Evolving young-adult market requires new approach
2014 DETROIT AUTO SHOW

As it matures, Scion is rethinking its image

Evolving young-adult market requires new approach

“Are we happy with the situation? Are we happy with the product cadence? No. But dealers understand the realities and accept it. I want engaged dealers.” - Doug Murtha
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DETROIT -- Scion turns 10 years old this year, and even though the target customer is still Gen Y, the behavior of that demographic has changed dramatically, forcing Toyota's youth brand to alter its marketing and product-planning approach.

"A lot of our early stuff was menacing and sinister, and that appealed to an edgy, cynical consumer," said Doug Murtha, Scion vice president, in an interview at the auto show. Today's Scion buyers "want a little more daylight, a little less Gotham. We still have to differentiate our brand from Toyota, but it needs more positivity."

While it's tempting to keep Gen Y buyers in a convenient psychographic box, the millennials of 2004 had very different beliefs than those hitting driving age today, Murtha said. Today's young adults no longer have a hot economy and a cash-rich parental safety net to underpin their values.

"We are still targeting 18- to 34-year-olds, but 60 percent of that demographic bucket has changed since we came to market. Their makeup and experiences are different," Murtha said. There's more resourcefulness, less self-centered cynicism. But the independent-mindedness remains.

Murtha: More daylight, less Gotham

Murtha puts it in another context: Imagine if Scion had been launched in 1970. The cutting-edge trend-makers at the time were hippies. But it would be ridiculous in 1980 to still be following the same marketing tactics "after Watergate, oil shocks, the Iran hostage crisis and Molly Ringwald." In 2004, young buyers "expected all the bells and whistles, but today they are more pragmatic about things they are not able to pay for," he added.

So while Scion pushed its pricing into the mid-$20,000s with the FR-S and has studied placing other cars in that price band, "there is no intention to lose the value component to the brand. We need to keep a foot in the entry part of the market," Murtha said.

Scion is in a product cadence trough. The FR-S coupe launched in 2012 gave the brand some juice, but the iQ minicar has been a disappointment. The xB and xD hatchbacks are in their seventh year, and the tC coupe has been cannibalized by the FR-S.

Making a strong business case for Scion has been tough for dealers. Toyota acknowledged the challenge by telling dealers in mid-2013 that there would be no hard feelings for walking away from Scion. Toyota Motor CEO Akio Toyoda punctuated that discussion by saying there would be no new products coming for the next couple years.

But Toyota dealers have stuck by the franchise. Fewer than 10 of the 1,000-plus Scion dealers have walked away, and a handful of dealers who did not carry Scion have since signed up, Murtha said.

"Are we happy with the situation? Are we happy with the product cadence? No," Murtha said. "But dealers understand the realities and accept it. I want engaged dealers. If someone is in business reluctantly, probably they are not putting much in."

Mark Templin, Lexus' top global executive, was Scion's boss when the brand was rollicking with more than 173,000 sales in 2006, double its current volume. Scion's problem was selling too

many cars, and the brand made promises it couldn't keep when the economy soured, Templin said.

The FR-S coupe launched in 2012 helped, but no armada of new products is on the horizon.

"Some of the original propositions are hard to maintain over a long period of time -- short product cycles, low dealer margins -- but the core message is still intact for the brand. It's still doing what we intended for it to do," Templin said.

Scion's big mission was to bring new customers into the Toyota family, especially people who wouldn't have ordinarily considered Toyota. Over its 10-year life, and nearly 1 million buyers, Scion's new-to-Toyota customer ratio is 74 percent. Last year, it dropped to 65 percent, but that's because many Scion customers are returning to buy another Scion rather than moving on to the Toyota or Lexus brands, Murtha said.

Jim Lentz, head of Toyota's North American region, was Scion's first boss. He still has a protective fondness for the brand and supports Murtha's marketing evolution.

"When Scion started, it had an urban, gritty feel, a grunge feel," Lentz said. "And while those urban Gen Y people are still there, they have pressed beyond the gritty environment. They might have a condo. They've kept their urban sensibility, but they are more sophisticated."

You can reach Mark Rechtin at mrechtin@crain.com. -- Follow Mark on Twitter


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