says Subhashish Dasgupta of TNS' Automotive practice.
In the past decade Auto manufacturers have focused all their efforts on capturing a share of the fast growing Automotive markets in China and India. China is after all the largest automotive market in the world now and India was seeing year on year double digit growth rates… all in a context of European and American market recession.
A new market has emerged, almost unnoticed
So while everybody was slugging it out in China and India, a new market emerged, almost unnoticed. Let me quickly describe this market – population of over 600 million, GDP of over 2,333 billion USD with rapid growth, car penetration in the single digits, imports prevalent as demand outstrips supply and a car is still the most aspirational product that is a visible indicator of personal and professional success and status. Surprised??
You would be even more surprised when you realize that this market offers opportunities for all price ranges – from entry level vehicles to premium, all body types - hatchbacks, sedan, MPVs and pickups and all manufacturers – Local, Regional and Global. If you have a product to sell, chances are you will find a market here!
South East Asia has emerged and its time you sat up and took it seriously
South East Asia (SEA) is a collection of eleven countries (Brunei, Cambodia, East Timor, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam) in close geographical proximity. Indonesia, Thailand and Malaysia account for nearly 90% of the total SEA automotive sales volume and will account for over 3.3 million cars sold by 2020. Each of these three markets will demonstrate a fundamental change in how their automotive market is structured and that presents a tremendous growth opportunity.
Tremendous growth opportunities
In Indonesia, MPVs will remain the largest segment, but lose share to A/B/C segments due to rising fuel costs, improving road infrastructure, eco-car projects and smaller family size vehicles. Toyota (with Daihatsu) will continue to be dominant, although other brands will gain share.
In Thailand, A and B segments will grow rapidly and take share from pick-ups. This will be driven by increasing congestion in urban centers and a government supported move towards more eco-friendly cars. Business owners, traders and farmers will still want a pickup but even in that segment we will see demand for sleeker designs and more comfort-oriented features to make it a desired family vehicle.
In Malaysia, A/B/C segments will continue to dominate the market but the dominance of local manufacturers Proton and Perodua will come under threat from global manufacturers – primarily the Japanese majors.
However, success is by no means guaranteed in these markets.
There are significant infrastructure and regulatory challenges to overcome with varying access and availability of reliable partners. However, the biggest challenge will be a deep understanding of the evolving consumer needs, motivations, brand perceptions and growth drivers. Are you prepared for South East Asia?
Find out more about TNS's Automotive practice: www.tnsglobal.com/automotive
asks Subhashish Dasgupta of TNS' Automotive practice.
SUV sales in India were down by 17.5% in July, and while it is still early days the current uncertainty around the economic situation in India may lead to a longer downward trend considering the fact that:
Consumers watch & wait…
Right now, the mood is quite cautious in the Indian economy, which is reflected in the Automotive sales this year. The SUV segment navigated past this until now, sustained by a slew of launches which created quite a bit of interest and buzz. As I said on the ET Now programme, the overall mood has now caught up even with customers of this segment, who are now playing a "watch & wait" game. If the slump continues, it will be another knock on a troubled market. It will be detrimental for certain manufacturers whose current product portfolios are based on SUV platforms. It will also start seeding doubts in the mind of other manufacturers who are lining up new SUV launches.
Last years' growth was not an aberration
Some experts may say that the growth in SUV sales witnessed in India last year was an aberration and a bubble. However, I do not believe this to be true as there has been a latent demand for an urban SUV in India - on account of increased space, enhanced safety etc. It was always a question of the right product with the right value being available. Ertiga from Maruti Suzuki, XUV 500 from Mahindra, Duster from Renault and Ford EcoSport are all early winners in this space. Before these models were introduced, all SUV were premium priced. When customers were exposed to a correct value equation with price and features, they flocked to those models.
I am confident that we will see a return to growth due to four key factors:
Finally, picking up on these trends a number of leading manufacturers in India are lining up urban SUVs - Maruti Suzuki has announced three new launches by 2015 and Hyundai has announced two from their side. So a lot of manufacturers are placing big bets on this segment which in turn should continue to propel the sales of the SUV segment. Right now the segment constitutes about 18-20% of the market including the entire gamut of UV - MPV, MUV, SUV etc. but its share will grow and potentially stabilize around the 25% mark.
Of course, the Auto market is reflecting on a downturn in the Indian economy at the moment that needs to be ridden out, but there's no need to panic because the foundations remain strong and the Indian economy is driven by strong domestic consumption so it will grow, albeit slower than previously.
Find out more about TNS's Automotive practice: www.tnsglobal.com/automotive
Says Kai Adolphs, Global Product Research Director, TNS’ Automotive Practice
Price management is a hot topic for car manufacturers today, and for good reason. Setting prices wrongly initially can waste millions over the vehicle lifecycle, for example by using major sales promotions and discounts to correct overly ambitious price and volume goals.
Ultimately, car manufacturers have a growing interest in learning how to set the price correctly, not only in highly competitive saturated markets of Europe and North America, but also in the rapid growth markets where the “gold rush” is starting to lose its luster!
It’s no wonder that market researchers and consultants nowadays offer so many tools and concepts (of varying degrees of sophistication) to support car manufacturers in their pricing decision-making. Most of these tools try to forecast market shares and sales volumes because car manufacturers increasingly demand precise answers about the volumetric potential of their vehicles. If I asked car manufacturers, market researchers and consultants what tools they really need, many would answer: “conjoint”. But is it really the answer?
Refined tools are needed for pricing research
Conjoint analysis has been a popular approach for many years and most researchers and consultants trust it almost blindly. But I strongly believe that today it can no longer be considered the ultimate answer for pricing questions. Particularly not in its traditional form for the production of realistic market shares or volumetrics for vehicle models. Let me explain why not.
The black box
Market researchers and consultants with little experience in the automotive industry would solve the issue by building a ‘black box’ around their data model, replacing market intelligence with mind-numbing data crunching until something resembling market shares falls out.
Pricing strategies call for precision
The reality is that today’s pricing strategies need to be based on precision, not imprecise foundations. Conjoint traditionally concentrates on consumer preference. Key measures of business growth, like market share gains, incremental sales volume etc. are not what these methods have been designed to deliver, so don’t meet client needs. Pricing managers and volume planners want to understand the potential market opportunities with quantified premises. They want to play “what if” scenarios within the forecasted volumetric!
It is impossible to transform relative preference from a conjoint model into business growth measures purely by using mathematical algorithm. Accurate volumetric predictions call for the consideration of context, for example by a systematic cross-linkage of industry standard secondary data (e.g. Jato, NCBS, Global Insights) with a flow of proven primary research elements to complement the conjoint.
Also the use of “conjoint” itself needs rethinking. New approaches, e.g. discrete choice models and self-balancing solutions are much better suited to design interview settings that reflect real life decisions of human beings.
This way, pricing research can deliver precise and powerful insights which are far removed from a “calibrated” black box.
asks Rémy Pothet, Global Automotive Practice Head
At the peak of the global economic and automotive industry crisis, when new car registrations in mature markets slumped, Electric Vehicles (EV), alongside plug-in hybrids, were hailed the miraculous solution which could fundamentally change and therefore save the global automotive industry. As such it was thought that millions of consumers in highly populated fast growing markets could continue to become car owners without damaging the planet.
Energy efficiency, zero emissions, noise reduction & congestion relief aren’t enough
New EV car registrations worldwide are expected to grow significantly, even if manufacturer predictions of market share in 2020 are surprisingly different: from a conservative forecast of 2% on one side, to an optimistic 10% on the other. This makes quite a difference given the scale of the market, we’re talking about a difference of around 5-6 million vehicles here…
But either way, it seems that promises of energy efficiency, zero emissions, noise reduction and congestion relief aren’t enough to conquer consumers’ hearts and minds.
5 years on, what’s holding EV’s back?
I see three key obstacles. Firstly, the lack of public awareness and a limited range of EV’s for consumers to choose from, secondly high prices - despite financial incentives schemes introduced by many governments. Finally the insufficient infrastructure to support a “revolution” is a major obstacle: few charging stations, no standardisation of batteries or connections, limited vehicle autonomy, long charging times… As a result there is no long term visibility of where EV’s are heading, which translates into a rather unconvincing offer for consumers to “Go Electric”.
Don’t get me wrong, progress has been made. Nearly all OEM’s have an EV in their range. Electric car-sharing schemes have been introduced in major cities like London and Paris. Tesla’s Model S has won numerous awards and Venturi has achieved a world-record-breaking “Shanghai to Paris” challenge in an electric vehicle.
Our relationship to cars may change. Owning a car in a large city may become “so last century”.
But what else needs to change? It’s not just a question of changing the type of motorisation. To achieve a large-scale breakthrough we should look beyond product to the bigger picture of consumer mobility and purchasing behaviour. Our relationship to cars may also change - ownership is still key to our relationship with conventional vehicles; less so with electric ones. Car ownership in major cities is decreasing as people turn their backs on traffic jams, lack of parking, and the financial burden of owning a car. The youth segment is increasingly disillusioned by the automotive industry. They are exploring alternative solutions: car sharing, journey sharing, renting from car owners in their community, or simply using taxis or public transport instead. Maybe one day owning a car in a large city will become “so last century”!
We need some disruptive innovation!
Maybe we don’t have all the answers within the Automotive industry. In which case we should look further afield to other industries for inspiration and innovative solutions. Are there opportunities for strategic partnerships with innovative players from other sectors - energy, IT or digital for instance? Some “disruptive innovation” via a strategic partnership of innovative players could put the EV breakthrough back on the map. In the same way Apple has changed our way of consuming music, and the lifestyle changes brought about by the launch of Smartphones, electric vehicles have the potential to change our way of getting from A-B. The perks of free parking and use of bus and taxi lanes certainly sound like a tempting alternative to idling in traffic with conventional vehicles or circling to find a parking space!
"The earth is blue like an orange", a French surrealist poet once famously said … And Chinese roads are still green like an exhaust pipe, car manufacturers could similarly say today…Six years after the introduction of the Toyota Prius on the Chinese market, talking about green in the auto industry remains a rather abstract concept: in 2011, only 8,159 hybrid/EV vehicles were sold in China - a drop in the ocean compared to the 14.5 million vehicles sold there last year!
"We should drive green to protect the environment": a
consensus on the principle…
A recent study conducted by TNS in China shows that Chinese car owners are well aware of pollution, and are especially concerned about air and water pollution and its direct impact on their health. Most motorists also agree that solving this environmental crisis has now become urgent.
… But there are still a lot of hurdles to overcome
Firstly, when it comes to the car market offering, consumers struggle to find a "green" model in the specific segment and price range they are interested in: while most manufacturers have EV or hybrid technology in their product plans (Roewe E50, Denza…), less than 20 EV-hybrid models are currently on offer in China, and even fewer pure EVs available. Small numbers compared to the 450+ car models selling on the Chinese market!
A second issue is the image that Chinese drivers have of green vehicles: although EV and hybrid technologies are perceived as being innovative, distinctive, fuel efficient and ecological by definition, motorists still question their affordability, reliability, power and practicality - all of which are key considerations.
How can OEMs win the green race in China?
Four keys to success can be identified:
The Driving Green (R)Evolution is a battle which will only be won with team work: marketers will play a key role, together with officials, engineers and … consumers!
says Frédéric Casellas, Global Account Director
It is widely recognised that consumers have a strong emotional connection to their car brand: the automotive sector enjoys a brand commitment level of 60% worldwide, one of the highest scores after healthcare (67%) and finance (64%).
This score is hardly surprising given that 1) pretty much all OEMs are now offering good-quality and reliable vehicles and 2) purchasing a new car isn’t a light-hearted decision but rather a high-involvement process: it represents a substantial expenditure - even more so for car buyers in emerging markets, and involves an emotional risk for increasingly brand conscious consumers.
Looking beyond the average to unveil growth opportunities
If this 60% score highlights the imperative for OEMs to invest in loyalty programs to hold onto their existing consumers, and encourage them to spend more, more often, it also poses the question of growth potential - especially for mass-volume brands who are fighting hard for market share.
In order to identify and unlock growth opportunities, mass-market OEMs need to look beyond this average score, and truly understand individual consumer behaviour and competitive context.
Commitment to car brands varies enormously across countries; it ranges from 80% in Northern Europe to 40% in some emerging markets, with key drivers to commitment differing from one country to another. In Eastern European markets, where a relatively high proportion of motorists (30% vs. 8% in mature markets) aren’t particularly fussed about the car brand, OEMs should implement transactional strategies or develop “hero models” rather than focusing on the brand. In Mediterranean countries, up to 20-30% of car owners are dissatisfied with their current brand, which implies that manufacturers should look at understanding this group’s unfulfilled needs prior to launching new customer acquisition strategies.
Driving attractiveness through differentiation
The gap in commitment between the market leaders (usually VW or Toyota) and their followers remains wide, while the gap among the latter (mostly mass-market brands) has almost disappeared.
Competition has also intensified in mature markets as car owners perceive little difference in terms of attractiveness between their current brand and alternatives. In addition, motorists are nowadays less likely to pay an “ownership premium” for a mass-volume brand.
To gain a foothold in their target markets, mass-market auto brands should direct their marketing budgets to developing differentiation strategies. Communications will play a key role in this context: instead of continuing to invest in communicating basic attributes such as quality, security or leadership which are already “owned” by VW, mass-market brands need to emphasize their differences in new, refreshing ways. They should communicate on attributes around the pleasure of driving, talk about the emotions arisen from the car design, or focus on developing a “caring” approach.
Only then will they be able to truly drive differentiation and increase attractiveness.
asks Yaroslav Zaitsev,
Head of Automotive Research, TNS Russia
With its relatively low level of car ownership – 260 vehicles per 1000 people vs. 800 in the USA and around 550 in many European countries – Russia represents a significant growth potential for the automotive industry. But as new car sales continue to grow in Russia, so does the number of second-hand vehicles…and the need to find owners for them.
Vehicles bought during Russia’s auto boom are now hitting the used car market
New vehicle owners hold onto their cars for 3.5 to 5 years on average, selling them before they depreciate too much in value. With Russian sales of new cars hitting a record 2.9 million in 2008, a large proportion of these vehicles are now flooding the used car market, bringing it to an astonishing 46% of the total car market in 2011 vs. 27% in 2007.
As a result, the offer of second-hand vehicles in Russia now largely exceeds the demand: unsurprisingly, 84% of new car owners will only consider a new vehicle for their next purchase, while almost half of used car owners also aspire to purchasing a brand new vehicle.
Russian car buyers are heavily reliant on credit
It may be no surprise that most consumers would prefer buying a new car, but only a few actually have the financial means to afford such a purchase. Russian car buyers are heavily reliant on auto loans: in the pre-crisis year of 2007, nearly half of new vehicles were purchased on credit. Although this number dropped to less than a third in 2009 as auto loans dried up, it quickly picked up again and in 2011 almost 40% of cars were bought with a debt financing scheme.
The situation in the used car market is somehow different. Only 20% of second-hand cars are currently purchased on credit as the number of financing schemes available for used cars is limited, and loan conditions aren’t as attractive as those offered for new vehicle purchases.
The used car market in Russia might have some rosy days ahead…
Today’s used car market is largely dominated by private sellers, and as such perceived as being risky – with little visibility over the vehicle quality and market value, and no warranty offered.
But there is a fantastic opportunity for car dealerships to tap into this huge and booming second-hand car segment: by offering both peace-of-mind and finance options, they could dramatically change the face of the Russian auto market over the next few years.
A professional, regulated sales channel for used vehicles would indeed appeal to cash-strapped consumers and to those who prefer purchasing reputed foreign brands second hand over new vehicles of domestic brands whose reputation and image remain poor.
The key question is whether Russian car makers will be able to overcome this new trend and develop strong strategies to win the hearts and minds of car buyers.
says Andy Turton, Global Development Director, TNS Automotive
For more than fifty years, the automotive industry planned its communication strategies around a linear model of the purchase process, in which the 5 main traditional media played specific roles over the course of several months, with dealers owning the final stages of this process and 'closing the deal'.
The advent of digital and social blurred the picture and brought a great deal of uncertainty to the industry.
Automotive brands were in the dark about the impact that online conversations were having on the way consumers chose their new car; they also were unsure whether these new digital channels complimented or competed against their own messages conveyed through broadcast media.
Car buyers are heavy users of the Internet, with 67% using digital sources to research new cars - more than any other category! They also rely heavily on these sources to form their opinions: 60% of new car buyers in the UK or China who read about car makes & models often change their mind based on online reviews...
With these figures in mind, knowing when, where and how to best engage with consumers is vital to car manufacturers.
A recent study conducted by TNS in China has shed some light on these challenges. It looked at new car buyers' media use and make & model shopping list development throughout their journey to purchase, tracking in real time every influence affecting consumer decision-making.
Below are three of the multiple thought-provoking insights and implications for OEMs that emerged from this unique study; these are facts of life for all brands in China:
Communication strategies must address the multiple paths to purchase.
On average, Chinese consumers take 2-3 months to complete their buying cycle. As so often, the average masks the insight: in China the path to purchase is a polarised picture, with more than 40% of consumers making their choice within less than 1 month and almost 50% taking 4 months or longer: planning communications for the average buyer is dangerous. In China, the fast and the slow buyers use media in different ways and for different purposes. Brands must recognise these multiple paths to purchase and plan for each accordingly.
Brand websites need to act as vehicles to convey brand values and promises.
Brand websites are currently designed for consumers reaching the end of their purchase journey, focussing on vehicle specification details and comparisons with carefully selected competitors. Chinese consumers whose buying process exceeds 1 month actually visit brand websites right from the beginning to the very end of their buying process. To meet the needs that consumers have at different stages, brand websites need to grow beyond spec comparisons to clearly convey the brand's values, qualities and promises.
Dealerships remain a key part of the buying process.
Although Chinese car buyers often turn to friends & family and online consumer reviews for advice - checking and validating the claims made by brands - dealers retain a key role in the process. In contrast to developed automotive markets, car dealers in China are the most trusted source of advice, and often play a decisive role in make/model choice.
Later this year, as we roll this study out to other parts of the globe, we'll discover the relevance of these insights beyond China.
One thing is already clear though: brands that learn how to reach and engage potential customers in each discrete path to purchase will win in the race to sell more vehicles than last year and more than the competition.
Check out the world's first real time analysis of the car-buying process: www.tnsglobal.com/tapps
says Pradeep Saxena, Head of Automotive Research, TNS India
As in previous years, the 11th edition of the Delhi Auto Expo which took place last month attracted a crowd of over 100,000 on peak days. The one big difference from past editions however, was in terms of the models being displayed which stand a good chance of being launched in India.
The Indian car market is dominated by both small size and small price vehicles
The popularity of the small-car segment on the Indian market is well known. What is less understood though is that small doesn’t only translate into size but also into price: whatever car model is available for a small price flies off the shelves. As a result, the Suzuki Dzire, a sedan which sells at US$ 12,000, and the Mahindra Bolero, a MUV priced at US$ 14,000, consistently feature among India’s top 10 best selling cars, despite neither of them qualifying as small-sized cars.
Every major car manufacturer - with the exception of Mahindra - has a small hatchback and at least one successful sedan in its portfolio; however few are those who offer a SUV or MUV worth raving about.
The 2012 Delhi Auto Expo showcased a surprisingly high number SUVs and MUVs
The most successful models in India’s currently under-developed (yet fast-growing) SUV market, range from US$ 21,000 for the Tata Safari or Mahindra Scorpio, to US$ 48,000 for Toyota Fortuner.
The Auto Show this year revealed a first-time interest for global car makers in the lower-price band: Ford (EcoSport) and Maruti Suzuki (XA Alpha) both displayed SUVs priced at around US$ 20,000, with the launch of the EcoSport scheduled for early 2013. Meanwhile Indian manufacturers are set to venture into the mid-price band; Mahindra is planning to launch its SsangYong’s Rexton which will sell at around US$ 36,000.
Among the MUVs unveiled last month, the Stile by Ashok Leyland and Ertiga by Maruti Suzuki will both hit the Indian market at around US$ 20,000.
So, what is spurring carmakers to focus on SUVs and MUVs?
Car manufacturers are relying on India’s multi-generational households to fuel growth
Almost half of Indian car-buying households either purchase an additional vehicle or replace an existing one – and 15% of these households opt for a SUV or MUV.
India is a country where multi-generational households continue to prevail, as Oprah Winfrey found out during a recent visit: she was astonished to learn that Abhishek Bachchan, one of India’s biggest film stars, still lived with his father - even after marriage!
Such a household obviously needs to purchase a larger vehicle to accommodate a higher number of passengers. When buying an additional car - be it for a family or individual need - the combined disposable income of its members also means that it can actually afford a SUV or MUV. As most of these models come with diesel engines, their lower running costs make them even more accessible.
However, for most Indian middle-class households, US$ 20,000 remains the maximum amount which they’re prepared to spend on a new vehicle.
Whether car manufacturers succeed in luring them into breaking this ceiling, with the launch of these attractive SUVs unveiled at the Delhi Auto Expo, remains to be seen…