BCG expects battlefield in Chinese automotive industry

07 October 2014 Consultancy.uk

In the coming years, more than three-quarters of car owners in China is expected to switch brands, according to a research from The Boston Consulting Group. The result: massive stakes up for the grabs, leading to a battlefield in the automotive industry, with potentially large winners and... large losers.

In the recently released report titled ‘The Battle for Automotive Brand Loyalty in China’, The Boston Consulting Group (BCG) investigated the loyalty of Chinese car owners to their current car brand. The report, which is based on interviews with 2,400 car owners in China, concludes that a surprisingly large majority of Chinese car owners is not loyal to their current brand. When faced with the next purchase decision, the chance they will opt for the same brand is significantly lower compared to other markets. 

Switching
The research shows that 75% of Chinese car owners, who own 90 million vehicles, plan to choose a different car brand when they purchase their next car, a phenomenon that BCG calls the ‘great brand migration’. Of the people that currently own a car manufactured by domestic Chinese companies, 83% say they want to switch brands, and of these people only 30% say they will switch to another Chinese car brand. Around 71% of foreign ‘volume brand’* car manufacturers can expect to lose customers. The lowest percentage of planned switching can be found among owners of foreign ‘premium’ cars, of whom 57% have expressed a wish to switch brands.

Brand loyalty of Chinese car owners

Battle of brands
According to Marco Gerrits, BCG partner and head of BCG’s automotive sector in Greater China, the results hint at an upcoming battle of brands in China. “Until now, many car makers have focused on winning over first-time buyers in the global automotive industry’s greatest growth market. But neither domestic Chinese car makers nor foreign brands can take their gains for granted. These findings suggest that the next great battle in China’s car market will be waged over customer loyalty.”

Great Chinese brand migration

Of the 90 million cars in China, around 56 million are of Chinese brand, and owners of around 50 million of these cars, plan to switch brands or trade up. Looking at foreign brand car owners, loyalty is higher, although a smaller group is open for 'upgrading'.

According to the consultants, the upcoming ‘great brand migration’ will have large implications on successful strategies. Players that will come out on top will not only be focussed on attracting new customers, but even the more able to maintain their existing clients. In addition, winning customers throughout the upgrading decision to more expensive cars will be key, as it represents a relatively large share of new car purchasers. For Chinese car manufacturers, the message is clear: they need to step up their game and improve their reputation in the area of quality and performance.

Manufacturers that adopt winning strategies, meet consumer expectations and position their brands correctly will eventually win the battle, concludes BCG.

* Volume brand cars are cars that cost between $13,000 and $41,000.

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