Success abroad starts with success at home

Klaus Paur
Regional Director
Automotive
North Asia – Greater China and Korea

Effectivenesses of different promotion activities in China's auto industry
 
Gasgoo: Mr. Paur, could you tell us what kind of organization TNS is? And what is its business in China?

Klaus Paur: TNS stands for Taylor Nelson Sofres. We are a world leading market information company headquartered in London. We're offering to our clients market research and consultancy services. We are delivering marketing information and insights into consumer behavior and consumer attitudes. Our aim is to provide help to our clients to make better management decisions. TNS is organized in different industry sectors. I represent the automotive sector. I'm responsible here in China for all the activities concerning automotive market research. I'm also looking to other north Asian countries like Korea, also Taiwan and Hong Kong.

Gasgoo: We know recently your company has completed a research on Chinese car consumers' behavior patterns. Could you tell us the result of your research?

Klaus Paur: Yes. Indeed we have investigated the experiences of the car buyers at the point of sales. At the car dealerships, we have done this research with our colleagues from KPMG. With KPMG, we have investigated the expectations the car buyers have when they go to the dealerships and also have measured the level of satisfaction with the performance of dealerships. We have found out in our research that actually car dealers are not yet really living up to the expectations of car buyers in China. But we also have fount out that there is obviously a wide diversity of demands in the market, simply because the market is so big and there is still so much development.

Gasgoo: Ok. Your research indicates that internet has a lot of influence on the car consumers' buying decisions. Do a lot of automakers try to sell their cars on the internet?

Klaus Paur: Internet is not a primary channel for selling cars. The reason for this is that the car is a too big investment for people, specifically when talking about the private car purchase. People want to see and touch and feel the cars before they buy it. But on the other hand, internet is an extremely important source for information. In China internet may be even more important than in other countries, because the Chinese consumers are not very experienced, so they rely a lot on recommendations, specifically from friends and relatives. Now the internet provides a good platform for the communication with other people, so through blogs or through chat rooms, people can very easily exchange information and also obtain information. And because internet in China is also seen as a very credible source of information, it has obviously a very important role in the decision making process for people that buy cars.

Gasgoo: If you make a comparison among auto shows, internet and advertisement, which method is most effective?

Klaus Paur: We cannot really answer this question like that, because each aspect has its own objectives. Internet is obviously, as I said before, important for information gathering and also for the communication with other people and exchange experiences. Auto shows are extremely important because people can also get the new information about the new products in the market. As I said before, cars are extremely products of high involvement of consumers. People want to see cars, want to feel cars, want to touch cars, and this is why auto shows are needed, because people can go there and see live vehicles. In magazines, they can only see the photos. Advertisement on the other hand, is something different. We have to say that advertisement in the first place wants to transfer the information about the new products. In China it may be more favorable than other saturated markets, because people still want to get some information about the products. But you must not forget that China is a huge market, a huge geography. So to cover all the different regions is extremely difficult, and needs to have a lot of investment actually.

Gasgoo: Compared with other countries, in China, is advertisement more effective in selling cars?

Klaus Paur: It may be a more favorable context, because people are still ready to get the information from advertisements, compared maybe to more mature and saturated market where people are already fed up with the advertisement messages. Again in China we have the difficulty that the market is so huge, and if you look into different regions, if you compare, for example, different tiers of cities, they have very different stages of development, and this means that consumers have different needs. So when we look into advertisement, we always have to see what makes advertisement effective. It makes it effective if you can actually address your target group and address the needs of your future consumers. With such diversity in the market, obviously this is very difficult, and this is why it's not easier to do advertisement in China than in any other market.

Gasgoo: Of all marketing channels, the influence and reliability of car dealers is not as good as other channels for marketing. How this phenomenon is reflected in international auto makers and the Chinese auto makers?

Klaus Paur: This is also something we have seen in our study we have carried out with KPMG. Generally speaking, in China the confidence in trust car dealers is lower than more mature market. The reason for that is the market is very young, and very often we see people are very young and very inexperienced, so obviously there is a lack of product knowledge, but also a lack of experience in customer service. Car manufactures are investing a lot of efforts in order to make the service better and to improve the service, because at the end of the day where is the effect, even the best products with the best brands, strategy does not help them, if they are not able to sell the car and to have a good service at the point of sales. So they have been investing a lot of time, effort and money in order to improve that. The study also has shown that the dealer networks of the foreign car manufactures in China are doing a better job than the Chinese domestic brand networks. But still also for the foreign car manufactures, we have to say that they still have to improve in order to meet the requirements of the market and the expectations of the consumers.

Gasgoo: Some investigation also found that sponsoring sports games is not very effective. What do you think of Volkswagen's sponsoring the 2008 Olympic game? Do you think it will be very effective?

Klaus Paur: The question is what the effective is. If we translate or if we want to translate the effectiveness in the selling more cars, then I would agree, probably to say it is not very effective to do sponsoring. But we have to say the sponsoring has a different objective. The objective of sponsoring is to raise awareness. In a competitive market, where so many brands are competing for consumers, it's extremely important that the brands are present in the consumers' minds. An event like Olympics obviously is a formidable occasion for Volkswagen or for other brands also to gain visibility. Another objective of sponsorship is to shape the image. Through activities in the sponsorship, Volkswagen can present their new models, showcase the new products, and also present itself as a modern brand with supporting this important event for China, so obviously this will have an effect and give advantages and positive effects to the brand. But at the end of the day, it's true it's also very expensive, so in order to optimize the effect, you need also to make sure that it's coherent with the general marketing activity. You have to bring into face the advertisement, direct marketing activity, maybe other below the line activities, and obviously this sponsorship also.

China's homegrown auto makers have to promote quality, brand and dearlership

Gasgoo: TNS has summarized many behavior patterns of car buyers. What challenges and opportunities will these behavior patterns bring to the marketing of China's auto makers?

Klaus Paur: When we talk specifically about the domestic car brands, we have to say that, again, the market today is relatively immature, and the buyers are not very experienced when they buy cars. Now the situation, the functions of expectations are very important. When we look into all our studies, the results tell us that, the Chinese cars are perceived with a relatively low level of safety and with a very low level of quality of workmanship, these are basic requirements and basic expectations for the car buyers. Certainly in order to improve the situation for the Chinese brands, these issues have to be addressed, it means simply products have to be better. Then obviously we have a second aspect which is the branding itself. Obviously the foreign brands have a lot of brand power coming into the market. The Chinese car manufactures have to work on their brand establishment. The third case, we have to talk about the importance of the dealerships, because they are the custodians of the brand promise, they are actually translating the brand effort into the services for the consumers. The Chinese car makers have to make sure that the performance of the dealers at the point of sales is better, and is reflecting the expectations of the consumers.

Gasgoo: From your research results, what kind of recommendations you can give to the Chinese auto makers in terms of marketing strategy?

Klaus Paur: I would take this point again. The first necessity to do certainly is to improve the products. We are in the Chinese market, still young, but very quickly maturing, consumers become more demanding, and people want to have better cars. At the same time when the market is maturing in the competitive environment, the function aspects which are important becoming interchangeable, which means all manufactures and all brands are actually offering a high level of product quality in the market. So this moment is important to establish a brand, and this is probably the most important that the Chinese car manufactures have to consider, because brands building needs a lot of time, so you have to obviously invest money, also to be patient, to be a good brand equity. This is also the reason why all the car manufactures today are actually investing a lot of time and effort in positioning their brands. Once you have a good brand personality and you have a good brand positioning, then obviously you are in a good position to sell cars to a specific target group.

Gasgoo: TNS investigation indicates the Chinese local brands' customer loyalty is lower than international brands. What difficulties will this phenomenon bring to the marketing strategy of local Chinese brands?

Klaus Paur: If the Chinese car manufactures do not change the situation, they would have difficulty to be successful in the long term. When we look into the Chinese car market today, we see the Chinese brands are successful, but they are successful in the lower segment markets. The choice and the purchase of these small and low value vehicles are mainly driven by price, which means the brand is not that important, and in fact the Chinese manufactures do not have strong brands yet. It's not so important for smaller cars. But as the market is maturing, as the demand is growing, obviously people don't want to just have cheap cars, they want to have better cars and bigger cars, and then they want obviously to go into brand and valued cars also. For the Chinese manufactures it would be very important to build up brands in order to be also capable to go into the much more interesting and higher value market, because in the high value segment markets, you can also earn more money. Obviously the brand value is much more important also. In order to be successful in the future and avoid Chinese brands losing against the foreign car makers, brand building is extremely important.

Gasgoo: What do global car manufactures think of the Chinese homegrown auto makers?

Klaus Paur: At this moment it's very clear that there is still defects in product quality. In China and also in foreign countries, when you ask consumers about the Chinese brands, we see that actually the issue of safety and the issue of product quality have to be improved, so people abroad simply think the Chinese are not yet producing good cars and high quality cars, and again this is important because this is very essential requirements specifically of mature markets and very demanding consumers. At the same time we see that the Chinese brands are seen as value for money, which means that actually they can be positioned as not expensive cars in the market, and this maybe in future a competitive advantage because obviously not only in China but also in the other market, people want to have cars they can afford. If we see that the cars from China are seen as a value for money, the Chinese car manufactures have to make sure that the quality is good, because if the quality is not good enough, then it becomes cheap and cheap. It means that actually you don't want really to buy, only a small group of people who are going into the price cheap, and you can not reach this higher value vehicle segments where you can basically build up the brands, and also earn a decent margin of profits then.

Gasgoo: TNS research has found some problem with the Chinese auto industry and problem with the Chinese auto makers. Do you think these problems common to all emerging auto markets, or they are unique to the Chinese auto makers?

Klaus Paur: The Chinese car market today is extremely complex. There are certainly several aspects that we are observing which are common to new emerging markets. The fact for example, the consumers are not experienced you find somewhere else; the car financing structures are not yet developed and people tend rather to pay by cash, something which is very common. But China is very unique in several aspects also: it's a huge market, the biggest market at this moment where car manufactures can sell cars; it also has a very quickly developing economy and quickly rising salaries and incomes for their households, so they can afford cars; it also has the structure of joint ventures where the foreign companies cooperate with the Chinese companies; it has also a lot of ambitious Chinese car manufactures. All these ingredients give the Chinese market a special dynamic, and obviously make it very unique compared to other markets in the world.  

Gasgoo: If you compare China's auto industry to that of European or North American auto ndustry, what's the major difference between them?

Klaus Paur: Obviously these two markets are completely different, because their stage of and maturity are different. Now the U.S. market is the biggest vehicle market in the world and probably also the most developed vehicle market in the world. It has very sophisticated distribution networks, and the same is true for Europe. Now China has become the number two auto market, but it's obviously still in this aspect of development, and has not yet all the structures that we see in America and Europe in terms of distribution, car servicing or the after sales offerings in the market and etc. By the way, in talking about used car market, you know also that when you have a highly developed market with a high vehicle penetration in the market, then you also have a very substantial used car market, people who are basically selling and buying used cars to new customers. In China we don't have yet this situation because the market is very quickly growing with newly bought cars, but it would come into the new situation after five to seven years of ownership with people start to change and replace the cars. So we see certainly the next several years, there would also be the establishment of used car market. But for the moment, it is not yet really that developed as in other markets.

Gasgoo: The Chinese local auto makers are very interested in going to European or North American developed country market. What recommendations you can give to such Chinese auto makers?

Klaus Paur: My strong belief is that the success abroad starts with success at home. In the first place, I think the car manufactures in China have to focus on their domestic market. If you look into the domestic market, again we see that the Chinese brands are successful, but rather successful in the lower segment. So there is a lot of work and a lot of developments still to be done to produce higher value cars, to establish brands, and actually to enter into these higher segment vehicle markets where consumers are much more demanding. If this is well done, then obviously this is already a good platform to go abroad, and to tackle more mature markets like Europe or America. But if as we see at this moment, they are certainly ambitious to go abroad, but still the basic tasks are not done because the product quality is not good enough and the brand power is not yet that developed, then obviously it's much more difficult to be successful in these foreign markets.

Gasgoo: Thank you very much.

Klaus Paur: Thank you. 



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