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Three-quarters of Chinese car owners plan to switch brands, says BCG report

BEIJING – Three-quarters of Chinese car owners – representing an installed base of some 90 million vehicles – plan to switch brands when they purchase their next automobile, according to a new report by Boston Consulting Group (BCG).

The report, titled “The Battle for Automotive Brand Loyalty in China,” was released on September 16.

It predicts that securing the loyalty of China’s current 90 million owners of cars and light vehicles will be critical for foreign and domestic automakers as the market approaches a “great brand migration,” which will affect every segment of the market.

Nearly 85 percent of owners of cars manufactured by domestic Chinese companies, which tend to produce the least expensive vehicles, said that they plan to switch brands – and only 30 percent indicated that they plan to buy another Chinese brand.

Makers of foreign “volume brand” cars, which cost $13,000 to $41,000, can expect to lose 70 percent of their current customers, while around 57 percent of owners of foreign premium cars, a segment dominated in China by a few European luxury brands, plan to switch.

In each segment, customer loyalty levels are below those reported in surveys of car owners in developed economies. The findings are based on interviews with 2,400 Chinese car owners by BCG’s Center for Consumer and Customer Insight.

“Until now, many carmakers have focused on winning over first-time buyers in the global automotive industry’s greatest growth market. But neither domestic Chinese carmakers nor foreign brands can take their gains for granted,” said Marco Gerrits, a BCG partner who heads the firm’s automotive sector in Greater China. “These findings suggest that the next great battle in China’s car market will be waged over customer loyalty.”

Certain car brands appear poised to be big winners, according to the BCG research. Forty percent of Chinese volume-brand owners planning to trade up to a foreign volume brand said they intend to buy a Volkswagen model. Nearly 90 percent of foreign volume-brand owners who are trading up said they are likely to buy an Audi, BMW, or Mercedes-Benz.

“The stakes are particularly high in China because it tends to be a winner-take-all market,” said Donald Zhang, a BCG project leader and a coauthor of the report. “Chinese car buyers seem to be converging on a handful of brands that have solid reputations for being safe choices.”

The reasons Chinese car owners cited for switching brands varied. A large portion of China’s increasingly affluent consumers want to trade up to higher-quality or more prestigious brands, now that they can afford to do so. The report identifies such owners as “upgraders.” Millions of others, however, are “brand shifters.” They intend to switch to a different brand within the same segment because they are dissatisfied with various aspects of the cars they now drive.

Upgraders and brand shifters in most segments are generally looking for different things in their next car. The unmet functional and emotional needs of Chinese car owners also vary considerably among owners of domestic volume, foreign volume, and foreign premium brands, according to the BCG research.

Owners of Chinese volume cars most frequently cited a desire for better quality, better performance, and dealer experience as their reasons for switching brands. “The most urgent challenge for domestic Chinese brands is to continue improving their vehicles and dealer networks – but without losing their cost advantage,” said Alex Xie, a principal in BCG’s Shanghai office.

By contrast, owners of foreign volume cars who plan to switch to competing brands in the same category primarily cite concerns over reliability, safety, and high maintenance costs, while those trading up are looking for better accessory features, aftersales service, and cars that convey higher social status. Among premium-car owners, brand shifters primarily seek more comfort and superior aftersales service, and upgraders mainly want more luxury.

“Companies need a clear picture of which functional and emotional qualities drive the decisions of customers in different segments of the Chinese auto market,” said Andreas Klotz, a BCG project leader and another coauthor. “They should create a more distinctive brand identity – something most car brands currently lack in China.”

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