We have shared our thoughts on Premium Economy for almost 2 years.
You could see the established players primarily MerBimAu start in what we call the premium economy segment; with new models that have impeccable branding at popular pricing.
Especially the premium economy CUV segment with a turbocharged 4 cylinder is a hotbed of activity from several manufacturers.
With a new model here, another there, the immediate surge in pent up demand. Its a case of lets wait and see how this new premium economy develops in the market. Agreed...we could have a lengthy discussion regarding the luxury aspect of premium economy (is it really luxury?), and what is a luxury car, SUV, or CUV.
Agreed too...we had our reservations...especially where is this going to go in Canada. How many sales will get cannibalised? How will it impact the established luxury models?
The "Premium Economy" space/segment works well in Canada, generating a viable alternative for customers, and incremental sales for the players in the space. Especially in the CUV segment, the rising tide even raises the current (old) Cadillac SRX as an example.
Are there manufacturers losing sales to premium economy...absolutely. The various players in premium economy are stealing sales.
Cannibalising sales from established incumbent models, is a minor factor, the rationale is the following: Sell an additional 10 in premium economy of which 2 are cannibalised, still ahead by 8.
The biggest player in the premium economy space in Canada? Mercedes-Benz
Agreed...we can have an interesting discussion about BMW, Audi, the rising premium economy tide, Acura, and Lexus. Infiniti playing catch up, while Cadillac and Lincoln except for the CUV's are almost out of the space. Lets not forget Porsche with the Macan, or a resurgence of the Evoque.
How does the premium economy segment impact the established luxury models of a brand? This is the thought vector that captured our attention from the outset. There is some cannibalising of the mid level sedan segment, think E Class, 5 Series, A5. While there is also a shift from sedans to utility vehicles. You could say that the tea leaves get blurry. Overall there is an upside in sales. Top line models are not affected.
The individual that seeks a top line luxury sedan or utility will not gravitate towards premium economy.
What is the impact of financial services?
The folks that gravitate towards premium economy are in a better equity position with their existing vehicle. Its easier to do a deal with improved continuity in the transaction be it a lease or a finance with a balloon payment at the end of the term.
From our perspective premium economy has struck a chord that resonates with potential customers in Canada. The brands in the segment are well entrenched, while being aspirational.
Are the new premium economy offerings all winners, not really, there remains incremental repetition which is confusing, some models are of questionable esthetics. Although most of the metal resonates with a cross section of customers that are new to the brand.