Is Lexus losing young, affluent customers?
Luxury brand fears it may be 1-generation wonder
Mark Rechtin
Automotive News
October 15, 2007 - 12:01 am ET
MONTEREY, Calif. — What is there possibly to worry about if you run Lexus Division and you outsold your nearest luxury competitor by nearly 50,000 units in 2006?
Just this. Lexus looks dangerously out of position when it comes to attracting the younger buyers that demographers and market researchers say will flood the luxury market in a few years.
Lexus has been the best-selling luxury brand since 2000, but the executives who run Toyota's upscale division are worried about the future. The fear is that Lexus will be a one-generation wonder — a baby boom artifact.
"When we look at the luxury market in 10 years, it's going to change so dramatically," said former Lexus General Manager Jim Farley.
(Farley was interviewed before Ford Motor Co. announced last week that it had hired him as group vice president of marketing and communications.)
Sifting through the numbers after taking over at Lexus in April, Farley discovered an alarming trend: Unlike Infiniti, BMW and even Mercedes, Lexus is losing its foothold among younger buyers just as its core Pepsi Generation customers get ready to switch to warm milk. To deal with the problem, Farley formed a team to analyze the product lineup and recalibrate marketing.
The team concluded that Lexus is caught in a demographic vortex — upmarket intenders are getting younger as its buyers grow older.
"This new 30- to 40-year-old customer deserves us to look at them very critically," Farley says.
Lexus owners are older on average than those of its Japanese and European rivals, except for Jaguar. Indeed, BMW, Audi and Infiniti customers are significantly younger, according to the Power Information Network. Besides Jaguar, the only luxury brands with higher buyer ages than Lexus are Lincoln and Cadillac.
"I'm surprised that the Lexus age is above Mercedes," says Power analyst Tom Libby.
Disturbing trend
For Farley, who made his mark at Toyota with the Scion youth brand, all this information is disturbing, to say the least.
"The ES 350's average age is 61, and their number-one occupation is retired," 
he says.
Aside from the Cadillac STS, all of the ES 350's mid-sized premium competitors attract younger buyers, according to Power.
"Forty percent of all our customers are over 60," Farley says.
Only Cadillac, Lincoln and Jaguar have a higher percentage of buyers over 60, Power says. Mercedes, Volvo, Acura, Porsche, BMW, Infiniti, Audi, Saab, Hummer and Land Rover all have a lower percentage above that age.
To be sure, the customer age statistics reflect product portfolios. Libby says Audi and Infiniti have lower average ages because they aren't as strong as Lexus in the upper-range segments.
"Mercedes is more evenly distributed, and BMW has a nice combination of luxury and performance," he says. "Lexus was weak at the low end, but the IS has helped. It does well with the LS at the high end."
Market researchers expect a demographic shift to younger luxury customers within the next decade. In seven years, 50 percent of the people who buy luxury cars will be between ages 30 and 40, says Milton Pedraza, CEO of the Luxury Institute, a New York market researcher. Pedraza extrapolated the data from U.S. Census Bureau forecasts.
The figure today is 23 percent between ages 30 and 40, according to Power.
Citing Census Bureau numbers, Pedraza expects a dramatic shift in the ages of households earning more than $150,000, starting in 2015.
"As boomers retire or pass away, this younger group will be much more representative," he says. "They will be the bulk of consumers by 2015, replacing the baby boomers."
Pam Danziger, CEO of Unity Marketing in Stevens, Pa., says boomers will lose influence in the luxury market.
"Younger affluents will become the prime target," Danziger says.
Under-40 consumers have a different notion of what connotes luxury, Danziger says. Already, they spend considerably more on a luxury vehicle than boomers — $45,175 on average, compared with $39,754 for older customers, according to Unity Marketing data.
Lexus seems unprepared for the tidal change. At 51, the average Lexus customer is surely not ancient. But Lexus' average is three years above the average of all luxury marques. And that 61-year-old demographic for the entry-luxury ES 350 sedan is particularly troublesome.
"The ES 350 is not going to attract a 40- or 45-year-old," says Libby, the Power analyst. "They need the IS and RX to appeal to younger buyers."
Farley wants to shake things up. He says younger customers are looking for something different in their luxury vehicles. "They want a company that experiments with what the limits of luxury can be," Farley says.
Right now, that's not Lexus.
An energetic father of two infants, with a son arriving just a year after a daughter, Farley comes across as much younger than his 45 years. Besides overseeing the launch of Scion, he set up grass-roots marketing for the 2007 Toyota Tundra.
Farley says buyers of the raucous Mitsubishi Evo and Subaru WRX represent the cutting edge of the new luxury shopper. Small cars can still be luxurious, as long as no compromise is made in performance, Farley says.
Think 1 series
His current bogey is the BMW 1 series. Farley says BMW is being smart about how it goes after a new generation of customers. Lexus may not create a 1-series challenger, but Farley says the small BMW signifies the kind of thinking Lexus must do.
All of this doesn't mean Lexus will move away from family vehicles. Quite the contrary. Many of Lexus' baby boomer customers are empty-nesters. The looming 30- to 40-year-old crowd will have young families.
Lexus' first salvo at attracting younger buyers is the March launch of the IS-F, a challenger to prestige-brand speed demons such as the BMW M3 and Audi RS4. Already, the typical buyer for the IS 250 and IS 350 sedans is "in the low 40s." But the hot-rod IS-F needs to attract still younger shoppers, Farley says.
"This car is not aimed at anyone buying our cars today," Farley said at the car's media introduction here. "This car was not supposed to be."
Andrew Coetzee, Toyota Motor Sales vice president of product planning, lauds the BMW 1 series. It is "just like a 3 series of a couple generations ago," says Coetzee, a member of the study team looking at how Lexus should change or expand its lineup. But he cautions against Lexus "going too small or too cheap."
"We see more young people aspiring to luxury brands than ever before," Coetzee says. "But they are not saying they want it to be cheaper. They want it to have quality, technical innovations and prestige."
The pursuit of ... golf?
Jim Hall, an analyst with AutoPacific in suburban Detroit, says Lexus must change the perception of "my parents' car" to lure the next generation of buyers. For instance, most Lexus customers complained about the chronograph-style instrument panel of the original IS 300 sedan. But it also was the feature that most attracted its youngest loyalists.
"They can expand their portfolio and chase BMW all they want," Hall says. "But it won't mean anything until they can make the GS sedan a legitimate competitor to the 5 series and E class."
But it's more than product.
Lexus also has to change its marketing message, says Brian Bolain, Lexus' national manager of interactive marketing. For instance, Lexus plans to change the format of its Web site,
www.myownpursuit.com, which was previously devoted to such sports as golf and tennis.
"We will be expanding the site to encompass more lifestyles, such as culinary, fashion and travel," Bolain says.
He says the main Lexus site,
www.lexus.com, "does a good job telling people about cars, but not so good a job telling them about the brand."
And when cars such as the IS-F attract new shoppers, dealerships will have to change, too. Just as Toyota dealers had to train "Truck Champions" for the new breed of Tundra customer, Lexus will do the same for its new strain of performance vehicle.
"The average Lexus salesman knows your name and gives great service," says Bolain. "But I'm not sure if he will know anything about six-piston brake calipers."
