15 Sep 2016

How Automotive Manufacturers Localize For Emerging Market Consumers

The automobile market is a pretty crowded place – but emerging markets are offering a new battle ground for major automotive brands to compete.

Car brands can leverage local manufacturing to reduce costs in these new markets. This is helping international brands to compete against domestic ones in local markets. Growing consumer spending power is also boosting the demand for luxury vehicles, many of which take a unique approach to localization.

Luxury car manufacturers are keen to reach new emerging market consumers and establish themselves in local markets.

This is partly because these markets promise growth in demand. China has recently become the world’s largest car market, overtaking the US in 2009. The luxury end of China’s car market could grow at around 12% by 2020, whilst China’s car market in general grows at the slower rate of 8% – according to research by Research and Markets.

India’s also a major battleground where car brands are lining up to grab market share. Presently the luxury car market here is relatively small compared to the rest of the market. Whilst luxury cars represent 8% of the Chinese car market, in India they account for just 1% of sales but it’s anticipated that demand will expand over the next few years.

According to research by Research and Markets, India’s luxury car sector could grow 15% year on year to 2018.

By 2020 it’s thought 87,000 luxury vehicles may be sold in India – up from 35,000 in 2015. Presently three key German brands Mercedes Benz, Audi and BMW dominate. But these top brands have had to experiment with localization strategies to maintain market share in India.

Young, affluent consumers seem to be driving the growth in India’s luxury automobile market.

Audi has identified that their typical Indian buyer is only 30-35 years old. Brands that gain the loyalty of these younger consumers could potentially build a long-term relationship with them across multiple vehicle purchases through their lives. Getting product launches right for this age group, and targeting campaigns accurately, is important to winning market share.

Car brands are also experimenting with localising their manufacturing to reduce costs and barriers to purchase. BMW is one major car brand that’s recently increased the proportion of cars it manufactures locally in the Indian market. This has helped it reduce the costs of buying one of its cars. BMW now offers about 50% localization in all of its models, thanks to reliance on local suppliers.

Mercedes Benz offers an even greater level of localization in India, with around 60% of car manufacture taking place in the country. Manufacturing at local level not only helps reduce costs but it also helps fulfil customer requests such as custom paint jobs more speedily.

BMW’s been on a back foot in recent years compared to rivals Audi and Mercedes Benz. The German car brand is fighting back against lower market share in India by introducing new ‘entry level’ products that help get new customers on board. BMW’s had to refresh the product portfolio it offers in the Indian market in order to claw back market share. But its key rivals are also finding that regular product launches are an important part of winning in this market.

BMW dominated India’s market up until 2012 at which point analysts agree design fatigue set in, allowing Audi to steal market share. Offering competitively priced products and regularly refreshing the portfolio are seen as important to competing in India’s car market.

Localising the name in China

When it comes to tackling China’s car market, deciding on a name for your brand is an important decision.

Volkswagen was an early entrant into the Chinese market, where it’s now well established. The brand created a new Chinese language name for itself in order to compete in this market. The danger was that if VW didn’t supply a name that Chinese consumers could use easily, the consumers would create their own names for the brand which could backfire. It’s an approach that worked well for the brand and it’s now widely known by its local name, 大众, rather than as VW in China.

Top-end sports car brands Porsche and Lamborghini both chose a totally different approach for their luxury brand identities in China.

Both retained their international brand names and avoided the localization of manufacturing as well, choosing to import the cars from abroad rather than make them locally.

This may reflect the fact that these are luxury brands, and ones that may fare better by keeping their European identity. Luxury car buyers may value the cachet of importing a vehicle from abroad that doesn’t seek to compromise on its brand identity – this may not be an approach that will serve a non-luxury brand such as VW.

Luxury remains a challenge

Despite the cost savings that can be made – and the market share potentially captured – by employing localization practices for components and manufacturing, this isn’t an approach that will necessarily always work for all types of car.

When it comes to some emerging markets, luxury car brands still don’t find there’s enough of a market to justify full-scale localization of manufacturing.

Although localising manufacturing can be done to a certain extent, there are other localization factors that are also important to growth in this market.

Expanding the network of dealerships outside the key urban areas is one important factor in the development of this market. Although car buyers in any market prefer to have access to a nearby dealership, it’s particularly important to offer this sales support in a market where customers may not have the same experience making this kind of purchase. Getting the financing in place is also important. Participation in the formal banking system isn’t always widespread in emerging markets, so having the right financing options on offer is important.

Any car brand needs to consider its options carefully when considering how to tackle an emerging market. The extent to which they can localize both marketing and manufacturing may vary according to the type of car on offer. With growth anticipated in these markets, it’s worth car brands gaining market share now especially with young affluent consumers that offer a promising long-term future for brands that succeed in winning them over.



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