Driving growth in the world’s largest car market

17 May 2010|Added Value

China’s car brands have started to make an appearance on the world stage over the last 5 years.  But the mass production, low cost reputation that comes with them has slowed their acquisition of market share in many countries.

However, change is very much in the air.  Two things indicate a shake up in global car brand reputations, which could mean an opportunity for China: the global car brand recall ruckus and Geely’s purchase of Volvo from Ford for $1.8 billion.

What does Geely’s purchase mean in this context?  No doubt China’s car brands have an ambition for growth that spreads far beyond the country’s shores. The more immediate and bigger impact may be that Geely will use the Volvo brand to borrow some of its safety equity for both export and local Chinese consumption.

Around the world, Volvo has built its entire identity on the concept of safety.  In China, ironically, Geely actually had a cleaner safety record last year than Volvo, and were one of the few brands to avoid recalls at all in 2009. In fact, all kinds of unlikely brands have  experienced recalls in China recently, not only the hard hit Toyota, but the likes of Maserati, Mercedes-Benz, and BMW, as well as the joint venture operations between Ford and Chang’an and SAIC and Volkswagen.

If Geely can capitalizes on its own growing reputation and the legacy of the Volvo brand, they could be on to a very clever strategy.

It would appear that in a country which has the highest number of road fatalities every year, there is a huge opportunity to market a “safer” car using the Volvo brand. The number of fatalities may have declined steadily to 73990 in 2008, the latest year for which government statistics are currently available, but that still represents a huge human tragedy – and it’s more than twice the level in the USA.  This, in a country where many consumers will actually pay a premium for the security and protection that premium brands can deliver, in categories as diverse as soap and pharmaceuticals.

If Geely succeeds, it’s   conceivable that over the next years, Chinese brands could  increase their current mid thirties share of the mainland market to more than 50%. In turn, this could give them the confidence and resources to mount a serious challenge in the global market in the future.

So a genuine opportunity exists.  What could both international and Chinese car brands be doing to meet Chinese consumers needs better and compete more effectively on their home turf?  Here are five thoughts:

1. Win the battle for the first time buyer
The car category historically sees a lot of loyal consumers over time. Recruitment of first time buyers is therefore a huge determinant of long term success. And in China, the majority  of new car buying customers are still first time buyers. China represents the biggest automotive “land grab” on the planet.

And for the Chinese first time customer, the experience of buying a car is extremely exciting and engaging . Making the purchase process as experiential as possible, by turning  dealerships from basic car warehouses  into ”autopian dreamhouses”  designed to recreate some of the pleasure and thrill of the car ownership experience will capture a bigger audience.

2.  Sell Freedom
In China, car purchase decisions are often driven by two core needs; firstly the desire to project “face” (to badge one’s position in society) and secondly the need for the convenience of owning your own transport.   Status is an expensive equity to build in China when so many other brands are already established. The drive from the international airport in Pudong to downtown Shanghai is alone enough to suggest that freedom may be an idea more worth thinking about.

The road is packed with inexperienced drivers traveling bumper to bumper, on congested, urban roads.  Promising the ‘city driver’  freedom and convenience in the metropolis (rather than the ‘empty roads and exhilarating handling’ usually evoked) may tap into a relatively un-chartered area of the Chinese car driving experience?  A mix of functional and emotional benefits designed to defuse the stress of commuting and congestion could really resonate with the urban car owner.

3. Target the Family
How many brands really deliver something well to the family purchaser? As Chinese families grow larger, in the post one-child generation, space, safety and durability will all become important factors. At a more tactical level, manufacturers could undoubtedly tap better into the Chinese family’s fascination with gadgets. Car keys are a simple example. Why not design them as  fashion items for mums to display as frequently as they do their new 3G mobile phone?

4.  Establish your identity in tier 3 cities, early
Who is going to win in the new battlegrounds of the third tier cities? There is an explosion of consumer confidence and optimism in third tier cities which are now getting the shopping malls, international brands and infrastructure already prevalent in tier 2 cities. Planning to include these tiers in current networks and brand building activities will position brands better for when these markets take off in 2 or 3 years time.

5. Create and leverage communities
The mass market may be first time buyers and the majority of people may have to buy to a budget.  But everyone has the potential to be a passionate advocate for the brand they buy into. The profusion of new social interactions and activities being created by car clubs across the country, facilitated by the internet and the natural “guanxi” (networking) characteristics of people wanting to expand their circles of influence, is a fantastic opportunity to build long term brand communities.

Written by Tim Ledgard, Managing Partner of Oracle Added Value, China.

For more information on what’s going on in the world’s largest car market, contact Tim Ledgard who is leads our automotive practice in Shanghai or Kelvin Ma, MD of the Shanghai office.

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