August 13, 2007 – Where do China’s car buyers go to for high-quality and credible sources of information when they decide what to buy? Family and friends come top of the list. Car buyers are also avid fans of the Internet and visit auto shows too when making a decision. However, traditional marketing channels such as auto magazines, advertisements in newspapers or TV/radio, billboards or sports sponsorship have little impact. Additionally, China’s car dealers have a lot to learn when it comes to persuading its nation’s car buyers to part company with their hard-earned cash. These are some of the results of a China survey, jointly conducted by KPMG and TNS – a world leader in market insight and information, into consumer perceptions of car brands and purchasing motivation.
Klaus Paur, Automotive Director at TNS China, said, “Our survey raises the question of whether car manufacturers – both domestic and foreign –are spending their money in the best ways. A strong online presence goes a long way car manufacturers investing in international, regional and local auto shows are also putting their money where it counts.”
“The results once again show that automakers that adopt a ‘one size fits all’ approach to global consumer relationships and dealer planning face very real risks. Automakers will need to tailor their efforts to the nuances of the Chinese market,” said Lincoln Merrihew, SVP of Automotive, TNS North America. “Further, with the market growing so fast, it will be a moving target and because China represents the single largest sales opportunity for all automakers worldwide, no one can afford missteps.”
Automotive sales in China have grown quickly. China is now the world’s second-largest auto market after the United States, ahead of number three Japan.
Value of different sources of information for China’s car buyers
Car buyers and were asked to rank the credibility and quality of information sources they used before buying. They rated “family and friends” higher than any other source – with over 40 percent saying this was a very credible source. Over 30 percent reported that the Internet was informative, and close to 25 percent see information there as credible. Auto shows also strongly influenced purchase decisions, scoring close to 30 percent in terms of both credibility and informativeness.
Marketing channels such as sports sponsorship, billboards, radio or TV commercials, and dealer promotional activity scored as low as 5 percent. Dealers did poorly: fewer than 15 percent of car buyers considered them credible or informative.
| Reliance on Internet content as a source of car purchasing information (%) |
| |
Extremely important |
Very important |
| Internet |
6.3 |
34.1 |
Automakers unsure how to influence networks of families and friends in a country of 1.3 billion can consider leveraging the Internet. China’s car buyers rely heavily on Internet content as a source of purchasing information, with more than 40 percent ranking the Internet as “extremely important” or “very important” in making a decision. As in other developed countries, in China the Internet is making the vehicle purchase process more transparent. Chinese consumers use the Internet extensively for pre-purchase information, and actively browse auto websites, read up on news about brands, compare prices or join web-based discussions.
| Main reasons for car purchase at a chosen dealership (%) |
| Attributes |
Most influential factor |
2nd most influential factor |
| Recommendation from friends/acquaintances |
25.6 |
11.4 |
| Availability of the preferred brands |
18.0 |
14.2 |
| Good service quality |
16.8 |
21.1 |
| Convenient location |
14.6 |
8.6 |
| Low prices |
11.7 |
11.3 |
| Good advice |
5.9 |
5.2 |
| Wide range |
3.6 |
4.9 |
| Close customer relations |
2.7 |
6.0 |
Friends and acquaintances again topped the list when it came to identifying the leading reasons Chinese car buyers choose a particular dealership. More than 25 percent of car owners said this was the most influential factor, and less than 6 percent of car buyers felt they received good advice at a dealership.
“This suggests China’s car dealers should focus on drivers of positive word-of-mouth such as sales courtesy and customer service. This could even include community events,” added Merrihew. “In the US, for example, some dealers invite customers back to the dealerships for social/relationship building efforts (such as cookouts) and friends-and-family programs, both done in part to drive word-of-mouth awareness. A hidden opportunity may be to counter low scores on the value of advice consumers get a dealers with things like internet portals in dealerships and other ways to either instil trust or comfort in dealers as a source of information.”
The KPMG/TNS survey also revealed four other key findings:
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Chinese consumers make careful purchase decisions
The TNS research pointed to a distinct lack of experience in China with cars, as evidenced by the fact that a majority of consumers surveyed were first-time car owners. Chinese car buyers on average consider three brands before they buy and are likely to visit each dealership for the brand before making a purchasing decision. For example, in the mid-size segment (comprising 422 respondents within the 1041 sample), 2.9 brands were considered before a purchase and the number of dealerships visited was 2.7. This is a more intensive process than is seen in mature markets – where the average is less than 2.0 brands considered.
-
Car finance still in its infancy
TNS research showed that while 25% percent of car buyers had access to finance during the purchasing process, very few took advantage of this resource. The survey found too that car financing is not yet perceived by customers to be important, and is not yet having any meaningful impact on customer retention.
-
Owners of Chinese car brands less loyal than owners of overseas brands
When it comes to brand loyalty, the survey showed that owners of Chinese cars are less committed to their brands than the owners of foreign brands. Approximately 47 percent of those owning non-Chinese brands felt a strong commitment to the brand they had purchased, compared to 24 percent among owners of Chinese cars.
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Dealers of Chinese auto brands face the highest probability of losing their customers
Dealers of Chinese brands have a higher probability of losing their customers than dealers of foreign brands. This is because the Chinese brands perform poorly in terms of the degree of satisfaction a buyer has with a car dealer, prospects for second purchases, and the likelihood the dealership will be recommended to others. However, foreign brands should not be complacent. The majority of foreign-brand owners are also somewhat disloyal to their dealerships, just not to the same extent as Chinese brand owners.
About the KPMG/TNS study
All the findings referenced here come from TNS research that was conducted jointly with KPMG in China and completed in April 2007. The research set out to identify consumer perceptions of various car brands, as well as shopping experiences of consumers at automotive dealerships. The study also looked at consumer behaviour in terms of how first-time and subsequent purchasing decisions are made, as well as what factors are likely to influence purchases in the future.
A sample of 1,041 respondents was interviewed via a structured questionnaire. All respondents were recent new-car owners, having owned their vehicle for less than 12 months. Ownership was equally distributed between three car segments as follows:
- Compact/small cars: Purchase price less than RMB 130,000
- Mid-size/mid-upper cars: Purchase price from RMB 130,000 to RMB 250,000
- Luxury cars: Purchase price more than RMB 250,000
The survey’s sampling was equally distributed across the 12 best-selling car brands in China and covered all car segments as long as the brand had a presence in the market being surveyed. Coverage included joint venture brands from the US, Japan, Korea, and Europe, as well as Chinese local brands. Respondents were also distributed between first-time car owners and experienced owners.
The research was conducted in Tier 1, Tier 2 and Tier 3 cities across China.
About China’s automotive market
China has now overtaken Japan to become the world’s second-largest auto market after the United States. Total new vehicle sales (including trucks and buses) grew by 25 percent to 7.2 million in 2006. New passenger car sales also reached 4.4 million units (including MPVs and SUVs), an increase of 34 percent compared to 2005. Passenger car sales reached 1.2 million in the first quarter of 2007, rising 20 percent from the same period last year.
Today, China has approximately 50 car manufacturers (OEMs) and the automotive industry is relatively fragmented: the country’s top two manufacturers account for around 20 percent of passenger car market share. Also, foreign brands currently dominate the market, accounting for almost 75 percent of China’s car sales. However, domestic manufacturers are increasing their activities rapidly, as they expand their product lines in the medium and lower-end segments.
China is currently one of the most profitable markets in the world for OEMs. This is partly explained by relatively high prices in comparison to international levels, especially for high-end models. However, increased competition for market share has driven car prices down in the last two years. China’s auto sector reported an increase in profits in 2006, with combined profits from the industry rising 46 percent to $10 billion, the first increase in three years. Industry profits on items including vehicles, engines, spare parts, and motorcycles fell by 24.3 percent in 2005 and 5.2 percent in 2004. The 2006 rise was driven by stronger-than-expected car sales and the launch of a record number of new car models.
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