I think there are two main reasons the SCION brand failed:
1) Toyota spent way too much marketing the SCION brand to a demographic that doesn’t have money 18-30. The largest segment of this demographic buys either a used "point A to point B car" or has a hand me down from family. The wealthier segment of this demographic typically doesn't go for "off brands" which is what the SCION brand was considered. A lot of people I've spoken to didn't even know Toyota made SCIONs or considered it the opposite of Lexus - as a budget brand.
2) SCION was a pricey brand (not really budget priced like intended) with a "no haggle" pricing model called "Pure Price". GM's Saturn brand failed at the concept of “no haggle pricing". It was surprising to see Toyota analyze the Saturn data and continue to think that it might work for them.
In the US, even if there really isn't much price reduction at all from an artificial "base price" - Americans are typically bargain seekers. No haggle pricing as a model doesn't work. I suppose the irony of my saying this is that I bought my used Scion iQ from a large USED dealer that has "no haggle pricing". I do have to admit, it pained me every second I was in the dealership signing papers.
With an eight digit cost ad campaign, these sales barely broke Scion even and definitely made dealers unhappy having to take up floorand lot space:
|CLICK SALES GRAPH TO ENLARGE|
As for the iQ specifically?
The typical answer is that it was “a shift towards SUVs & Crossovers” but I personally don't think that played a factor at all.
|Actual SCION iQ advertisement.|
Marketing worldwide for the iQ was mostly fluffy ~ without substance. Elaborate budgets on advertising hurt the iQ’s margins as much as the lack of substance.
Filming of a very elaborate Toyota iQ advertisement that never aired in Japan:
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