The Indian luxury car market is valued at $1.06 billion in 2021 is expected to reach the $1.54 billion mark by 2027, registering a CAGR of more than 6.4% during the forecast period 2022-2027, according to a report by Mordor Intelligence. Lexus, the luxury car brand of Toyota, was rolled out in in March 2017. Since then automotive brand has been trying grab its share of the market as it faces competition from big players including Mercedez-Benz, BMW and Audi. Lexus India registered a growth of 42% from sales of goods traded Rs 851176.10 crore in FY22 from Rs 493518.76 crore in FY21, as per regulatory filings accessed by business intelligence platform, Tofler. The compay’s net loss rose 4.12% to Rs. 20827.1 crore in FY22 from Rs 19968.8 crore in FY21.
In an interaction with BrandWagon Online, Naveen Soni, president, Lexus India talked about the company’s entry into the luxury car market, its growth and marketing initiatives. (Edited Excerpts)
How did 2022 playout for the luxury car market in the country? What kind of transformations or changes have you observed in the market over the years?
In 2017, our entry into the luxury car market marked a significant milestone. The subsequent year, 2018, witnessed record-breaking sales of approximately 40,000 units in the luxury car industry. However, the onset of the pandemic brought about a profound shift in consumer mindset, prioritising safety, health, hygiene, and sustainability over mere mobility. As a consequence, industry numbers declined by almost half, reaching around 20,000 units, affecting both the mass and luxury car markets. Nevertheless, as the pandemic’s impact subsided gradually, we observed a revival in the industry. The first year post-Covid saw sales figures climb back to around 26,000 units, and we were confident that the market’s potential extended beyond the actual numbers we had sold to our customers, as evident from the accumulation of pending orders in every OEM (original equipment manufacturer).
Unfortunately, in 2022, the industry faced challenges not from Covid but from the persistent semiconductor issue. This problem lingered due to some semiconductor manufacturers going out of business during the Covid period and others diverting their interests to different industries. Consequently, there remained a delay between the demand and supply of semiconductors. Nonetheless, there was an improvement compared to the previous year. From 2021 to 2022, the industry experienced a growth of approximately 52%, reaching around 36-37,000 units, considering a rough estimate. The existence of pending orders, totaling between six to 8,000 units across manufacturers, indicated further potential for growth. This year presented an opportunity to surpass the previous five-year high of 41,000 units, despite minor disruptions caused by global uncertainties, particularly due to the emergence of wars. However, efforts have been made to address these uncertainties, and the impact on global economies appears to have been minimised. Considering these factors, the industry is showing robust growth.
How was the year 2022 for Lexus India? What is the target for 2023?
In 2022, while the industry achieved a notable 52% growth, we reported an even more impressive 76% growth in our business. This substantial improvement in new business generation was particularly significant for us as a younger player in the industry, as it posed a significant challenge to establish our foothold and achieve such numbers. However, the persistent issue of semiconductor prices continued to haunt us throughout 2022, and we also had pending orders to fulfill. When considering new business generated, which encompasses both the cars supplied and the orders received, we managed to achieve three times the numbers recorded in 2018. In a direct comparison of sales figures, the growth was 76%, but when accounting for auto-generated sales, it amounted to three times that of 2021.
We maintain a similar growth trajectory this year and are planning to surpass 76%, aiming to potentially double the achievements of the previous year. However, given the lingering impact of the semiconductor challenges, we anticipate a three times growth in new business generation by the end of this year as well.
What are the kinds of marketing initiatives that Lexus India has undertaken since its foray into the Indian market?
For us, there are two mantras that we have always worked on. First mantra says that luxury is always personal and the second one is that we, as Lexus would like to be known as a luxury lifestyle brand. Coming from these two aspects, one is that the luxury is personal, we don’t believe that the same experience with two different customers will evoke the same response between A and B. The second part is that we will look at what as far as the lifestyle elements that we can enhance for our guests. This is under the umbrella of the Lexus Life program.
The Lexus Life Program, is an exclusive members-only initiative that redefines luxury and delivers an unparalleled experience tailored to your discerning tastes. With Lexus Life, the company aims to extend the exceptional Lexus experience to guests across various segments, staying true to their core belief of “Omotenashi,” which embodies exceptional hospitality. Lexus Life is the way of expressing gratitude to the valued customers, who are true connoisseurs of experiences. Under the umbrella of ‘Lexus Life,’ Lexus has introduced the Taiken Card that curates one-of-a-kind experiential moments for their esteemed guests, providing them with exclusive access to the most extraordinary events and personalised experiences.
What is the marketing budget for the company?
In terms of percentage, the total marketing budget is about 10% of the total revenues that we generate. And of that, roughly about 40% is spent towards marketing initiatives including Lexus Life Program and Taiken Card.
What is the media mix for the company? What is the split between traditional media and digital media? Does Lexus spend on influencer marketing?
Regarding our media mix, we have two distinct aspects. Firstly, the company invests in promoting the Lexus brand independently, using funds from our own resources. Secondly, we collaborate with our dealer partners for sales-oriented efforts. In both cases, the majority of our media spending is directed towards digital channels. We’ve observed that traditional media often results in wastage, especially for the luxury car industry, where controlling the audience is challenging. In contrast, digital media offers more control and precision in targeting. While we do feature in some magazines, our primary focus lies in digital inspections.
Additionally, we acknowledge the significance of influencers in the luxury car market, but we prioritise a careful selection process to ensure authenticity. Our existing customers play a pivotal role in influencing others, as we believe in cultivating strong relationships with them to become our brand ambassadors. While we do engage with influencers, it is not our primary marketing strategy. Our core approach centers around nurturing and leveraging our satisfied customer base.
What are the challenges for Lexus in the India market?
The primary challenge in India is its vast size, where the top seven cities contribute around 70-75% of sales, but further expansion requires considerable effort. Another factor is the variance in GDP per capita among states, affecting market size and qualified customers for luxury cars. Our product lineup focuses on the top 60% of the market, starting at approximately 70 lakhs, while the bottom 40% is not part of our offerings. Despite India’s strong economic growth potential, the luxury car market accounts for less than 1.5% of the total car market, hindering long-term business commitments from manufacturers and investors. This growth is directly linked to GDP per capita, rather than GDP itself. To thrive in the luxury car industry, we depend on overall economic growth across all sectors.
What are your future plans?
Our goal is to become the most adored luxury car brand, and to achieve that, we aim to engage more profoundly with our customers. Our brand aspiration revolves around going beyond being just a provider of mobility solutions and associating with our guests on a deeper level. We have already initiated programs like Lexis Life, and we intend to further enhance these experiences using AI technologies and other innovative advancements. By employing such technologies, we will better understand our guests and foster stronger relationships with them. Our focus will always be on enhancing the quality of our interactions to reach a more meaningful and significant level of connection with our customers.