provenance paradox is through selecting a strong positioning strategy that dominates consumers minds. This is the approach used by Toyota in 1989 when they wanted to break into the American market for luxury, saloon cars – market development expansion – while competing against German manufacturers like Mercedes, Audi and BMW. To do this Toyota adopted a brand extension strategy to alter their value proposition; thus, Lexus was created. Lexus became part of Toyota’s multi-brand strategy to appeal to different a different market segment from Toyota’s that wanted affordable luxury. Hence, the value proposition for consumers was ‘more for the same’ – Lexus offered greater benefits for the same price as their German rivals. Consequently, a competitive advantage was created as a result of price benchmarking and advertising directly comparing the value of Lexus to competitors. This meant that the parent company, Toyota, was hugely successful in differentiating their offerings.

Geely, however have taken a very different approach. Geely, are a Chinese car manufacture and, until this year, only made budget or Rolls-Royce copy-cat cars for their national market. At this point, provenance paradox – China being famous for low-cost, low-quality products – was not a problem as they were positioning ‘less for less’ to their consumers. However, expansion into international markets meant that they would have to offer greater quality. Moreover, as expensive purchases like cars are considered complex buying decisions, consumers need reassurance from the brand they are dealing with. Hence, Geely acquired Volvo, who are synonymous with Sweeden’s reputation for innovation and creative design. This form of upward stretch allows Geely to sell more up-market cars for a higher price, while hiding the identity of the parent company. This has been a smart move – I bet you have heard of Volvo, but you are far less likely to be aware of Geely. Hence, Geely have used different methods than Toyota to implement a similar multibrand strategy.

Despite the success of both these strategies, there are inevitable drawbacks to both approaches. Toyota’s decision to reposition their product range of luxury autos through the creation of a new brand requires significant, long-term investment. This carries huge risk – more so than acquiring a new brand because if Lexus cars was to flop, sales of Toyota cars, their cash cow if you like, would also decline. On the other hand, Geely’s upward stretch of their product line also has its drawbacks. Namely, the company may lack the experience and skills required to manufacture and market high-quality cars. furthermore, the acquisition process is highly complex and – such is the case with any form of merger or takeover – Geely’s culture may conflict with Volvo’s, resulting in management difficulties.

Check out these links to see there differences in brand value and culture. Here Volvo claim to be market-leaders in safety; this suggests a conservative, prudent approach to business by senior management. Geely, on the other hand, are keen to stress entrepreneurialism and diversity. This spells out a more risky corporate attitude that simply may not go down well in Volvo’s boardroom.

This dilemma poses a question: what is the best way to overcome provenance paradox? Unfortunately, there is no answer. How a firm choose its marketing strategy depends on its strengths, weaknesses, opportunities and threats; moreover, these need to correspond to external changes in the political, economic, social and technological environment. Hence, a SWOT and PEST analysis should identify the best strategy for a given firm in a given situation. But, if I were to choose which strategy I respect the most, Toyota’s repositioning is what I consider ‘true marketing’ – acquiring another brand is a bit like cheating.

© Joshua Blatchford author of Manifested Marketing 20/12/2010

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