AI Online


The Dilemma of Survival and Branding Strategies of Korean-Made Automobiles

CCID Consulting Co., Ltd., reports on the dilemma of survival and branding strategies of Korean-made automobiles

CCID Consulting Co., Ltd., reports on the dilemma of survival and branding strategies of Korean-made automobiles through its Enterprise Strategy Consultancy Center.

I. The dilemma of survival for Korean-made automobiles in China

Statistics from the China Association of Automobile Manufacturers show that by April, over 2 million passenger vehicles had been sold in China in 2007. Among them, there were 1.5345 million cars. Both exceeded 40% of their respective total in 2006. Chinese cars performed well, accounting for 29.31% of the total car sales volume, overtaking Japanese, German, U.S. and Korean cars to top the sales chart.

CCID Consulting’s 2006 car recognition survey showed that Korean-made automobiles had the lowest recognition among consumers in China, falling behind German, European, American and Japanese cars. In the low- and middle- end market, Chinese brands and Korean-made automobiles are similar in terms of price, market positioning, branding, appearance and design. The low-cost strategy adopted by Chinese brands has caused a major impact on Korean-made automobiles, while European and U.S. brands are less affected. Beijing Hyundai and Dongfeng Yueda Kia, the 2 Korean-made automobiles brands that sold well 2 years ago, saw their sales slump. This shows that Korean-made automobiles are increasingly being marginalized.

For the first time over many years, Beijing Hyundai saw its market share in China fall under 4%. Its 10th place on the top 10 car sales chart was taken by Tianjin FAW. The price of its leading model Elantra has been most affected. Its sales volume dropped to 8,685 in April from 12,000 in January. For Dongfeng Yueda Kia, only its Cerato could maintain a monthly sales volume of over 6,000.

The use of low-end cars to take up the market and poor performance in the middle- and high-end market are the general characteristics of Korean-made automobiles. In 2001, Chinese brand cars had a market share of less than 5%. Through fast growth in the past few years, over 30 of the 100 new car models introduced in 2006 were Chinese brands, rapidly bringing their market share to 26%. In 2006, Chinese brand cars saw their sales grow much faster than joint venture brands. As Chinese brands rise rapidly and as new products are continuously being introduced, the market for low- and middle-class cars under 150,000 Yuan will be the most competitive market. Korean-made automobiles were originally strong in this price range. But under the impact of home brands such as BYD F3, FRV and Chery A5, which have better price/performance ratios, Korean-made automobiles are gradually losing their previous advantages. Beijing Hyundai NF, Dongfeng Yueda Kia and Carnival are rather typical examples. Meanwhile, typical European and US products such as Focus and POLO are also competing for market share through good branding and reasonable prices. Weak product lines have long been an obstacle to Beijing Hyundai’s expansion. Currently, its highest model class, Sonata NF, is not selling well. Poor showing in the domestic market has affected Hyundai’s determination to manufacture higher class models XG, Azera and Equus in the country. Under such a market and product structure and when the room for survival for low-end products is squeezed, their brand image is not enough to prop up the sales of high-end cars. Korean-made automobiles are likely to face the possibility of ”thorough marginalization”.

II. The branding road for Korean-made automobiles in China

There is no doubt that means strategies such as offering high bonus incentives to dealers and making big price cuts are the most effective promotional weapons in the short term. By lowering selling prices, firms can compete for and attract customers through the most direct interest promises and benefits. This will directly drive up consumers’ purchasing power. Firms can expand their market shares, stage offensives against competitors and check their growth. Numerous facts have proven that price cut promotions have contributed much to expanding products’ market shares. To increase sales in China, Hyundai has been thinking of price adjustment. Meanwhile, it has also adopted incentive measures to provide dealers with the room for cutting price in a guised form. These means are designed to stabilize the market share of Korean-made automobiles in China and regain the 4% level. But, the true purpose is to keep Chinese brands at bay.

The price cuts for Korean-made automobiles will be good for picking up their lost market shares. But the move will further worsen the brand image and values of Korean-made automobiles in the mind of consumers. Currently, the brand image of Korean-made automobiles can only languish at the low end. Compared with Japanese and European cars, Korean-made automobiles have so far failed to establish a high-end brand image in the high-end market. The Sonata’s substituting model NF cannot rival the glorious days of the Sonata. Though it has been advertised as a safe, energy-saving and environment- friendly model, consumers do not seem to be moved. The total sales of 5,500 in the first 4 months of this year well attest to this. The current price cuts can only add frost to snow and seriously lower the values of the brand. CCID Consulting’s research shows that users’ brand recognition is very much subjective. Because brand recognition is a process of knowing, getting familiar with and understanding a brand, it includes complicated psychological activities of paying attention to, discerning, understanding, thinking about and evaluating the brand. The depth and breadth of users’ brand understating represents the level of their brand recognition. For any brands, the higher the user recognition is, the better the brands are. While the inherent features of a brand are important, users only admit and accept the features that they perceive. Brands that users do not recognize are no different from non-existent brands. Therefore, user recognition comes from the brand values which users perceive. CCID Consulting thinks that for auto users, in addition to quality, safety, energy consumption, appearance design and after-sales services, brand recognition is much related to the value preservation capacity of an automobile. Frequent price cuts will directly lower the value preservation capacity of an automobile, which in turn results in economic losses to consumers as a result of product devaluation. While bearing economic losses, users will strongly question how much the brand value of the automobile is worth. This will harm consumers’ confidence in the true value of the brand. In particular, facing a car model with a price cut of tens of thousands of Yuan, prospective car owners who are about to buy cars will form a wait-and-see mentality. They would rather buy cars with rising prices rather than those with cut prices. All these will greatly lower the brand value perceived by users and their brand recognition. Low market share is one long-term adverse consequence caused by falling brand recognition. Small vehicle population in the market in turn brings about such trouble as high price parts and few repair outlets. This further erodes the brand value enterprises have established in the mind of customers through long-term investment and marketing efforts.

It can be seen that price cuts are only an expedient measure for Korean- made automobiles. In the short term, it may raise sales volumes. But, Korean firms should not pin their hopes on price wars to stabilize their market shares in China. Currently, Chinese consumers understand Korean-made automobiles brands as ”Economy cars” or ”Family cars”. The urgent need now is to change such consumers’ recognition, rapidly adjust market strategies and introduce technically advanced new models. Korean firms should make an effort to improve product quality and reliability, establish the overall appeals of Korean-made automobiles in the Chinese market by opening up the high-end market, improve their brand images and values, thoroughly break the situation of cold reception for Korean-made automobiles, and make the transcendence from medium-class cars to high-class cars. On one hand, Korean automakers need to introduce new models to improve their product lines, compete for the middle- and high-end car market and expand shares of all market segments. On the other hand, Korean firms need to let consumers understand that the current price cuts only represent adjustment of their old models and that they can get products with higher price/performance ratios through the price cuts and regain confidence in Korean-made automobiles. The price cuts will not lower the brand values of Korean-made automobiles.

In addition, when technology develops to a certain stage, product homogenization, intensified competitions and the change from a seller’s market to a buyer’s market make brand strategies more important. This is bound to require automakers to change from mere price competitions to branding competitions featuring diversified marketing means such as promotion, sales, public relations, sponsorship and advertising. When formulating their branding promotion and marketing strategies, Korean firms need to consider such factors as different vehicle models, type of market, stage of brand promotion, stage of product lifecycle and cost budget. Such strategies serve the ultimate purpose of improving brand images and creating corporate profits. These strategies also nurture consumer loyalty from various aspects, and turn the appeal of price cuts to consumers into brand loyalty and consumers’ doubt over true values into positive brand recognition. The final aim is to increase the market shares of Korean-made automobiles and raise their brand values.

Previous posts

Next posts

Thu. June 13th, 2024

Share this post