Driving home: Subaru was the prodigal car brand
Subaru was the prodigal car brand. Now, having rediscovered its utilitarian niche under president George Muller, it’s come home again.
Like most people whose work has to do with marketing or selling Subarus these days, Ray Beylouni is a huge believer in keeping a clear recollection of the not-so-distant past as a way to focus on creating present day successes. Coca-Cola has New Coke. IBM has its foray into photocopiers to learn from. American Express has its venture into investment banking. For Subaru, its recent and painful past trying to match customers with Honda and Toyota is a big chapter in its “Preventing Success” manual.
Beylouni and Subaru go way back to 1968, when he worked his way up to sales manager at the Car City West dealership in Danbury, Conn. Twenty-three years later, after nine years as a partner in a Subaru/Ford dealership in Mahopac, N.Y., Beylouni got the chance to run his own show. Colonial Ford/Honda in Danbury went up for sale toward the end of 1991, and he had an in with the seller. Beylouni bought the dealership, promptly sold off the Honda franchise to another area dealer, and by October 1992, he applied for a Subaru franchise.
At the time, Beylouni’s sister visited a doctor in the Danbury area. The doctor said to her, “Isn’t your brother the one who bought Colonial and sold off the Honda franchise to Auto Park to bring in Subaru? Is he nuts?” It hadn’t escaped the physician’s notice that while Honda was making a spirited run at Ford Taurus for No. 1-selling car in America status, Subaru of America had been gaining repute as pioneer of a singular low-price, low-volume formula for automobile sales and marketing. The “strategy,” assisted in no small part by a late 1980s/early 1990s surge in the Japanese yen, which forced higher prices for Subarus in this country, resulted in seven straight years of losses totalling $750 million and near extinction in the United States marketplace. Did Beylouni know something the doctor didn’t? Apparently.
“It happens all the time that marketers lose their way,” said Dennis Visich, executive director of client services at Temerlin McClain, Subaru’s agency for the past four years. “Sometimes the closer you are to death, the better you can see what you’ve got to do to change. At Subaru, they not only saw it, but executed the change at an extremely high level of excellence and commitment.”
Beylouni’s Colonial Subaru sells more than three cars a day now, the No. 1 Subaru dealership east of the Mississippi. Bonnie, his wife of 35 years, is his partner. His son David is president of the dealership, while daughter Danielle took honors this past summer as the No. 1 Subaru seller in New England–pretty good since New England with it’s tough winters and A number of ski slopes has long been one of Subaru’s biggest markets.
Fueling Beylouni’s confidence, Subaru’s Forester passenger car-based sport utility vehicle, added this past July, is on pace to sell more than 30,000 a year. And, while Subaru’s corporate ad spending is miniscule by industry comparison, its $40-million-ish media budget produces an ad-cost-per car-sold that is over $100 per car below the industry norm. Company executives forecast 1997 retail sales of 134,000 vehicles, with profits second only to its 1986 profit peak of $94 million on 1997 revenues of $2.5 billion. That’s just about full-circle for Subaru, from misdirected to redirected–a $1 billion increase since Subaru’s darkest. moments in 1992, when it lost $250 million in a single year.
To understand why an almost cocky kind of humility pervades the hallways of Cherry Hill, N.J.-based Subaru of America these days, and where the brand is headed as mega-rivals Toyota and Honda attempt to poach customers from Subaru with all-wheel drive passenger car entrants, one must journey back to the days when Beylouni’s sister’s doctor thought Ray had a screw loose for getting rid of Honda for Subaru in late 1992 and early 1993. The answer in those dire days is as much about Subaru reckoning with what it is not as much as it learned what it is.
Marketing director Tim Mahoney’s office in Cherry Hill is almost claustrophobic with Subaru bric-a-brac from the company’s almost 30 years in the U.S. market. But in one of the chairs a somewhat menacing stuffed gorilla seems content to peer up at Mahoney from behind his computer monitor. The gorilla is a reminder to Mahoney of what Subaru is not–a 1,000 pound gorilla in the automobile marketplace–as much as what Subaru is, a guerrilla marketer.
This week, Subaru executives will use the Detroit auto show as a platform to formally introduce the newest extension in the Outback model line: a four-door Outback sedan. The company characterizes the car as a “right-brain, left-brain” auto anchored in Subaru’s all-wheel drive safety and confidence position even as it pushes Subaru in the direction of higher driving performance values. Still, almost no one will mistakenly conclude from the presentation that Subaru is going after Toyota Camry, Honda Accord or Nissan Altima with its newly packaged sedan.
Simply, that’s not who Subaru is. Mahoney says the company has learned the hard way that its targets are customers identified through the lens of occupational, lifestyle and activity interest segmentation, not other car makers’ models. And they learned that tying the entire Subaru identity to an all-wheel drive heritage can pay off in the kind of manufacturing and marketing efficiencies that allow the company to profit comfortably by selling 24,000 or 30,000 of the new Outback sedans for $23,000 to $25,000, rather than having to compete with Goliathan competition.
Been there, done that. By January 1993, at the moment Subaru granted Beylouni license to set up a Subaru franchise in Danbury, the company was headed for an almost-fatal collision with itself. A hard-hitting winter is usually good news for a car company whose vehicles do well in wintery road conditions, but while Nor’easters hammered the Atlantic Coast, earthquakes rattled Los Angeles to its core and floods inundated the banks of the Mississippi, the heavy weather was also palpable inside the halls of the Cherry Hill headquarters.
The Buffalo Bills met Troy’s ‘Boys of Dallas in Super Bowl XXVII that year. A Light Brigade of six 15-second commercials represented a $2 million investment Subaru made in Super Bowl airtime to introduce its brand new car line, Impreza, and its brand new strategy: meet mainstream car makers head on. What was a largely regional, niche marketer with 1.2% of the domestic auto market doing in the Super Bowl? Whoever had the right answer to that question no longer works for Subaru.
It was Cowboys 52, Bills 17. A car may be just a car, as the old Subaru ads said, but the Bills and whoever lost the Bud Bowl had considerably less to be embarrassed by than Subaru. It placed dead last in USA Today’s ranking of Super Bowl TV spots. It had a new car introduction, the Impreza, that nobody “got.” It had a horde of angry dealers clamoring to dismiss Subaru’s highly-touted ad agency, Wieden & Kennedy (a.k.a.: Who to Fire). It also had a marketing strategy that would have been fine for a company with the scale and ad spending firepower of a Honda or a Toyota, but not for Subaru. Most of all, it had trouble. The media began sending helicopters out to shoot photos of Subaru’s 300-day inventory of cars overflowing rented parking lots.
It also had a newly franchised dealer, Ray Beylouni, who’d gone to New Orleans just after the Super Bowl for the North American Dealers Association meeting and Subaru dealers’ meetings in February 1993. Unlike his peers, Beylouni ordered dozens of cars sight unseen. “I never lost faith in the product,” said Beylouni. “But I had to get on a long line to scream at them about how dismayed and disgusted I was with the marketing direction they’d gone in. Luckily, they listened and responded.”
More than a few of Subaru’s 600-plus franchised dealers felt the company’s senior management shouldn’t be licensed to drive let alone tread anywhere near new strategies to market cars. After a 12-year surge of momentum that peaked at 183,000 vehicles and $94 million in profit in 1986, Subaru saw its boom suddenly bust. Awash in red ink, Japan-based parent Fuji Heavy Industries took the company wholly private in August 1990, paying $66 million for the 50.4% of the company it didn’t previously own.
The part everyone got right between 1990 and the turnaround that began in 1994 is that Subaru needed an image change. After Japan’s currency run-up, “Inexpensive, and built to stay that way” was just plain no longer true. Competitors came in with front-wheel drive Honda, Toyota and Nissan models and before you could say “incentives,” Subaru was knocking $2,500 to $3,000 off the price of its cars to sell them, which is not good if you’re selling a car it takes $13,000 to bring to market.
Co-chief operating officer Charles Worrell and Wieden & Kennedy seemed bent on steering the company squarely against Subaru’s light import competition. Promotional literature developed for the Impreza boasted “The Impreza launch is the most important event in the history of Subaru . . . and a successful launch will move the brand toward the mainstream.”
While important for the company, though, consumers were less than thrilled. The Impreza was replacing the Loyale in Subaru’s lineup, a car that had been the bread-and-butter of Subaru and a product that had only gone under cosmetic changes since the ’70s. By the time it was phased out, Subaru was only selling the station wagons to the die-hards that loved it for its economic price and bulletproof performance in suburbia’s slushy streets. While dated, the Loyale had a following and represented a lot of what Subaru’s brand equity was. The Impreza, on the other hand, looked like a lot of other cars made by Nissan, Mazda and Mistubishi. And the wagon version looked like a close cousin of the old AMC Pacer.
By February 1993, just after the Super Bowl XXVII debacle and the dealer meetings in New Orleans, Worrell was out of the picture; Wieden & Kennedy would be gone by summer; and a new management team, headed by CFO and the other co-COO George Muller, stepped in to try to salvage Subaru’s shrunken position in the U.S. market.
“We had tried to launch the Impreza as a low-priced competitor, and an entry-level vehicle and it was really a lot more than that,” said the 48-year-old Muller, who is now president and chief operating officer at Subaru. “We got into a situation where we tried to launch it on a price-driven appeal. There was not enough emphasis on the product characteristics, the size, the all-wheel drive, the handling, the safety that came with the product. The Impreza launch is kind of a symbol of how diametrically opposite we were from the strategy we wound up taking.”
Muller led the team that created the back-to-basics strategy that reversed Subaru’s fortunes. Now a 19-year Subaru veteran, he’d come up as an accountant. As CFO, Muller was acutely aware of the company’s problems, operationally and otherwise.
“With me, the bean counter coming in, you’d expect that we’d cut expenses to improve the bottom line, but we quickly realized that you couldn’t cut enough to fix the business,” said Muller. Part of the awakening in the early 1990s was realizing that the only way for Subaru to survive was to grow the top line. That meant marketing, and marketing was to take 60-70% of the former bean counter’s time.
Even in the throes of near-extinction, Muller says he was fortunate, surrounded as he was by a team that allowed him to leave day-to-day financial matters in the hands of his current CFO, Tom Doll, and sales to Fred Adcock, as he plunged wholeheartedly into Subaru’s positioning and image with marketing lieutenant Tim Mahoney.
For more than a year, even as Subaru slid inexorably into the mainstream strategy capped off with the Super Bowl play, Mahoney had worked up a customer analysis that, to this day, provides insight into Subaru’s real position in the U.S. market. For the first time, Subaru’s identity clearly drew from consumers’ connection with the benefits of Subaru’s all-wheel drive technology and system. Nothing else.
“The analysis made it pretty clear that we had to stop the mainstream stuff and focus on our core competencies,” said Mahoney, who added that his customer study got Muller’s ear well before the Impreza fiasco. “We were looking at data that told us we had to say how and why Subaru is different, and what kind of different proposition we could offer in the marketplace. After an exhaustive review, the residual image strengths we had even at that time all centered around all-wheel drive and wagon products and sport utility vehicle derivatives.”
The drill, a total about-face from looking at how Legacy or Subaru’s other models were to target a certain share of Honda Accord owners and a certain share of Toyota Camry owners, finally distilled all the noise of marketing to the masses or Honda buyers and clarified who was buying Subaru and why.
“You could go to the mall down the street and pass thousands of Honda Accord buyers, but you wouldn’t know them if you fell over them,” said Mahoney. “But if you say to dealers, `We’re targeting nurses, or we’re targeting kayakers,’ they can tell you how to find them.” To this day, Ray Beylouni’s Colonial Subaru runs clinics at Danbury Hospital and counts nurses among the dealership’s largest clientele.
What showed up with abundant clarity in Mahoney’s analysis, the equity of Subaru’s all-wheel drive leadership, became the basis for Muller’s boldest move. Although all-wheel drive sales represented only half of Subaru’s vehicle sales in 1993 and 1994, Muller decided to drop Subaru’s front-wheel drive models as well as the entry-level Justy and the beloved but aging Loyale and focus 100% on all-wheel drive.
Fortunately for Muller and Ma-honey, their disciplined benchmarking of the brand’s equities was accompanied by a seemingly endless updraft of momentum in the market for sport utility vehicles. Now, in addition to knowing that its customers’ primary impetus for buying Subaru was the traction and handling benefits of all-wheel drive, the marketer could develop messages to lure people who don’t want to give up passenger car comforts even as they opt for 4-by-4 confidence on and off-the road.
Buttressing that strategy, of course, is the innovative “Outback” product development scheme that has proved successful for consumers who not only want all-wheel drive capability, but the comfort of a car. The prices, which are around $10,000 less than burly trucks-cum-sport-utes, are attractive too. By raising the roofline and adding bigger tires and extra body cladding in the Legacy Outback and Impreza Outback Sport, Subaru has given its customers just enough of the Swiss Army-like utility they like for their lives and their images.
The new Forester, too, is built on the same engineering platform as the Impreza. While the Forester is more wagon than sport-ute, it carries the right sort of packaging to distance itself from the ol’ suburban woodies that America gave up when Mom was more apt to be driving to work every day rather than to band practice.
SUV “intenders, rejectors, and defectors” characterize a dimension of the present and future market for Subarus, which, according to auto analyst Christopher Cedergren of NexTrend in Thousand Oaks, Calif., could average 175,000 to 200,000 in the next few years. That’s still significantly smaller than NIssan, but Subaru will take all of them it can get.
Indeed, Cherry Hill headquarters was dubious two years ago when New England Subaru distributor Ernie Boch was asking for an Outback sedan. Subaru managers suggested that if people wanted the added utility space and headroom it would be in wagon form. But Boch thought otherwise, and convinced the company to test-market a Legacy sedan Outback, positive that his customers would scoop them up. He was right, and so was born another line extension.
Again, rather than looking at competitors’ market share or product designs as targets, Mahoney and Temerlin McClain have mastered a niche marketing strategy of identifying what they call “high opportunity groups” by occupation, lifestyle and interests, then honing in on them through targeted media advertising, relationship and grass roots event initiatives that reach them effectively on Subaru’s shoestring budget. Healthcare professionals, educators, engineers and architects are among the most fertile occupational areas for Subaru, while skiing, mountain biking, paddle sports and hiking have been where Subaru has concentrated its lifestyle focus. The company has even admitted to targeting lesbians, which it finds have an affinity for the brand.
The evolutionary course set by Muller is to create brand advocates by “sticking to the relatively simple formula that plays to Subaru’s product characteristics and strengths, and market directly to those groups of people that have a high interest in us. Then we can develop strong relationships, repeat customers and loyalty.”
More giddyup is on its way to Subaru’s product mix with six-cylinder options and a spirited line of remastered Legacies due for model year 2000.
Subaru’s driving performance and handling characteristics, seen on the same consumer values plane as safety in the all-wheel drive benefits spectrum, are already getting goosed in Temerlin McClain advertising spots featuring Subaru drivers challenging BMW and Volvo owners. And, it’s likely that Paul “Crocodile Dundee” Hogan’s Down Under deadpan adventurousness will reflect even more aggressive focus on performance in the future as Subaru adds more power to its winning all-wheel drive equation.
“It [all-wheel drive handling and safety] was both our area of expertise and leadership, and it was also the one area where we could be different from the rest of the players in the marketplace,” said Muller. “It was a no-brainer now when you look backwards.”
And, from time to time, everybody does look back at Subaru’s past, the way Tim Mahoney looks across his desk at his gorilla: to remind them of who they are and who they’re not.
COPYRIGHT 1998 BPI Communications, Inc.
COPYRIGHT 2000 Gale Group