Luxury market segments

Premium compact segment

The premium compact segment is relatively new, having been initiated by several European brands in the mid-2000s, and constitute the least expensive offerings in their lineups. These cars are targeted at a niche market of young customers who have a more refined taste in their automobiles and the means to pay for them. By offering a smaller, lighter, more fuel-efficient, and less expensive vehicle, this serves to introduce a younger customer to the luxury marque, in hopes of retaining the coveted customer loyalty.This includes the Audi A3, BMW 1 Series, and Mercedes-Benz B-Class.

Premium compacts may share components with mass market cars from the marque's parent company (the A3), and/or have less sophisticated platforms compared to upmarket vehicles in the lineup (such as the B-Class). The body style tends to be a hatchback or compact wagon, previously associated with economy cars but regaining popularity in the United States for its afforded utility. The luxury branding and style, high-quality interior materials, wide range of convenience features, and performance powertrains are key to distinguishing them from mass market equivalents (one mistake made by the Cadillac Cimarron) and making these appeal to consumers.

The classification varies, for instance Consumer Guide Automotive in the US considers the Audi A3 and A4 as part of the premium compact segment due to similar size and MSRP, though these are known in Europe as a small family car and a compact executive car, respectively.

Entry-level luxury/compact executive cars

The entry-level luxury category is also known as the compact executive car in Britain and (Mittelklasse in German). In the US, this segment mostly includes the bottom vehicles in the line-up of luxury brands as well as the top-of-the-line models of some non-luxury brands.

Compact executive cars tend to have complex powertrain and mechanical layouts, resulting in increased cost and reduced interior passenger and trunk space, compared to mass market compact cars. However, material and building quality is higher, there are exclusive features not found on mass market cars, there is better handling and performance, and the nameplate itself is part of the value proposition.

Compact executive cars include the Volvo S60, BMW 3 Series, and Mercedes-Benz C-Class which particularly emphasize sporty handling. Other vehicles such as the Lexus ES and Acura TL are also considered entry-level luxury as well, though they do not fall under European luxury classifications as they are larger and not sold there, indeed these began as badge-engineered versions of the Toyota Camry and Honda Accord, respectively.

Recently, the entry-level luxury has been very competitive, and there has been price-overlapping with well-equipped non-luxury cars. The bestselling vehicles of the marque are frequently compact executive cars, such as the BMW 3 Series that makes up 40% of the vehicles that BMW sells worldwide.