China's Booming Auto Market Has A Loyalty Problem
The automobile market in China is at full throttle, but customers are extremely fickle. What are automakers – foreign and domestic – supposed to do to build brand loyalty?
BEIJING – There is a new report about brand loyalty among China’s current 90 million car owners. The survey and analysis by the Boston Consulting Group shows that nearly three-quarters of Chinese car owners plan to switch brands for the next car they get. This "great brand migration," as the report calls it, is the highest level among the world’s major automotive markets.
The report also shows that Chinese car owners’ loyalty to domestic Chinese brands is particularly low, a mere 17%. Foreign car makers don’t seem to have done so much better in this respect – as 29% of owners of foreign mid-range market cars said they’ll stick with the brand they currently own, while 57% of the European luxury range owners say they'll try out another foreign brand.
It's not hard to understand why China's car market is a particularly fierce battlefield. China is the world's fastest growing major car market, and has attracted 90% of global automakers thus making China the car market with the most brands.
Furthermore, owning a car is a relatively new thing for Chinese people, and many are only first-time buyers in comparison with their peers in the West or in Japan, who have always been surrounded by cars.
In short the shakeout of the Chinese market of automakers, small or big, foreign or domestic, will continue for quite some time. Even when China's initial phase of market competition comes to an end, the market will nevertheless still feature many car brands and will be very different from the mature market of the West or Japan where major brands have been reduced to just a handful.
But what also sets apart China's market development and competition environment is the high pace of change. Any tiny laxness or random error could lead to a landslide failure for a brand.
(Photo - Huchris)
For instance, the research shows that 40% of Chinese owners of economy domestic models planning to trade up to a foreign volume brand have their sights set on buying a Volkswagen model. But just ten years back, Volkswagen suffered from a very negative reputation with Chinese consumers, and typically lost out to such competitors as Honda, Toyota and Ford.
Likewise, whereas the top three German prestige car makers, Mercedes-Benz, BMW and Audi, used to have an "inhuman" image among Chinese customers, 90% of foreign volume-brand owners who are trading up said they are likely to buy one of the three brands. Each of the three in fact currently already sell several hundred thousand cars annually in China.
But we now know that car brands currently enjoying high loyalty and popularity in China have not time to sit back and relax. For Volkswagen, the Japanese and South Korean competitors are snapping at their heels ever more closely these days. So it is as well for Audi, BMW, and Mercedes, which rely in particular on a rapid introduction of products and localization. Other luxury car brands such as Volvo, Infiniti, and Jaguar Land Rover are now doing the same, intensifying their aggressive pace in attacking the Chinese market.
As a result China" domestic Chinese carmakers don't really need to feel overly pessimistic since loyalty is a problem across the board. Fickleness also carries new opportunities, so long as you are always improving to keep your vehicles ahead of the others. After all, China releases several hundred new cars or brand promotions each year. The ones that convince the customers are not necessarily the carmakers who spend the most money or stage the biggest event, but the ones with the ability to win over new customers with a special touch – and keep them with reliability.