Mazda's 2% solution

CHICAGO -- There's 2 percent. And then there's a "good" 2 percent.

That's how Mazda's North American chief frames the objective of the brand's "Mazda Premium" strategy, a potentially 10-plus-year journey to elevate its image in a way that brings higher brand loyalty and dealer profits.

Masahiro Moro said the Japanese automaker wants to transform Mazda's roughly 2 percent U.S. market share into a "good" 2 percent that commands higher average transaction prices with lower incentives, and he wants to offer a better customer experience.

"I am not comfortable with 2 percent. I'm comfortable with a good 2 percent," he said last week during an interview here. "A good 2 percent means our dealer network becomes profitable and becomes sustainable."

Mazda's U.S. dealers had a tough 2016 as sales slumped, eroding dealer profitability and leading to high vehicle inventories.

Moro, who started heading Mazda North American Operations in January 2016, declined to disclose what percentage of Mazda's 598 U.S. dealers are currently in the black. However he stressed that the goal is to have the overall network's profits "steadily increase" through improved customer experience efforts and brand loyalty.

IHS Markit reports that Mazda's brand loyalty was 39 percent in 2016 -- a nice increase from 30 percent in 2011 but well below the industry average of 53 percent.

The ultimate goal, according to Moro, is to have "the highest brand loyalty" in the industry. But for now, the goal is 50 percent or better.

"If your loyalty is lower, too much conquest, your business is never going to work," he said, adding that Mazda's customer loyalty through February was 43 percent.

Moro said Mazda isn't going to push for increasing its market share until its brand mix is better aligned with the Mazda Premium strategy.

"Until we reach that high-quality business operation, it is not my intention to push volume by diminishing or putting a low priority on improving the business foundation," he said. "That's why I'm saying let's go to a good 2 percent first."

Moro said those sales then become a "foundation" for dealers to accelerate growth in both sales and fixed operations, leading to a "great opportunity" for dealers to be more profitable.

To change customers' perception of Mazda from a mainstream brand to a more unique, premium offering is expected to take "at least 10 years," he said.

The Mazda Premium strategy comes as the automaker's customer base, according to Moro, has become more affluent. Mazda reports nearly three of four customers have a college education and an annual household income of $93,000, up from $80,000 in 2011.

Increasing brand loyalty is easier said than done, as industry leaders such as Ford, Toyota and Chevrolet offer full lineups of vehicles for customers to transition to during different stages of life.

"Mazda, while they have terrific products, they don't have the breadth of a Toyota or Ford," said Tom Libby, IHS Markit manager for loyalty solutions and industry analysis. "There's several drivers of brand loyalty, and one of the key drivers is the breadth of the brand's product portfolio."

Libby believes achieving higher than 50 percent loyalty "is doable" for Mazda, "but it's going to be a challenge." Mazda's current lineup, according to Moro, covers about 55 to 60 percent of U.S. market segments.

An anomaly for loyalty is Subaru, which Libby said does "very well" without offering a full lineup. He and others have attributed Subaru's success to its ability to carve a distinct niche for itself. 

"Trying to find a unique identity is really what they have to do to continue," said Jessica Caldwell, executive director of industry analysis at Edmunds. 

Mazda built its brand on affordable, sporty cars, but its best chance for establishing a niche may be as a full-line crossover brand -- the hottest segment in the U.S. auto industry. 

The CX-3, CX-5 and CX-9 cross-overs accounted for 49 percent of Mazda's U.S. sales in 2016. Through April, they represented 53 percent. 

Mazda President Masamichi Kogai earlier this month said the auto-maker is ramping up crossover output globally, including production of its top-selling CX-5, to bolster profitability after recalls and higher car incentives undercut earnings in the latest quarter. 

"Compared with sedan cars, SUV models have higher profitability per unit, so I hope that will help increase our profits," he said. "Increased capacity will generate growth." 

Crossovers accounted for 39 percent of Mazda's global output in the just-ended fiscal year. Kogai wants to boost the share to about 45 percent in the current fiscal year and to 50 percent the following year.

Shaping the Mazda Premium strategy is Dino Bernacchi, a Detroit ad veteran who came on as chief marketing officer for Mazda's U.S. operations on May 1.

Moro said Bernacchi, who was hired above Russell Wager, vice president of marketing for Mazda North American Operations, will lead the strategy and long-term plan for the premium-tier push.

The CMO's role will be to "manage a customer's experience consistently throughout all touch points," Moro said.