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Excitement and anticipation usually accompany the launch of an
all-new, incremental model. How many new customers will we get?
What competitor(s) will we hurt? Wait until everyone sees our
gorgeous new car/crossover! And so on.
Yes, incremental new models do add volume, their goal by
definition. But how much? Soon after launch brands are quick to
tout how many competitive owners have switched: "We are pleased to
say that 70% of our buyers are from outside the brand," is a
typical comment during launch.
IHS Markit reviewed new vehicle registration and loyalty data
for twenty-one incremental models launched in the United States
from 2017 through the first half of 2021. The data reveal that
industry-wide, more than half of an incremental model's
registrations in its first six months on the market are actually
deliveries to same-brand owners, generally referred to as
cannibalization (see table below). Specifically, 52% of conquests
by incremental models in their first six months on the market are
same-brand households, including 53% for mainstream models and 43%
for luxury models. These high results are driven in part by brand
advocates who frequently already have a vehicle from that brand in
the garage and, having anticipated the arrival of a new car or
light truck for months, are quick to visit the dealer and take
delivery.
As these die-hards eventually all acquire the new product, brand
loyalty gradually declines and eventually reaches an equilibrium
that reflects natural demand for that product. As shown above,
brand loyalty begins to decline in the second six-month period that
the incremental model is available, with overall loyalty dropping
to 51%, including mainstream models at 52% and luxury products at
40%.
Another characteristic of market dynamics during launch of an
incremental model is that models contiguous to the new model in
either size, price, body style, or a combination of these
attributes usually suffer the greatest cannibalization.
Again, IHS Markit data demonstrate that this is the case. For
all the incremental models listed on the table below except the
sporty vehicles (Supra, Mach-E and Bronco Sport), the number one
conquested model is positioned next to the new product.
Not only do the data mentioned above suggest that internal
cannibalization by incremental products may be higher than one
would think, but these data also provide benchmarks with which
brands can compare the internal cannibalization of their upcoming
incremental models and determine if they are at, above, or below,
historical trends.
Posted 08 September 2021 by Tom Libby, Associate Director, Loyalty Solutions and Industry Analysis, S&P Global Mobility
