New Opportunities for Long-Term Growth Come from Lower Tier Cities
China's economic growth has led to massive expansion across all consumer categories as its citizens become more affluent, and, in many cases, have discretionary income for the first time. But one sector stands out for growth even in China: automobile sales. Over the past five years, China was the only country in the world to achieve annual growth of more than 20%, and in 2010 alone, car sales will likely grow by 23%, according to Nielsen estimates. The big story, however, is not the size of that growth—sales of cars will consistently increase for the next few years—but where that growth is coming from: China’s lower tier cities. These and other issues facing China’s automotive industry were addressed today by a range of speakers at the Nielsen China Forum.
Shirley Ng, Director, Client Leaders, Automotive, The Nielsen Company, China, spoke of the challenges and opportunities for car manufacturers and retailers. “Private vehicle ownership is still low in China and we expect that the number of first-time car buyers will increase sharply in the next few years. Car owners in first tier cities like Shanghai are starting to trade up—good news for luxury models. But the real opportunity is in the tier two, three and four cities such as Shandong, Fujian and Guangdong, where the middle class is growing every year and their confidence as consumers has been rising faster than in tier one cities.”
Ng said manufacturers and retailers must understand the differences between the needs of consumers in lower tier cities compared with those in tier one cities, and noted that advertisers must approach these price sensitive car buyers creatively by focusing on brand building for the long-term.
To better understand these new car consumers, Georgia Zhuang, Director, Consumer Research, The Nielsen Company, China, provided an in-depth look at this group and the factors and themes that drive their purchase decisions. Lower tier consumers tend to be older than those in tier one, and their families are their top priority. Work is viewed as a way to increase their family’s quality of life and they tend to have fewer financial pressures. In short, they have positive outlooks on life and are confident about their futures.
Auto manufacturers and retailers need to market toward these consumers by finding the emotional linkage with their priorities and satisfying their basic needs. Zhuang noted that companies focusing on lower tier consumers would do well to emphasize fundamental themes such as economical, durable, safe, reliable, simple and plain exterior to consumers. It’s also necessary to build a trustworthy brand image that offers high value.
Since these consumers have little experience with or knowledge about cars (90% are first-time buyers) and have limited information, their purchase decision making is relatively simpler and quicker. Manufacturers and retailers should use a range of media including the Internet and social media as well as physical displays at various locations. Dealer network expansion and training of the sales and service associates will further enhance brand visibility and reputation—key factors important to lower tier consumers.
Mirroring the growth in car sales in China has been advertising spending. From 2009-2010, the auto industry posted the highest growth in spending of any industry, up 24 percent and indicative of the increased level of competition between manufacturers. But that high level of spending has led to decreased efficiency in mature markets whereas lower spending in lower tier markets has yielded strong results.
Given this marketing environment, Kenneth Tan, Associate Director, Analytical Consulting, The Nielsen Company, said that car makers need to focus on long-term growth by consistently advertising to build brand equity. “Marketing helps build market share in the near-term, but also helps grow brand Equity in the longer term. Without incremental activities to bring in new buyers and respond to competitive activities, brand equity will erode. ”Based on Nielsen research, Tan noted that up to 35 percent of total auto sales are based primarily on brand equity.