Luxury cars, defined as those valued at over $150,000, account for a small portion of vehicles sold but loom large in drivers’ imaginations. The most famous brands have instantly recognizable, iconic designs that set future trends; they also provide superior performance that commands a significant price premium. The strong appeal of these vehicles can significantly boost a company’s valuation and enhance its ability to offer other luxury products and experiences. Moreover, the luxury segment appears to hold a greater profitability potential for industry players in a global automotive market with limited volume growth expectations.
We surveyed and interviewed more than 150 people around the world who had made or were considering a purchase of a luxury car to learn more about this influential market.1 The respondents represented a wide range of wealth segments, but the vast majority had annual incomes between $200,000 and $1 million. Our focus was on their needs and motivations throughout the entire purchase and ownership life cycle. What factors prompt customers to select a luxury car and how loyal are they to brands? And what aspects of the luxury-car ownership experience are most important or fall short of expectations? Given the recent rise of electric vehicles (EVs), we also examined the nuances of this submarket to determine whether buyer preferences and habits differed. Overall, we covered more than 70 critical questions, and some of the major findings are synthesized in this article.
One main takeaway: While luxury-car buyers prioritize the driving experience and gain great enjoyment from it, they also expect their vehicles to retain, or even increase, in value. Other high-end goods tend to appreciate, so buyers often view this as an inherent characteristic of any luxury product. Sustaining the residual value of a modern luxury car can be challenging, however, because vehicle technology is constantly becoming more sophisticated. To preserve their appeal, all luxury-car OEMs must address this challenge and develop strategies to enhance residual value.
Market overview: Cars of distinction—and buyers who want the best
A diverse and eclectic customer base
Luxury-car buyers share a love for leading-edge vehicles, but their reasons for purchasing a high-end brand can vary. In our survey, we identified four distinct buyer personas (Exhibit 1):
- collectors/connoisseurs
- innovation seekers
- performance enthusiasts
- personal-status buyers
Each group has different vehicle needs and motivations that can influence every aspect of the purchase and ownership journey, including the amount of time spent researching cars, the advisers consulted when selecting a vehicle, the number of hours spent driving, and the likelihood of switching brands.
The pursuit of perfection and the importance of heritage
When we asked survey respondents what they sought in luxury goods, they most frequently mentioned the concept of perfection (Exhibit 2). This term connotes a lofty, flawless state of existence, but most respondents said it referred to the high quality of a product’s physical characteristics and its durability.
A luxury item’s “heritage”—its distinctive and timeless brand perception—came in close second to perfection, highlighting the critical importance of preserving a brand’s history and designing products that can stand the test of time for generations. Companies that want to attract customers who have a passion for vintage luxury items will prioritize their brand’s image.
Exclusivity, emotion, and personalization—the ability to customize features—also ranked high in our survey. Sustainability has also increased in importance and was ranked as the sixth-most-important attribute.
The importance of customer segmentation
A highly detailed customer segmentation is critical to understand the market. Traditionally, car manufacturers primarily relied on socio-demographic data, such as age, gender, income, to understand customer preferences. We also considered personal preferences, purchase motivations, and preferred features to build four customer personas and depict the results of our survey. Innovation seekers, for instance, listed vehicle design, connectivity, and sustainability as their top three priorities, while personal-status buyers focused on brand exclusivity, design, and performance (Exhibit 3). Brands that systematically capture and emphasize these preferences in their customer interactions are more likely to connect with their target buyers.
The purchase journey
The pure joy of driving—while retaining value
When making a luxury purchase, survey respondents tended to focus on the experiences that ownership could provide—for instance, opportunities to travel or engage in social events (Exhibit 4). The status associated with owning a luxury item was of secondary importance. Most survey respondents—86 percent—cited the enjoyment of driving as their main purchase motivation, which far surpassed the desire to showcase their car as a status symbol, which was cited by 36 percent.
Also of note: A significant portion of respondents mentioned investment potential (32 percent) and collection (16 percent) as key purchase drivers. Respondents under age 45 were more likely than older respondents to cite these dimensions.
Omnichannel communication is not optional
Luxury-car buyers gather information about vehicles from multiple sources, including online platforms, in-person events (for instance, car club meetings), and digital media. In our survey, 40 percent of respondents researched general information about luxury cars once a week or more, showing that OEMs have many opportunities to connect with customers (Exhibit 5). Notably, car manufacturer websites, magazines, and publications only account for 12.5 percent of all customer interactions related to luxury cars, and those channels are often used to collect technical or commercial information after a customer makes a purchase decision. To maximize sales, luxury OEMs must monitor and curate their presence across independent channels and touchpoints, such as YouTube and social media sites focusing on luxury cars. These efforts are particularly important during the consideration phase of the purchase journey, when customers are evaluating brands and models.
Luxury brands cannot rest on their laurels
Luxury OEMs with a strong reputation can leverage their heritage to attract buyers, but they cannot be complacent. In our survey, only 37 percent of luxury-car buyers were brand loyalists who stated that they were likely to make a repeat purchase (Exhibit 6). Conversely, 35 percent said they would consider switching brands, and 28 percent said they were likely or very likely to switch. In such a dynamic, competitive environment, newcomers with a solid proposition can progressively win market share from players that do not satisfy customer expectations. Not surprisingly, customers fitting the innovation-seeker persona are most likely to investigate new brands, while those in the collector/connoisseur persona are least likely to switch.
Exploring new options
Chinese luxury brands may find a global niche
Many luxury-car buyers historically gravitated toward European brands because of their long and distinguished reputations. Newer brands, which lack the same legacy, credibility, and distribution channels, will have to work harder to win buyers. For Chinese OEMs, many of which are now seeking global market share, the odds may be particularly low because 71 percent of our survey respondents stated that they were unlikely or very unlikely to consider a Chinese vehicle for their next luxury purchase (Exhibit 7). As with brand switching, a customer’s persona can influence attitudes. Willingness to consider the purchase of a Chinese luxury car was highest for innovation seekers (46 percent), showing how the shift toward new technologies—such as electrification, autonomy, and connectivity—has the potential to challenge established competitive dynamics.
Exploring the electric-vehicle option
EVs are drawing a great deal of attention in the current automotive arena. How does their appeal extend to the luxury segment? The answer depends on a variety of factors. In our survey, about 20 percent of respondents declared that they would consider buying a luxury battery electric vehicle (BEV) in the near term, and roughly the same percentage would consider a hybrid (Exhibit 8). Openness toward luxury EVs is highest in Asia (about 50 percent for BEVs and hybrids combined), compared with 36 percent for the Europe, Middle East, and Africa (EMEA) region and 33 percent for the Americas. A significant portion of respondents indicated that they expected to buy at least one more vehicle fitted with an internal combustion engine (ICE), and 19 percent stated that they would never buy a luxury EV.
Lower residual values are the main problem for luxury EVs
Respondents who are delaying or refusing to buy a luxury EV cited many different reasons for their decision (Exhibit 9). Contrary to common belief, concerns about charging availability did not rank highest, nor were respondents most likely to cite the emotional appeal of ICE vehicles. Instead, the top reason was related to the unclear residual value of used EVs. Some luxury EVs now rapidly lose value, often because technologies for batteries and electronic components evolve quickly. This fact may deter buyers because it is incompatible with the typical promise of a luxury good to retain, if not increase, its value.
OEMs must take deliberate steps to address this concern. For example, they could attempt to optimize residual value when designing cars, extend battery life cycles, reduce costs of servicing batteries, and help customers trade in their used EVs. These actions will be pivotal to ensure that luxury EVs can increase their penetration beyond the innovation-seeker segment, particularly across North America and Europe.
The appeal of luxury EVs varies across vehicle body types
An electric powertrain has a very distinct set of characteristics and features, delivering high torque and power quietly and with minimal vibrations. Still, many car enthusiasts appreciate an internal combustion engine’s sound and driving experience. We therefore tried to understand which EV types might be most appealing to luxury-car buyers to determine whether certain vehicles might generate more interest. In our survey, 25 percent of respondents stated that they were very excited to own large luxury SUVs—also called “super” SUVs—compared with 24 percent for sports cars and 18 percent for luxury sedans (Exhibit 10). The preferred EV type varied significantly across regions and customer personas, showing once again how a detailed understanding of target markets is essential for luxury EVs.
A smooth ownership experience
Exacting standards and high expectations for maintenance
Our survey reveals a clear pain point in the luxury-car ownership experience: discontentment with current maintenance services. Although maintenance is a key decision factor for both brand selection and brand loyalty, a significant number of survey respondents lamented that the quality of luxury-car service is below expectations (Exhibit 11). About 45 percent of survey respondents were not fully satisfied with their current maintenance experience; this percentage was even higher for EV owners, which will affect both their brand perception and their willingness to repurchase an EV over the short term.
Car manufacturers and dealers might be able to improve the customer experience by accelerating technology usage. For example, they could analyze data from connected cars to anticipate and avoid failures, or leverage digital platforms to book service appointments. Luxury-car providers could also embed artificial intelligence into customer relationship management systems to detect and monitor negative service events. If a brand acts swiftly to address bad customer experiences, it could turn them into opportunities to build trust.
A stress-free experience is paramount
Luxury buyers will not skimp when caring for their vehicles, but they want a hassle-free experience when maintaining them, preparing their cars for long drives, or moving them to racetracks or driving destinations. Many buyers do not want to deal with registration and other bureaucratic issues. In our survey, a significant number of luxury-car buyers complained that they struggle to find a solution that will allow them to have a stress-free ownership experience, and 49 percent said they would opt for full garage maintenance and management services if they were available close to their residence (Exhibit 12). Connoisseurs and collectors were most likely to select that option (71 percent), followed by status buyers (58 percent). This preference is universal, regardless of region, and a growing number of businesses now support luxury-car buyers in the enjoyment of their motoring passion by providing stress-free maintenance options.
A love of driving will keep the market strong
The luxury-car market has maintained its momentum. Despite recent economic turmoil and geopolitical uncertainty, these cars retain their appeal as aspirational products and continue to inspire strong emotions. Our survey reflects the market’s strength, with 49 percent of respondents saying that they expect to buy luxury vehicles more frequently in the future and only 4 percent expecting to reduce the frequency of purchase (Exhibit 13). Even more interesting, 64 percent of respondents said they expect to drive and enjoy luxury cars more than they do today. These findings bode well for the future, and the insights from our survey can help OEMs and others develop a strong luxury playbook and find the best opportunities in this thriving market.
