2014年12月12日 星期五

GE2230 final individual report (Team 1 Square) (Tsang Yee Kwan 53558297)


Introduction

How can luxury brand and mass-market brand keep on creating demand? It is the common concern of all international automobile companies. Are the historical ways generating demand out-of-dated or ineffective? Can new way really generate more demand? The following essay will elaborate more on the global force and paradigm shift in influencing the history shift to the new way of creating demand, as well as the cost of consumerism brought by new way of creating demand and the future trend.

1.     From historical perspective to the new way


Historical perspective in generating demand

Centralized decision making-Target in one articular group of customers

Luxury brands simply produced high-end expensive car and only aimed at capturing the market share of wealthy class. While Non-luxury brands simply produced cars with low price and mainly aim at capturing the cost-sensitive customers.
Automobile companies can capture a particular group of market share by positioning themselves in one particular market. For example, European brands like Benz and BMW only targeted in luxury automobile market before but now these luxury brands tend to expand their market share (will be discussed later).

However, with their centralized decision making, most companies simply stopped having a connection with the new global marketplace and neglected its emergence (will be discusses later).

Brand Effect

Brand names play an important role in the determination of market prices, even after controlling for other influence. Therefore, they can be interpreted as shadow brand prices that reflect intrinsic brand values.
The table below moves from group 1 to group 4 the estimated brand premia increases. Group 1 includes economy and value brands (e.g. Hyundai, Kia, Lada). Group 2 includes mainstream, mass-market makers such as Ford, Peugeot, and Honda. In the third quartile, we find some up-market marques such as SAAB, Volvo, and Jeep. Finally, the last quartile (group 4) includes luxury and high-end cars such as BMW, Jaguar, and Porsche.
Customers have more confidence in buying luxury and high-end brands while young beginners tend to buy economy or mass-market brand. Better brand image attract more new customers and retain existing customers. The demand can be generated as a result.

Mass marketing communication program/Traditional marketing

The automobile companies adopted one-side marketing strategy to the customers such as print, broadcast, direct mail, and telephone before.
Traditional marketing campaigns often have the advantage of staying power. They can become iconic, and instantly familiar to millions of people. The top five memorable campaigns of the 20th century, according to network television powerhouse NBC included Volkswagen: “Think Small”. The traditional marketing sometimes can remind and strengthen the brand image and message of the companies. It can have access to many people and demand can be generated.
However, consumers do not seem to feel a connection anymore with the mass marketing communication programs.

New way in creating demand - Emerging into different market

Entering into different emerging market is one of the new ways automobile multinationals have adopted to generate demand. The automobile multinationals have introduced both luxury chic and low-price chic cars into different market in order to capture the largest market share.
According to the “How Global Brands Compete” written by Douglas B. Holt, John A. Quelch, and Earl LTaylor, “To succeed, transnational companies must manage brands with both hands. They must strive for superiority on basics like the brand's price, performance, features, and imagery.” So, global luxury brands have to introduce low-price chic cars (strive for superiority on brand’s price) to succeed in both more developed and emergent countries.

According to Identify which product and service attributes the customer values “Within the same market and industry, different primary customers may value different things” written by Robert Simons, car companies should place different strategy based on the customer values like the luxury chic to older upper class while cheap chic for BRIC customers.

Luxury Chic version in new market and reason

The aging upper class is becoming the major consumption power of luxury goods, cars are one of the “toys” these kinds of people like to own.

Silver Drivers
Silver Drivers are a new generation of older people who is becoming increasingly important as a target group in the future mobility markets. Silver Drivers like to consume, are mobile, have a wide variety of interests and are extremely active in their leisure life. They are not only well-off; but first and foremost ready to spend their money rather than save it. Their battle cry is: “Anyone who saves is just starving themselves for their heirs”, and they stimulate consumption – precisely on the mobility markets. As mobility concepts, Silver Drivers tend predominantly to choose vehicles that meet their comfort requirements, but no longer superficially package them in the form of respectable senior citizens’ sedans.

Sensation Seekers
“Fun while driving” car experience will continue to be an element of a modern lifestyle. There will be people who like to drive (“car guys”) and are ready to pay for it.
For Sensation Seekers, cars are the ultimate objects of experience and in the future will link driving with attributes like freedom, fun and pleasure. To fulfill Sensation Seekers’ wishes and needs, automobile companies consider cars ever more strongly as third places: in which the driver is happy to stay, feels good and enjoys life. For Sensation Seekers, cars express their attitude towards life. Cars also need to offer Sensation Seekers a sensory experience, fulfilling social functions. The car experience should be an extension of office and living room, making use of multimedia networking and include maximum safety. So, the automobile companies are introducing both “luxury” and “chic” cars to satisfy this rising demand.
That explains why the multinational luxury brand change their business practice from simply luxury version to luxury chic version in order to capture these generating demand of both comfortable, luxury, multifunctional and stylish cars. The above mentioned group of people are called “car guys”, they do not appreciate only luxury sedans because what they pursue is not only the symbolic meaning of status that luxury cars can bring to them, but also the comfortable car driving experience and stylish appearance that the new modern car should bring them in enjoying the driving process.

Low price luxury car in new trend and reason

The global financial crisis happened has greatly affected the purchasing power of the developed country people. Most of the people will buy things more wisely, especially for the luxury products like cars. Although the economic environment turns well recently, most of the people still want to use money wisely. The car industry needs to provide a cheaper choice for the customer.
In order to survive in the keen competition in the luxury automobile industry, they need to expand their market share to fulfill the need of the customer in developing country by launching the perineum version.
The customer in developed and developing country show their requirement on the perineum version of the luxury car. The customer has affected the car manufacturer to produce the entry level car by showing the potential of this market.
For example, BMW has introduced series one, Benz has introduced A-class. The price of series one is similar to the cheaper car like the Toyota in Hong Kong, and BMW has started to place more focus on selling this series.  The price of this series can attract the customers who want to spend less in this economics environment. Those luxury brands are continuing to import their style into the developing countries. When these kinds of customers become richer and want to change a car. They will consider the luxury brands first.
Originally, the people in more developed countries occupied a high proportion of revenue in the luxury brands. But after the global financial crisis in 2008, people in more developed countries tend to spend money more wisely and rationally. They do not resist in buying non-luxury brand cars and practical function becomes their first favour. To cater this group of rational people, luxury brand has changed its business practice from only introducing expensive cars to a relatively low price version.


2.     Global forces and international contexts

Cheap Chic version in BRIC- Cheap Chic, is a consumer trend with its roots in the broad

Due to the globalization process, people in emerging countries can access to the internet more easily. They can search detailed information about the cars and compare different brands and models by themselves or by some car comparing websites. Knowing more, demanding more. The customers finally become “customer king”.
There is more emergence of design and style in all areas of life due to higher accessibility of information on the internet. Customers’ demand for design has recently diffused into all price segments. The customer who is looking for either premium or discount has become little more than a marginal phenomenon. Instead, consumers’ emancipation proceeds onwards, as they develop into the new “customer-king” through individualization, globalization and internet research.
To the cheap chic, “either / or” is an outdated concept as they are consuming in an ambivalent and hybrid way: today discount groceries, tomorrow specialty foods.
Car ownership in the developing world is set to rise. The largest purchasing segment is expected to be those customers buying a car for the first time. They, too, are expected to be value conscious. For example, a growing set of young people in India who will need transportation solutions. Cost will not be the only consideration. The expectations of first-time buyers will likely increase rapidly. Value-oriented models will need to offer safety and technology features commonly associated with today’s premium brands but better with cheap price.
In many Latin American cities, for example, public transportation is poor enough that people who currently own cars are unlikely to abandon them. In these markets, 70 to 80 percent of vehicles on the road are small but functional.
The brands in automobile industry are always the international brands and operate in global business. In today more competitive business world, the pace of economic and technological change has accelerated exponentially. The rapidly change markets, technological breakthroughs and shortening product life cycles are forcing the pace of the shifts.
In order to surviving in this fast paradigm shift world, the multinationals have implemented strategic responses to changing competitive environment.
There are some markets that are developing and emerging, like China which is the fastest-growing market in the world, others like Brazil, Russia and India. Those market help boost sales and the customers’ demand.
For instance, Honda’s City, which publish in India in 2013, is one of the strategy vehicle. It is a low price car with around HK$172,000. It uses a 1.5L SOHC i-VTEC engine and the maximum power is 88kW@6600rpm. And Ford Motor has so launched a small car which aims at emerging market. An entry level family car is necessary when an automotive company wants to enter emerging market. Ford indicates that about 44% of the market will be in South Asia and South America. And it expects the low costs cars have 35% growth from 2012 to 2017.
Sales of low-cost brands such as Dacia, Volkswagen’s Skoda, and Hyundai Motor’s Kia have climbed 16 percent since car sales in Europe, it proves that customer demand towards this kind of cheap chic car is increasing. 
The “customer kings” are not only satisfied with low-price cars, they are asking for both cheap and chic cars. These groups of customers are not the minorities, but they are occupying the large amount of market share. That explains why the multinational non-luxury automobile brands have changed their business practice from cutting cost in producing low-cost cars to introducing cheap chic cars.

Luxury version in new emerging market - Emergence of new wealth in emerging market (BRIC)

The growth of the middle class (and subsequent jump in the number of high-net-worth individuals) in the developing world has been staggering and creates new opportunities for luxury brands. A recent Deloitte Consulting LLP survey indicated the upper end of the customer base, those individuals with high levels of disposable income, will seek luxury brands with performance features as well as luxury add-ons, such as leather seats, sunroofs, and heated seats. This provides the incentive for automobile companies to introduce much more luxury version of car.
More and more customers of the BRIC markets are pursuing not only basic transportation function car, but only the premium version car. For this customer, the classic appreciation of status symbolism transported by luxurious and predominantly western vehicles will continue to take precedence over issues like sustainability or cost efficiency. For the automotive industry, this will also be a customer segment with attractive margins in the future; in terms of sales figures, however, it will remain a comparatively small market in the overall view.


3. Paradigm Shifts

Paradigm Shifts is the fundamental change in an individual's or a society's view of how things work in the world.

1) Customers view towards cars: A transportation toolàsymbol of status and extension of office and home

Customers regard cars not only a transportation tool, but also the symbol of status and extension of office and home. A functional and stylish car can give them the feeling of enjoying leisure life. They tend to spend more time on the cars. Some “car guys” even regard cars as their second home.

2. Customers view towards driving process: Fast and convenient driving experience à enjoyable and leisure life experience

As explained in the previous chapter, there are two kinds of customers which are the silver drivers and sensation seekers are emerging in the market (Please refer to the previous essay). Most of them are the older upper class. They prefer enjoyable and leisure life experience that cars can bring them. Fast and safe is only the fundamental. The “car guys” want more.
So, both luxury and non-luxury brands have to strengthen practical function or create new function of the car as well as adjusting the price to a higher or lower level in order to satisfy different groups of customers.

3. Seller strategic response: Only expensive car à low price and luxury chic cars

Extending the market share and brand image from only introducing expensive cars to low price and luxury chic cars are the strategic responses the luxury brands have done. The luxury brands widen or change its business position by introducing new sub-brands or new product line with lower price. They are still benefiting from the renowned and reputable brand image. The low price line or sub-brand can also give confidence to the customers.

4. Seller strategic response: Only low price car à cheap chic cars

Besides, non-luxury brands have changed its business position from only producing low price car to cheap chic cars. They want to capture not only the young people market but also the middle even upper class market. They now focus more on the functionality and appearance of the car, whether the car is practical or user-friendly in using and stylish to catch the eyeballs of customers. Improving quality and after-sale customer services are the changing point these non-luxury brands have adopted.


4. Future trends and directions

Changes in customer behavior call for improved touch point management

Consumers nowadays can access to information more easily. McKinsey’s 2013 Retail Innovation Consumer Survey showed that over 80 percent of new-car and almost 100 percent of used-car customers now begin their journey online, meaning that dealers have lost their role as the primary source of information as well as their power over the informa­tion shared and their ability to influence the customer. As might be expected, the role of online sources is even more pronounced among customers between the ages of 18 and 34. Close to 90 percent of these customers use an extensive variety of online sources – OEM and dealer Web sites, social media, blogs, and forums – to gather information and compare offers, moving the purchasing decision towards the online world. The rise of mobile technologies, tablets, and social media is also redefining interaction and communication patterns, while technological innovations, such as mobile apps, multimedia walls, and 3D configurators, are opening up new opportunities to transform the in-store experience.
McKinsey’s research has shown that OEMs and dealers need to fight an online battle to earn the right to get that one chance. This includes optimizing their own Web presence, but also integrating traffic from third-party Web sites, such as Kelley Blue Book, Consumer Reports, or JD Power in the US. Many customers find these third-par­ty Web sites very useful for comparing different models side by side, making it hard for OEMs and dealers to compete for attention in the online space. Customers are increasingly well informed and thus more demanding. So, the competitive advantage of dealers will be lower because they are not yet sufficiently prepared for the new challenges ahead.

Innovative products and technologies require a sales and service process upgrade

Deep technical understanding of the car and all available features has become a key requirement for any sales person and is gaining ever greater importance as new technologies enter the market, vehi­cles with electrified powertrains, for example, or more advanced infotainment and active safety tech­nologies. Customers expect dealers to know about more than just the latest models and technical features. As a result, more and more OEMs are starting to upgrade their retail landscape by piloting new retail formats, such as boutique-style stores in prime city center locations – Tesla Stores, Audi City Cyberstores, BMW i Stores, Mercedes-Benz Visionary Stores, for example – online stores, such as BMW’s customer interaction center, or the Mercedes-Benz connect me stores.
At the same time, OEMs are beginning to upgrade existing dealerships by equipping them with the latest technology – 3D configurators, video screens/walls, etc. They are also bringing in product experts and advisors able to answer customers’ questions with the assistance of interactive infor­mation applications on iPads. Audi, for example, has recently opened the first Audi City, a cyber­store that uses multi-touch tables for model configuration, Powerwall screens to present specific models, and lounges for consultations in a private setting. However, no OEM seems to have yet initiated a comprehensive transformation covering their entire retail network.

Customer-centric selling

“Customer king” will not only satisfied with the how cheap the price or how good the product, but they will demand more on the customer service, personalization and customization. Also, the customers can go online and search as many information as they want, they do not need to rely on the information provided by the car sellers. So, the traditional selling method will change to the customer-centric selling method. Instead of selling to the customers, the sellers tend to advise the customer throughout the buying process - helping them make smart choices, locate pertinent information, and understand the options available to them. In doing so, sellers can create a better customer relationship management (CRM).

5. Costs of consumerism

Low price car impact

Lower quality

When the luxury brand companies introduced low-price car, more consumers especially the BRIC emergent country people will be attracted. The more consumerism spreads, the weaker is the incentive for automobile companies to manufacture long-lasting, quality products, and the greater the likelihood that cheaply made products will instead be imported from the lowest-wage, environmentally unregulated overseas manufacturer that mobile capital, ever seeking the highest return, can find.

Environmental problem

The trend of cheaper price encourages car owners to change their cars more frequently. This in result generates a huge amount of scrap iron. Transnational corporations tend to dispose of scrap iron in less developed countries illegally. If not manage or recycle them well, it may cause the serious environmental issue especially in less developed countries. Dealing with this scrap iron requires high cost and scrap metal theft has had a devastating effect on the economy.

Change of consumption pattern

According to “An alternative is to devise a system in which people can easily borrow money to buy things now and pay back the loans over a long period of time. This is what consumer credit accomplishes, and nothing has fueled consumer credit more than the credit card” from Chapter 7 Consumerism, people in BRIC countries may begin to use credit cards to buy “low-price” car. Although the car is in low price, it may also be the luxury goods to some customers in BRIC. Introducing low-price car is such a new appealing point for the customers in BRIC. Their consumption pattern changes from “saving money” to “consuming and borrowing money”.

Luxury version impact

Uneven selling distribution of luxury and low-price cars in BRIC

Consumption pattern of wealthy people in emerging countries may be altered. They have high disposable income and can afford to buy luxury cars. When there is more demand on the luxury cars in emergent countries, the price of luxury cars increase. This market information may tell the multinationals to introduce more luxury version of car in emergent countries instead of selling low price car here. So, other people cannot afford to buy the cars due to the skyscraper expensive cars and they have fewer opportunities to buy low price luxury brand here.

Affect self esteem

When luxury brand introduced luxury version in BRIC, more people in these countries will pursue for materialism. People always look at the label of the automobile to judge on the social status and income level of the car owners. Due to the rapid economic growth rate of China and the popularity of social networking site, more and more “newly rich” (Parvenu) and the second generation of rich families always show off their wealth and background by competing the amount or price of luxury cars they own. They enjoy the limelight by showing off of their own of luxury cars. People’s self-esteem can be raised through comparing owning the amount of luxury cars with one another in order to get the privileged feeling. The social atmosphere may change in long term because the people who do not own any luxury seem to become disadvantaged and have a lower self identity when more and more people in emergent countries own luxury cars.

Identity

According to Identity and the Forces of Globalization “International trade means there is a wider selection of goods in local stores for me to choose from — and what I choose to buy is part of my identity”, globalization shapes customers’ identity. While customer identity shapes globalization according to “What I buy in local stores affects demand for products, and this influences the products that are traded  internationally.”


Conclusion

Some may think that the emergent of multinational automobile companies into developing countries such as BRIC is a harm because they change the consumption pattern, local culture and also kill the livelihood of local automobile companies. However, I think differently. “No competition, No improvement” is what I always believe in. Take China as an example, the Chinese government has implemented many favourable policies in helping the local Chinese automobile brand to survive and become popular in China and Asian countries. Learning from the selling strategy and the innovative ideas from international renowned automobile brand is what local brand should do. However, they should not blindly follow. Instead, they should think global and act local in the short term. After constructing the local market, the local brand should further go oversea if they can. “Nevertheless, most people embrace the opportunity to make such decisions for themselves.”,” At the same time, cultural diversity will continue to exist as local cultures adapt global influences to local circumstances (Hermans & Kempen, 1998)”. It is a good progress that local people can make their own decision by seeing more by deciding to change, adapt to or be stable.



Reference

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