When Separating Brands Really Works

Back in the late 1980’s, Toyota made a bold business decision to separate its luxury products into a new company to compete directly against Mercedes and BMW. The creation of the Lexus brand quickly was followed by Nissan (formerly Datsun) renaming its luxury business Infiniti. This was brand separation with many questions. How much brand equity should be shared with the parent? Does Toyota quality or engineering bring anything to the party for Lexus? Can Toyota be believable as the manufacturer of a luxury product? Should a Lexus dealer be situated in or near a Toyota dealer? Should they look the same? Should they act the same?

Now, in 20/20 hindsight, the separation was brilliant. Both from a product standpoint, and most recently from an image standpoint. Nick Bunkley wrote an interesting editorial in the New York Times about “Lexus, a Toyota Brand, Avoids Taint From Recalls.” Lexus has had more reports of unintended acceleration than the rest of Toyota on a per vehicle basis, yet they have escaped the media magnifying glass. This is amazing brand management.

What we are seeing is how a line-of-business branding strategy also has the benefit of separating a business unit from other brands in the portfolio. This is why marketers separate brands. It enables them to build up brand equity in their own brand, and not have the negative halo of problems another brand may have.

In the case of Lexus, they have done everything right. They treat their customers the way luxury customers expect to be treated. They position their products as appropriate alternatives to other luxury brands. And they rarely lean on Toyota. I drive a Lexus, and a big part of the attraction was how the brand recognizes and responds to me. From sales through service, my local dealer continues to provide a seamless and excellent experience. In fact, the Lexus service is better than BMW and Mercedes, and is one reason I stick with them.

The consequence is that I assume that my car would never have the problems that Toyota is having today. Sure I know Toyota is the parent. Yes I rationally know that there must be shared engineering. If pressed, I guess I could make the leap to say my car may have the same accelerator mechanism as some Toyotas. But I don’t make those connections.

Props to the Lexus team for maintaining a powerful brand independent of Toyota. No wonder their sales are up while Toyota’s are dwindling.