July 7, 2015

Can Mr. Lincoln Go To China?

Can Mr. Lincoln Go To China?

The Perennially Troubled American Luxury Brand Sees a Future in the East

By Scott Evans | April 25, 2014

Lincoln Mkx Concept Front Grille


Learn about this 2015 Lincoln MKC or read our most recent Lincoln MKC review.

It’s easy to be cynical about Lincoln. In many halfhearted efforts to determine a new identity for a waning brand, Ford has given us plenty of reason to doubt. It is likewise easy, then, to be skeptical about Lincoln’s ambitious plans for China. After all, if it doesn’t work in the home market, the thinking goes, why would it work abroad? But perhaps the thinking is wrong.

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Lincoln is, after all, on an upswing. After years of cost-optimized product, the new MKZ has breathed new life into the brand in America. No, it might not be especially competitive from a pure performance standpoint, but not all luxury consumers purchase based on performance. There is a segment of the market that still believes in Lincoln’s heritage and its potential. There’s a segment that’s looking for something different than the leading luxury brands. They might be small segments, but with Lincoln’s tiny share of the market, even small segments can lead to a noteworthy jump in sales, and they have. It’s also hard to argue that today’s Lincoln products, however they rate within their respective segments, are not the best Lincoln products in years.

All of this brings us to China. At first glance, it seems odd that Lincoln would target China as its first global market. Is it just a cynical ploy to grab some extra volume from a market growing so fast that anyone can make a dime? Capturing even a small percentage of the market could mean huge growth for a niche brand with low sales. If you’re in charge of any brand, you’d be a fool not to embrace that opportunity. After all, China consumes roughly 30 percent of the world’s luxury goods.

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It would be cynical if Lincoln were simply opening a slew of dealerships and flooding the market with product, the old “stack ’em deep and sell ’em cheap” way of doing business Detroit has been known to embrace. But that’s not what’s happening. Lincoln has done its homework. Its brand managers have studied the market and devised a plan that appears to account for the unique tastes of Chinese luxury buyers. As with any business venture, though, it’s not foolproof.

Lincoln Mkx Concept Front Three Quarters

China is a tricky market. While still conservative and restrictive by Western standards, it has liberalized enormously since opening its doors to the West in the 1970s. The careful embrace of capitalism moderated by a strong central government has created enormous wealth for a slice of the population, and a burning desire among the rest of the people to emulate the wealthy. Consider a country that, under Marxist Communism, rejected conspicuous consumption and displays of wealth for decades, and is now open to those very ideas. With homegrown luxury brands snuffed out under strict Communist rule, the market has looked to the West for luxury goods. There’s been a run on luxury retailers. It’s not unheard of for groups of Chinese tourists to buy out entire luxury boutiques, and if the brand they’ve come for is sold out, they’ll buy out the competition.

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The market, though, is changing. According to the experts, the first generation of Chinese luxury consumers, who bought every luxury good in sight in order to advertise their social status, is giving way to a new generation. This new luxury buyer isn’t buying simply to consume and acquire, but is beginning to appreciate brand heritage and individuality. He is more selective about the goods he consumes based on the image and status those brands carry.

This provides opportunity for a brand like Lincoln. History and heritage are important, culturally, to the Chinese people, and Lincoln has ample reserves of both. Successfully tapping into that heritage could make Lincoln a desirable brand indeed, as can its outsider status in a market flooded with BMWs, Audis, and Mercedes-Benzes. Indeed, understanding the Chinese customer’s attraction to heritage helps explain Lincoln’s sudden shift in marketing toward exploiting its history. Sure, to the eyes of the American market, which knows both the good and bad of Lincoln’s history, it can be seen as white-washing and a cynical ploy to exploit the positive image of Lincoln’s past. In the Chinese market, where Lincoln is a relative unknown, this history is a powerful marketing tool that carries little, if any, baggage.

Indeed, in speaking with various members of the Chinese automotive media, I found that Lincoln has little baggage at all. The Chinese are aware of Lincoln’s existence thanks to American movies and television. What they know, though, is based on Lincoln’s glory days of the 1950s, ’60s, and ’70s. They tend to associate Lincoln with the famous American presidents who rode in them. They absolutely see it as a luxury brand, some to greater degrees than others. One colleague told me Lincoln is more luxurious than Cadillac. Another said Lincoln customers were comparable to Rolls-Royce customers. These people are automotive experts, mind you. To the ears of an American car enthusiast, this is incredible. But if the Chinese market doesn’t know any better, Lincoln has a clean slate. According to Lincoln’s market research, the brand has an astounding 75 percent favorability rating among luxury customers.

Of course, there are hurdles. My colleagues also associated Lincoln with heavy fuel consumption, an idea born from a short time in the early 2000s when Ford dealerships in China imported a small number of Town Cars and Navigators with big V-8 engines. In a country with heavy taxes on fuel and crushing taxes on vehicles with engines larger than 3.0 liters, that’s a big black mark. Still, I personally saw Navigators being used as high-end limousines on a number of occasions during my brief stay in China, a testament to their desirability all these years later. Convincing the Chinese buyer that modern Lincolns are fuel-efficient will take some work.

2015 Lincoln Navigator Front End In Motion 02

More worrisome is the speed at which the Chinese market changes. Taste is fickle in a market with the wealth to acquire whatever suits it. Lincoln may understand today’s luxury market in China, but will it be able to adapt when the market changes? My colleagues expressed some concern that Lincoln is a brand for old people (which, in China, means older than 40), an image the brand has struggled with in America. With the vast majority of luxury consumers consisting of entrepreneurs and inheritors between the ages of 20 and 30, that’s a dangerous perception. Brands that were popular among the first generation of Chinese luxury buyers — the parents of today’s luxury buyers — have quickly been branded old and out of touch, and many have struggled to recover from that stigma.

There’s also the danger, expressed by many economists, that the Chinese market might experience a significant contraction. Indeed, the Chinese stock market suffered its first major regression in March of this year, and there are many reports warning of a housing bubble, a credit crunch, or both. Regardless of whether either comes to pass, it’s a fact that the growth of the Chinese economy has slowed, though it’s still outpacing most Western nations by a good margin. To Ford China CEO John Lawler, this is of little concern. He rightly points out that even if the Chinese market cools, it’s still growing faster than any other, particularly in the luxury segment. The Chinese luxury market is still incredibly young compared to the West, which is mature and unlikely to see significant growth in the future.

According to one expert I spoke to, though, a contraction in the Chinese market won’t be like our Great Recession. Because China’s wealth is so concentrated, any crunch will be easily absorbed. Much of China’s luxury market consists of people we’d call “the one percent.” For these people, what you and I would consider an incredible sum of money amounts to a rounding error. Indeed, when Western markets collapsed, spending amongst the richest in our societies hardly abated. The same would likely hold true for China’s wealthy. More likely to feel the pinch are middle-class buyers, many of whom are living beyond their means to emulate the wealthy, some saving for months just to afford an expensive handbag or watch to elevate their social status. Because these people make up such a small fraction of the luxury market, a correction isn’t likely to hurt luxury spending significantly. That’s the theory, anyway.

Given these potential pitfalls, how does Lincoln succeed in China? Lincoln’s marketing in China, as discussed earlier, draws heavily on the brand’s history. On the service front, the brand is taking a high-end approach to the car buying and service experiences. Dealerships will resemble boutique shops with tea rooms, lounges, and exhibits dedicated to the brand’s history. Staff trained in high-end hospitality will work in a low-pressure environment to give the customer exactly the vehicle they want, from selecting leather and paint swatches to viewing a nearly life-size rendering of the client’s future vehicle on a wall of video monitors.

When it comes to the service department, which Chinese customers generally distrust, dealerships will put them at ease with personalized and transparent interactions. A license plate reader will identify the incoming client before they ever step out of the vehicle. While the car is being serviced, the client will be able to monitor the work via live video feed and will have the option of having any replaced part boxed up and returned. Lincoln can do all of this because every dealership in China will be all-new and will have to agree to provide these services before being granted a franchise. Such reform would be difficult, at best, in an established market like America where the dealers are under no contractual obligation to incur the costs of such a radical change to their business practices, and Lincoln can’t afford to foot the bill.

Coddling luxury customers and treating them like VIPs at every step is hardly a new idea, but what Lincoln proposes goes beyond most dealership experiences, even at the high end. Codifying the level of service expected right from the start could give the brand an edge over the luxury competition.

The second, and perhaps most crucial challenge, will be the second act. As anyone in the music industry will tell you, creating a hit record is the easy part. Creating a hit follow-up record is the real challenge, one that many bands never accomplish. If Lincoln is to achieve long-term success in China, it must not be successful today, but tomorrow as well. The Chinese luxury market has been known to turn on a dime (relatively speaking), and if the brand managers don’t react quickly enough, Lincoln could easily find itself marginalized.

2014 Lincoln Mkz Three Quarters Low

There’s also the question of product. The MKZ is a great Lincoln product, but not necessarily a class leader. Chinese luxury buyers used to driving or riding in Audi A6s (the most popular luxury sedan in China) are going to notice the difference, though they may be able to forgive it based on the novelty of the new brand and the top-notch buying experience. (The MKC, launching concurrently in China, is at the time of this writing an unknown quantity as no one outside of Lincoln has driven it.) That’ll get Lincoln through the first round of sales, but ultimately more competitive product is a must if the Chinese buyer is to become as sophisticated as Lincoln’s market research says. According to that research, potential buyers have done their homework and they know the brand. Apparently, that research hasn’t included the brand’s recent history, but likely at some point it will. Moreover, serious research will lead a smart buyer to consider the value of the product against its competitors, not just the value of the brand’s heritage.

This leads us to the final piece of the puzzle, the ultimate value of the Chinese market to Lincoln. Simply put, Ford Motor Company, despite its new “laser focus on Lincoln,” as CEO Alan Mulally puts it, doesn’t have the money right now to do for Lincoln product what it’s done for Ford product. The aluminum F-150 is believed to have sucked up so much money that the Lincoln Navigator and Ford Expedition were only able to receive refreshes, their replacements pushed at least two more years down the road. It then becomes a chicken and egg situation for Lincoln. Lincoln needs to see sales success in China to fund future product, and it needs better future product to assure continued success in the Chinese market.

2015 Lincoln Mkc Front End

This is hardly news to Lincoln’s product planners. They tell me that the China plan is several years old and has already influenced new product. The new MKZ is the first car designed with input from the Chinese market, and the MKC takes even greater influence. In China, Lincoln is launching the Presidential Series, an option first available on the MKZ that greatly enhances the rear seat experience, because let’s be honest, the MKZ isn’t a rear seat car in standard trim. Down the road, the new Navigator and upcoming MKX will further cater to the preferences of the world’s largest car market (and probably soon the world’s largest luxury car market), as will the “flagship sedan,” a replacement for the MKS that will focus heavily on the rear seat for the large percentage of Chinese luxury customers who prefer to be chauffeured.

Of course, even the product is a gamble. Lincoln is launching with a standard wheelbase midsize luxury sedan, a car meant to be driven rather than treated as a limousine. That’ll turn some buyers off right there, and Lincoln has no plans for a long-wheelbase model despite moves by BMW, Audi, and Mercedes-Benz to add long-wheelbase options to the 3 Series, A4, and C-Class, respectively (Mulally notes that, with so many parts shared, a long-wheelbase model wouldn’t be that hard to do if Lincoln reverses course). Lincoln is also launching with a compact luxury SUV, and will follow it up with a midsize luxury SUV and a full-size luxury SUV. In today’s market, where sedans, wagons, and coupes are by far the biggest segments, and rugged off-roaders and city crossovers occupy the smallest portions of the market, that’s a big gamble. The research says the market is swinging towards SUVs and crossovers much like the Western world, and indeed, the Audi Q3 is off to a strong start in China, but it’s an untested market nonetheless.

What if it all goes wrong, then? According to Lincoln’s chief product planner, Scott Tobin, this isn’t a make-or-break moment. Lincoln isn’t betting everything on China, and if this whole plan falls apart, it won’t be the end of the Lincoln brand. It would, of course, be a major setback for the brand, one that would likely necessitate yet another complete rethink of Lincoln’s identity. If it all goes right, though, the payoff could potentially be very big indeed. Aside from simply funding future product, Lincoln’s success in China could give the brand international credibility and help open the door to other emerging markets. It’s a long game that Lincoln is playing, and that’s a refreshing change of pace for the brand.

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Will Lincoln ultimately be successful in China? If you’d asked me a week or two ago, I’d have been deeply skeptical at best, downright cynical at worst. Having learned about the market from local experts and polled some of the most knowledgeable car people in the country, I’ve become cautiously optimistic. There’s still so much that could go wrong, but China appears to be a wide-open market for Lincoln, one with mostly positive preconceptions about the brand and a growing eagerness to embrace the luxury experience Lincoln’s marketers have dreamed up. For us observers here in America, it looks like a worthy gamble regardless of outcome. Even if Lincoln’s adventure in China is an abject failure, the brand will be no worse off here than it’s ever been. If it succeeds even moderately we can look forward to better-funded product in our market as well as theirs. Even the cynics can see this is a risk worth taking.