Knowing consumers, competitors, and consumer-matched product value help keep auto business growth

Gasgoo.com: During the first half of 2009, Chinese auto industry has made a significant increase in sales while the global market suffered a sharp decline. How do you think about this phenomenon? What can we learn from the remarkable growth, and what’s the cause behind?

Jie Cheng: This contrast between the two markets is more than just for automotive. We are facing a global recession and a distressed economy world wide. China is also being impacted, especially in its export business.

However, automotive industry is an exception to the rule. Over the last decade, China has developed into a state with sustainable automotive demand and profitable sales.

First, the build-up of the infrastructure, such as high ways, roads, gas stations, and satellite cities helped booster growth.

Second, with the steady growth of the economy, consumers in China are much better off and can afford purchasing and maintenance of vehicles. Led by major first tier cities, now the wealth also spread to 2nd and 3rd tier cities. This also leads to strong consumer confidence about the continuing improvement of the economy of the country and their financial future.

It also makes China unique as a developing country with increasing demand of vehicles powered by strong aspiration and ability to afford automotive products and services. Such emerging demand way exceeds the ability for the market to meet for a long while.

Third, it is because the successful growth of the domestic automotive manufacturing companies through either pure organic process or acquisitions of foreign brands and manufacturing facilities.

Fourth, more global auto manufacturers are competing in China, bringing in more vehicles to meet the needs and interests of Chinese consumers.

Situation 3 and 4 above led to a) lowered prices of vehicles across all classes, b) availability of more affordable brand vehicles, and c) better quality and more feature benefits for more consumers moving into the market.

Despite the world-wide financial crisis, challenges in the export sector of the Chinese economy, and tightening of credit market hit a brake on the growth of the auto industry for the last quarter of 2008, Chinese government’s strong and timely stimulus helped activating these on-lookers, especially in 2nd and 3rd tier cities where automotive demand has not seen as fast a growth in the past.

To recap, many factors contributed to the continued growth of the Chinese auto market despite of the significant pull-back of the auto sales globally.
- The steady growth of the China economy,
- The increase of the wealth (discretionary income) and the induced aspiration for enriched lifestyle,
- The level of development of the infrastructure, the intensive competition among the manufacturers,
- The sustained and aggressive penetration of domestic vehicle brands into the lower end of the market,
- The timely and strong dose of stimulus package that the government provided at a critical time of market development.

Gasgoo.com: Lots of automotive OEMs have to cut out production due to sales decline. It also affects auto parts companies, which are an important part of the car industry chain. What are the challenges do you think those auto parts companies face?

Jie Cheng: The automotive component and part suppliers have been under distress for a long time, even when the sales overall are strong, due to the cost-reduction pressure from the OEMs, the increasingly fragmented market leading to smaller volume per vehicle nameplate, and the increasing competition among global as well as domestic suppliers.

The challenges felt are mainly for those suppliers not diversified enough in their client portfolio and mainly associated with a few large OEMs. Also being challenged are those with inferior quality, inefficient production processes, and behind in technology-enabled vehicle features and devices.

Consolidation will happen as a result and the surviving component suppliers will be those that are more nimble, healthy, and leading edge in technology.

Gasgoo.com: How do you think about the prospect of new-energy automobile in China?

Jie Cheng: Energy-efficient vehicles will be absolutely required for the China market and will see a healthy market as a combination of consumers’ interests and attitudes towards environment friendly vehicles and government’ mandates on energy efficiency requirements. I see China to become the biggest market for new energy efficient vehicles and biggest reason for the continuing investment into technologies by the Chinese and governments globally.

Gasgoo.com: In your opinion, what are the structural characteristics of Chinese consumers in auto market? What’s the difference between U.S. consumers and Chinese consumers in car consuming?

Jie Cheng: Compared to other mature automotive markets, Chinese car buyers tend to have a higher concentration of those younger, better educated, more affluent, and more urban population. Obviously, this is because China is still at its early stage of development as a market for automotive consumption. Overtime, the market will shift towards a more diversified and balanced one just like that of US and Europe countries.

Gasgoo.com: Would you like to share with us about your perspective on the characteristics of middle and high-end sedans consumers?

Jie Cheng: They are the elite segment of the Chinese population, characterized by executives of joint ventures, government officials or family members, successful businessman or business women of privately own businesses, expatriates or oversee Chinese returning back to China.

By nature, these vehicles are not designed just for function, but for fun, lifestyle, comfort, and most importantly, luxury images that express vehicle owners’ social economic status and rank.

They played a positive role in running the moving exhibition of car lifestyle, and creating a car culture and enthusiasm. They also helped set a high bar on consumers’ expectation of what a new vehicle should provide, even at a lower price tag.

But they might also have misled some of the global car manufacturers into believing that there is a mass market for such luxury cars, especially after they found they were completely wrong in initially dismissing the existence of such a market.

I believe such market is about saturated and therefore move into a new era of brand switching, experimentation, and brand value examination. It creates an opportunity for new brand, new vehicles to compete for the share of the market. Such competition will help bring the prices of the vehicles.
Suppliers who provide components, features, and accessories for luxury vehicles will benefit from learning in their initial production and installations. Such learning will make them more robust in manufacturing processes, more efficient in material and component sourcing, and also more refined in their feature design and delivery.

Gasgoo.com: Has Acxiom ever released any reports like “Automotive Consumer Dynamics” in China? If not, is there any plan to do so? What kind of guidance do you think the report can provide to Chinese automotive industry?

Jie Cheng: Not yet. But it’s in our plan. The guidance such studies can provide is about the diversity of the consumer markets and increasingly fragmented markets due to the competition, consumer familiarity of vehicles, and their increased sophistication in vehicle usage experience.

Acxiom’s Automotive Consumer Dynamics reports have a very important and differentiating focus: segments of consumers based on their demographics, life stages, life styles, vehicle shopping behavior and purchase decisions, and attitude/motivation toward the ownership of vehicles, brand images, utility values, and prices.

Consumer Dynamics reports provide in-depth study of key industry issues, from the successes or failure of a brand, to the improvement or decline in the sales of a vehicle segment, to the shifting of consumers’ attitude and purchase behavior relative to a specific type of vehicles. For each major industry issue, Consumer Dynamics reports highlight the most important consumer segments impacting the market, their unique characteristics, currently own vehicles, their whereabouts and how to reach and communicate to these segments of consumers.

As more consumers buy and own vehicles, China automotive market already becomes complex with population segments each of which is associated with different demographics, brand preference, product needs and interests, shopping habits, and media responsiveness. For any automaker to be successful in China, it must be able to recognize and understand the segments of consumers so that it can best position its brands, vehicle products, communication strategy and media to align with targeted population segments. This is exactly what Consumer Dynamics can help the Chinese automotive industry like what it offered in the US automotive industry.

Gasgoo.com: In today’s economic environment, what successful factors can keep the business growth in auto industry?

Jie Cheng: Understanding consumers, competitors in relation to consumers, product excellence and value that uniquely match with targeted consumer segments. This includes consumer-centric branding, product innovation, communication, distribution, service programs, and revenue management.

Gasgoo.com: What successful experience in US market can be learned and applied in China Auto industry?

Jie Cheng: Hyundai: Consumer research => innovative consumer marketing strategy
Lexus: High quality, value, and excellent execution of luxury vehicle features.
Toyota and Honda: Quality that are relevant, consistent, and persistent
BMW: Faithful to a powerful brand statement (ultimate driving machine)
Mercedes: Well protected brand value in providing prestige and luxury image expected

About Acxiom
Acxiom is a global leader in interactive marketing services. It provides expertise required to develop successful and privacy-compliant information management strategies. Our consultative approach spans multiple industries and incorporates decades of experience in consumer data and analytics, information technology, data integration and consulting solutions for effective marketing across digital, Internet, email, mobile and direct mail channels.

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