Price reduction shouldn't hurt brand image

Automakers in China generally have the intention to launch price reduction by the end of the year. How is the price reduction amid the global financial crisis this year? What are the causes and the characteristics of price reduction adopted by automakers in China? We had an exclusive interview with Klaus Paur, Regional Director of TNS North Asia.

Gasgoo.com: Do you think the auto OEMs will begin with price cuts by the end of the year?

Klaus Paur: They have already begun with the price reduction. The price reduction will certainly continue to the end of the year and I'm pretty sure it will continue also to the next year. Obviously it depends on how the market will develop and how consumers react. As you know the market is slowing down, and price reduction will obviously be an opportunity for the car manufacturers to push their cars into the market and to attract more buyers. The price reduction has become a very common tool in China market. Car manufacturers already started to use it well before the financial crisis.

Gasgoo.com: Normally in China, who are the initiators and followers in price battle?

Klaus Paur: It depends, price reductions are depending on different models. Car manufacturers who have relatively old models in the market start to use price reduction typically. As an example, you would have General Motors selling its lower-middle segment car Excelle with a reduced price. Because the price reduction is offered, most of the competitors have to follow suit otherwise their prices are seen too high. It really depends very much on how the model is and how the situation is.

And you would also have the situation, for example, that car manufacturers don't have old models but the sales are not ideal, then a price reduction will be used to attract consumers. Take C-Triomphe as an example, the manufacturer tried with price reduction to attract consumers. Thirdly, Chinese car manufacturers attract overall speaking price sensitive group, and this is why they are also very active in reducing price even for model which is not yet long launched into the market. For example, the BYD F3 is basically quite newly launched but already enjoyed some price reduction.

SPACE FOR PRICE REDUCTION

Gasgoo.com: For the third aspect, you say some car manufacturers cut price for the newly-launched model. Some say it is not good for the brand and the profit, how do you think?

Klaus Paur: Absolutely. But it is a very difficult situation for car manufacturers. On one hand, lower prices attract more consumers, the probabilities to sell more cars are bigger; on the other hand, lower prices eats into the profit. And now as the raw materials are getting expensive, the profit margin becomes very small. And as you mentioned earlier it is not good for the perception of the brand, as people perceive the price as an indicator of quality, at the moment when you're going down with your price too quickly, you're hurting your brand image. If you want to build up a brand image, a price reduction is not helpful.

Gasgoo.com: Which segment do you think is the most crowded?

Klaus Paur: The lower-medium segment is the most competitive one. There are cars that are basically starting from around 100,000 RMB, up to roundabout 160,000-170,000 RMB. This segment is the most crowded in China car market.

Gasgoo.com: And this segment is the price battle happened most often?

Klaus Paur: Certainly. Because you have strong competition and very crowded market, you would find a lot of price active car manufacturers play in order to attract consumers.

STRATEGIES ON PRICE REDUCTION

Gasgoo.com: Can you explain the strategies of price reduction adopted by car manufacturers such as Japanese carmakers, the US, German?

Klaus Paur: As I said earlier, it always depends on the different situation. Price reduction overall speaking is focused on the model. For example, for C-Triomphe, we find a lot of price cut, but at the same time, Citroen's newly launched C-Quatre enjoys much less price reduction.

Among all, Chinese car manufacturers would be the most price-active because they are attracting consumers mostly with price.

American car manufacturer like GM is quite active in price reduction with its two brands in China, Buick and Chevrolet.

German car manufacturer VW is reacting on price decreases, they are trying to avoid price reduction by introducing new models into the market. If you constantly launch new models into the market, then you become attractive to consumers not because the price is low but because the models are appealing.

Japanese car manufacturers are basically very successful not only in the upper-medium segment, but also in the lower-medium segment and even in the smaller car market. They are doing two things: firstly, they bring very attractively designed cars into the market, mostly the latest model they have; secondly, they offer a very good interior. Besides, they're offering attractive price, and the overall package attracts Chinese consumers. Even they came later into the market compared to VW and GM, they are extremely successful.

SUCCESSFUL MARKETING ON PRICE REDUCTION

Gasgoo.com: So to some extent, do you think Japanese carmakers have no need on price reduction?

Klaus Paur: To some extent, it is. If you didn't price you model too high, then there's no need to consider price reduction in your strategy. However, if your competitors cut prices, you will need to react otherwise your models will be perceived too expensive which will affect your sales. In this case, I would think Japanese carmakers are followers for price reduction rather than initiators.

Gasgoo.com: Who is the winner or loser in the price battle?

Klaus Paur: Generally speaking, we don't think there is the winner or loser in the price battle. It all depends on whether carmakers are clear about consumers' needs, whether their products appeal to consumers and whether the prices satisfy consumers. If they meet consumers' demand, we could say the car manufacturers are successful. If they don't, and only compete with low price, we can say the manufacturers are loosing out in a long run. 

Gasgoo.com: What are your views on successful price marketing?

Klaus Paur: Price reduction is just one part. A proper strategy is the most important such as a clear brand position as well as long-term view of trends and tendencies in the market.

Klaus Paur, Regional Director of TNS North Asia, has over 20 years of experience in marketing and market research, 13 of which have been spent specialising in the automotive industry. Prior to his current role in China, Klaus worked at TNS Automotive headquarters in Paris where he directed a major research programme across Europe and Latin America analysing automotive advertising effectiveness.  Heading up the automotive research practice for TNS in China since 2003, Klaus also holds responsibility for business activities in Greater China and Korea, and plays a co-ordinating role within the entire TNS North Asia Region.