Maturing market wants better quality

Auto maintenance staff work at an auto dealership in Zhejiang province. Analysts said dissatisfaction with showroom and workshop services has resulted in low levels of brand loyalty. [Photo/China Daily]

Survey finds three-quarters of owners plan to switch brands

In a maturing market that wants better quality and services, three-quarters of car owners in China are planning to switch brands when they buy their next vehicle, according to a report by The Boston Consulting Group released on Sept 17.

The "great brand migration" will involve some 90 million car owners in almost every segment of the country's auto market, said the report.

"Until now, many carmakers have focused on winning over first-time buyers in the global automotive industry's greatest growth market," said Marco Gerrits, a co-author of the report and a BCG partner who heads the firm's automotive sector in China.

"These findings suggest that the next great battle in China's car market will be waged over customer loyalty."

According to the report, nearly 85 percent of owners of cars manufactured by Chinese companies - which tend to produce the least expensive vehicles - said that they plan to switch brands. Only 30 percent indicated they plan to buy another Chinese brand.

Makers of foreign volume brands could lose 70 percent of their current customers, while around 57 percent of foreign premium car owners plan to switch to a different maker in a segment dominated by a few European luxury brands.

The findings are based on a survey of 2,400 car owners in 18 cities across the country and 36 auto brands, both Chinese and foreign.

Reasons owners of Chinese cars cited for switching brands varied. In addition to those who want to trade up to higher-quality or more prestigious brands, millions intend to switch to a different brand within the same segment because they are dissatisfied with the cars they now drive, according to the report.

Those who drive Chinese cars said engine performance, vehicle handling and quality were the top three reasons behind their intention to change brands. They were also dissatisfied with the purchase and after-sales experience.

There was some good news for Chinese car brands. Current customers are generally satisfied with their comfort, interior design and reliability, and they also regard the cars as a good value.

"The most urgent challenge for domestic brands is to continue improving their vehicles and dealer networks - but without losing their cost advantage," said Gerrits.

The report finds that some owners of joint venture volume cars who plan to switch to competing brands in the same category primarily cite concerns over reliability, safety and after-sales costs such as maintenance.

The dissatisfaction is in part due to some multinational joint ventures offering products based on previous-generation vehicles and insufficient investment in quality control, according to the report.

It added that those carmakers might be using lower-quality, less expensive materials and parts, which do not hold up well under Chinese driving conditions.

Premium-car owners

Among premium-car owners, 37 percent said they will buy a competing brand in the hope of having more comfort and better after-sales services, while another 16 percent is planning to choose a super-premium brand as they want more luxury.

The results indicate companies will have to put much greater emphasis on service than they did in the past to keep customers or draw new ones, according to the report.

Gerrits said the situation might improve with many premium car brands lowering prices on vehicles, spare parts and maintenance during the Chinese government's anti-monopoly campaign.

Andreas Klotz, a co-author of the report, said auto brands in the Chinese market remain fairly undifferentiated, which is another reason for lower customer loyalty.

"Companies need a clear picture of which functional and emotional qualities drive the decisions of customers in different segments," said Klotz. "They should create a more distinctive brand identity - something most car brands currently lack in China."

Though it may takes some time to consolidate a brand image, David Jin, a BCG senior partner, said it is worthwhile and rewarding.

"China tends to be a winner-take-all market and Chinese car buyers seem to be converging on a handful of brands that have solid reputations for being safe choices."

The BCG report found that more than 40 percent of Chinese volume-brand owners who plan to trade up to a foreign volume-brand said they intend to buy a Volkswagen model and nearly 90 percent of foreign volume-brand owners who are trading up said they are likely to buy an Audi, BMW or Mercedes-Benz.