Business Week Recognizes Subaru's Share The Love Strategy

The following article is from Business Week, about Subaru of America's Share The Love Strategy!

At Subaru, Sharing the Love Is a Market Strategy
The quirky car brand barreled through the recession
By Jeff Green and Alan Ohnsman

While much of the U.S. auto business is just beginning to emerge from retrenchment mode, sales at Subaru of Glendale are climbing every month—and owner Sam Ershadi is even considering expanding his California dealership. "Our customers were not affected by the recession," he says. "They have a better financial situation."

By courting financially solid buyers with a taste for the quirky, tiny Subaru of America sped through 2009, logging record sales and market share along the way. Last year Subaru became the 11th most popular U.S. auto brand, up from No. 19 just a year earlier. Record sales in cities like Los Angeles, Atlanta, Dallas, and Orlando helped make Subaru the fastest-growing mass-market car brand in the U.S. for the last two years. It's the growth leader again so far in 2010—up 41 percent through April. For the first time, its unit sales exceed those of such better-known brands as BMW, Lexus, Mazda, and Volkswagen.

Subaru, the auto unit of Japan's Fuji Heavy Industries, has long been popular with a core of professorial drivers in tweed in the Northeast and flannel-clad outdoor enthusiasts in the Northwest. Lately, however, the carmaker has been aggressively moving beyond the snowy, soggy, and mountainous regions that are its stronghold. "People have been finding out about them outside of New England," says Rebecca Lindland, an analyst at IHS Global Insight in Lexington, Mass. "They are quietly successful, and their buyers appreciate that. They haven't abandoned their core."

Customer Profile
Subaru's secret is that it understands the customers who drive its cars and has gotten smarter and more aggressive about reaching out to new ones who would feel at home as part of that clan. The company has the type of customer base that's particularly attractive to carmakers. The average household income of a Subaru owner is $88,000, the same as Honda Motor (HMC) and $10,000 more than Toyota (TM), says Alexander Edwards, president of market researcher Strategic Vision. Plus, Subaru buyers are three years younger than the industry average and a quarter more likely to have a college degree.

They are a thrifty lot, traditionally buying less car than they can afford. Some 36 percent pay cash. Subaru has played to that frugal bent by cutting roughly $1,200 from the $26,342 average price of its cars in 2007. Those cuts haven't killed profit margins because the lower prices allowed Subaru to reduce sales incentives and rebates on its cars substantially. Currently, the company gives about $1,333 per vehicle in incentives—the lowest level of any major car brand, says Thomas Doll, chief operating officer. That's almost half the $2,310 in incentives Toyota currently gives its buyers.

Much of the automaker's marketing focuses on cementing its connection to customers. Subaru's research shows them to be an eco-friendly bunch who value the freedom to go where they want, when they want. Unlike luxury car buyers, Subaruers are "customers who are not buying things, but experiences," says Chief Marketing Officer Tim Mahoney. That meshes nicely with Subaru's all-four-wheel-drive lineup, showcased by TV ads that star one of its cars caked with road grit, being applauded by admiring spectators on a suburban Main Street. The tagline: love. "In their marketing they've been focusing on what creates love between the owner and the automobile," says Edwards. "The 'share the love' campaign has been effective. They play up fun, the adventure you can have in a Subaru."

"Poor Man's Audi"
Last year the company sold a record 216,652 cars in the U.S., including the Legacy sedan and the Forester and Outback sport-utility vehicles. It's upping production 40 percent this year at its Indiana plant, which also builds cars for Toyota, Fuji's largest shareholder. The plant is located in an official wildlife preserve with no waste sent to landfills, in keeping with Subaru's support for causes such as the American Canoe Assn. and the Leave No Trace Center for Outdoor Ethics.

Such brand-building moves help Subaru win new customers on the cheap. It spends about $154 million a year on U.S. advertising—$100 million less than the Volkswagen brand (which sells about the same number of vehicles in the U.S.), a fifth of what Hyundai spends, and a fraction of the $2.2 billion plunked down by General Motors, the industry spending leader, according to Kantar Media. "They're kind of the poor man's Audi," says James Bell, executive market analyst for Kelley Blue Book in Irvine, Calif.

To keep growing, Subaru would benefit from adding a compact-class car and hybrid to its U.S. line, says Bell. Subaru and Toyota have said they're working together to develop a small, sporty car that both will sell. Fuji Heavy President Ikuo Mori has said the company's first hybrid will arrive in 2012.

One thing won't change: Subaru's emphasis on the relatively upscale buyer who values freedom and frugality. Subaru managers think that's a market of up to 60 million buyers—far larger than the niches of academics, tree huggers, and gays and lesbians that it's long been associated with.

"They are basically adding people who are Subaru buyers in their hearts, but don't know it," says Edwards of Strategic Vision. By Subaru's math, with 2.4 million Subarus now on the road, that leaves 57.6 million customers to go.

The bottom line By maintaining the quirky persona of its brand and keeping prices low, Subaru has quietly, but aggressively, increased growth.

Green is a reporter for Bloomberg News . Ohnsman is a reporter for Bloomberg News .