Posted: July 4th, 2015

What is the best market strategy of Audi AG in China

What is the best market strategy of Audi AG in China: Literature Review Chapter?

The Chinese automobile competitive landscape

The automotive industry in China has been growing at a very high rate. Since the passing of the law that allowed individual consumers in China to own vehicles, the sales of vehicles have been growing very fast. In China, owning a car has shifted from being a luxury to a necessity. The policies in China encourage the buying of private vehicles thus facilitating the growth of automotive industry (Chin, et al., 2015, p. 9).

There has been tremendous growth in the Chinese Automotive industry which has attracted many automotive manufacturers into the country. There is very stiff competition. Private car purchases contribute the highest vehicle sales in China due to favorable conditions in the industry (Gan, 2003, p. 537).

China has been ranked as the largest automobile market around the globe. China is also as the leading nation in the buying of the vehicle. The sales of vehicles in China is expected to grow to reach approximately 31 million vehicles by 2020 (Accenture, 2009, p. 1). China is a member of world trade organization (WTO); therefore, the competition in the auto industry is both from the local companies as well as from international companies (Bhattasali, 2004, p. 17).

There is very stiff competition in Chinese automotive industry. Volkswagen has the largest share of the Chinese market of 54%. Hyundai follows with about 19% of market share. Other manufacturers are also increasing their market share at a very high rate (Accenture, 2009, p. 6).

According to Holweg, Luo and Oliver (2008, p. 81), there are over 100 vehicle manufacture in China and over 8000 parts manufactured in China. The passengers’ vehicles in China are manufactured through joint ventures, as well as wholly owned subsidiaries of different manufacturers. Of all the players in the Chinese market, 90% of them are joint ventures. Almost all well-known manufacturers have established their joint venture in China thus tight competition (Jane Zhao, & Anand, 2009, p. 959; Liu, & Dicken, 2006, p.1229).

Chinese automobile Market structure

The passengers’ car contributes the highest sale of vehicles in China. The mid-size sedan Chinese market segment has been growing very first. The market continues to be segmented into various segments depending on the need and preferences of the consumers. However, the demand for the larger vehicle is also increasing. According to Holweg, Luo and Oliver (2008, p. 33), the small vehicle contribute about 41%, basic cars about 27% and the mid-size sedan about 21%. The MPVS and the SUVS contribute less than 5% of the Chinese automotive market share.

The consumer behavior

Consumer behaviors revolve around the processes that are involved when an individual is making a decision to buy something. Consumer behavior can be influenced by many factors that help the consumers better reach the products that would help need their desires. Consumer behavior is not a one-time thing but is a continuous process that a marketer should understand so as to better meet the needs of the consumers. Consumer behavior can be classified into 3 distinct phases; the pre-consumption phase, the consumption phase and the post-consumption phase. To success in marketing, a marketer is supposed to understand all the three phase thus higher customer satisfaction (Solomon, Russell-Bennett & Previte, 2012, p. 4).

Consumer behavior has a great impact on the marketing strategy. The marketing professionals should ensure that they understand the consumer behavior for them to enhance the satisfaction of the customers. The products that the company provides must match the changing trends in consumers. In the automotive industry, the consumers are changing their preference and go for stylish cars that are economical and that which have less impact on the environment. Marketers need to divide the market into small segments for them to better understand the consumers (Hawkins & Mothersbaugh, 2009, p.11).

Chinese consumer behavior

There are various segments of automobile consumers in China. There are those individuals who prefer purchasing vehicles that have been manufactured in China. Several factors contribute to this behavior, being loyalty is one of the factors. Inadequate income is another factor that influences some consumers to prefer local vehicles (Gan, 2003, p. 537).

Just like other consumers across the globe, the Chinese consumers are also attracted to the tangible feature of the vehicle alongside brand and appearance. Engine performance is also another factor that consumers seek when making a decision to purchase a car. The Chines consumers tend to put into consideration the telematics services available for a specific vehicle before making their decisions to purchase the vehicle. Any manufacturer like Audi which is seeking to succeed in the Chinese market must be willing to incorporate the relevant technologies in the vehicles to make them attractive to the customers (Wang, Yang, & Liu, 2009, pp. 199-200).

The Chinese consumers tend to depend heavily on searching vehicle’s information over the internet before visiting dealers shop to test drive. According to Hao and Erickson (n.d. p 13), the Chinese consumers tend to do their product searching on the internet before buying anything and then do most of their shopping offline. Social media is one of the areas in which most of the consumers tend to do their research about a product. Vehicle manufacturer like Audi may need to invest adequately in the online marketing to ensure that they remain relevant in the Chinese market.

According to Wang, Yang and Liu (2009, p. 200), most of the Chinese customers are usually concerned with not the brand of the product but the quality and the price of the product. When the Chinese consumers visit the dealers shop, the first question to pose is usually about the quality. For any company to succeed in China, it is important to ensure that they provide quality products. However, the Chinese consumers are also price sensitive. It is very common for Chinese consumers to visit several dealers to compare the prices of the product before making their final decision about the product (Dewan & Bing Jing, 2000, p. 9).

Advertisement in China has not been popular, however in recent days; advertisement has become very popular and is helpful in boosting brand recognition in the society. Television adverts are most popular in China. However, with increased growth of the internet, most of the Chinese customers are those individuals who are buying a first-time vehicle. Nonetheless, the market for the second and the third vehicle is also growing at a very high rate (Hao, & Erickson, n.d., p. 23).

According to Ivan and Penev (2011, p. 28), the Chinese auto industry is facing many challenges due to changes in consumer attitude and behavior. There is great pressure posed by the increasing oil prices and the need to maintain a sustainable environment. Consumers are demanding for more economical cars and those cars that have the least impact on the environment. Continuous product development is necessary for the automotive industry so as to better face the existing challenges.

Factors affecting consumer behavior

Household’s income

Household income has a great impact on making the decision about the car to purchase. Individuals with higher household income tend to go for sophisticated designs that are expensive as compared to those who have lower income. Individuals with lower income though willing to go for superior designs of the car and powerful performance, they are limited by the income and just go for the cheaper once (Evans, Jamal & Foxall, 2006, p. 23).

Age

According to younger and the middle age consumers tend to prefer powerful performance vehicle as compared to the older consumers. According to, Quester, Neal, Pettigrew, Grimmer, Davis and Hawkins (2007, p. 56), the age of consumers affect their attitude towards the product to purchase. Young people are very sensitive to innovative products and place little importance on the brand name. Young people usually do not have materialistic attitude. Thus, Audi need to be very careful to ensure that they communicate that language that is meaningful to this segment. Lifestyle is a factor that influence the young people when making their decision on the product to purchase. The senior consumers also tend to spend much as their children are old enough to support themselves. This group of consumers can purchase expensive products like the Audi luxury vehicles because they have money and willing to utilize it.

Education level

Education level in China has a great impact on the decision of the vehicle to purchase in China. The high educated Chinese tend to prefer high-performance vehicle. However, these individuals are usually less concerned with safety. The educational levels of the consumers also greatly affect the preference of car design and brand by the consumer. The higher educated individuals put more importance on the interior and the exterior of the car while the individuals with low education are not much concerned about this. Furthermore, the high educated individuals tend to be too much attached to the brand (Hawkins & Mothersbaugh, 2009, p. 38).

Social class

Social class has a great impact on the consumer purchasing behavior. Consumers tend to develop a particular attitude on the products they purchase depending on the social class they identify themselves with. It would be important for Audi to consider the social class so as to come up with the best market strategy for its cars in China. Social classes are identifying basing on the education level of the individuals, their economic power, and the occupational requirement. Individuals from the same social class tend to have similar purchasing behavior as their lifestyle is usually very closely related. For example the high class individuals are willing to pay for products at relatively high prices as compared to the lower class individuals who are much concerned about the meeting their day today need (Lu, 2011, p. 13).

Family structure

Family structure has a great impact on the consumers buying behavior. The newly wed people tend to spend heavily on luxurious products and are much outgoing. Considering the case, these individuals are may prefer a modest car that would support their activities such as going for holidays and touring. Furthermore, a small family may require purchasing a bigger vehicle to support them when going for ensuring and other activities. On the other hand, a small family may not have a need for a big car as the small one can serve their needs better. The Audi marketing professional must need to understand the family structures of the in the Chinese market so as to provide cars that will better meet the needs of the consumers (Solomon, Russell-Bennett & Previte, 2012, p. 34).

Consumers’ purchasing power

According to Holweg, Luo and Oliver (2008, p. 35), the growth in the Chinese automotive industry has been facilitated by the capability of the population to purchase the vehicles. The growing economy in China has played a great part in the growth of the industry. The Chinese have been having very high income at their disposal encouraging the purchasing of vehicles. The introduction of new designs has also encouraged the purchasing of cars by private segment as they are available at affordable prices.

Market Positioning

Positioning is a marketing tool that usually coordinates the communication of the company. Marketing positioning is defined as the process through which marketers create a unique image in the minds of the targeted group in the market. Positioning is very important as it is the foundation of improving the brand image that is required so as to obtain a significant market share. Positioning help brands be noticed despite the existence of many brands in the market (Chen, & Uysal, 2002, p. 987).

Market positioning influences the consumer’s perception towards the brand making it remain unique among the competitors. Positioning has several factors that include the pricing, quality, services and distribution among others. For any brand to be successful in the competitive market, it is important to ensure that they strategically position themselves in the market. In China, the automotive industry is very competitive thus the need for companies likes Audi to position itself in a manner that it remains unique and attractive to the consumers (Buckley, Clegg, Zheng, Siler & Giorgioni, 2007, p. 707).

Chinese are much concerned with the quality and pricing. When pricing the cars and other products in China it is important to consider the pricing and the quality of the products. The Chinese perception of the products is different from other regions. According to Daye (2012 par 3-4), many medium quality products in western countries are usually treated like prestigious or luxury product in China. For example, BMW which is considered as the functional brand of high quality in the US and Europe is considered to be luxurious in China. Unlike other consumers, the Chinese brand perception usually starts once they start consuming the product but rarely are they influenced by the brand name. In this case, chines value quality more than the brand name. According to Daye (2012, par 5), advertisements in China are mostly done by public figures as they tend to influence the consumers.

Consumption of prestigious products in China acts as a symbol of status in China when position luxurious product, it is important to show the consumers how they will be different by consuming the product. In the case of Audi, it will need to show how unique it and how different will consumers will be viewed in the society for driving Audi sadden. Many luxurious products in China have embraced celebrity endorsement so as to trigger emotional attachment of the consumers. Using famous people to advertise the product in China is very influential especially to the young people (Che & Zhou, 2014, p. 12).

There is great concerned about the use of cars that are energy saving. Audis that is reach in technology can use their technology to manufacture more fuel economic and less polluting vehicles that will meet the existing needs of the consumers. Audi in collaboration with Huawei manipulates technology to ensure that the drivers enjoy internet services while driving. This is an attractive move especially to the young who are much into the emerging technology (Mathew, 2015, par. 5).

The introduction of the electric vehicle is much attractive in the auto industry today. Many consumers are becoming concerned with the environment. Audi will be required to offer unique electric vehicles to remain competitive in the market Catalin & Penev. n.d., p. 7). Audi is well versed in the new technology thus the ability to offer the best to the consumers. The majority of luxury vehicles offered in China are well equipped with high-end technology making the competition remain fierce. However, there is a need for exploiting the technology further to remain unique.

Chinese consumer opinion of Audi AG

Audi that was established in 2009 in China has been very successful. Audi, a German luxury car manufacturer and distributor have become very popular in China. The majority of the politician in China prefer the Audi cars because of their uniqueness. Audi has been facing challenges in China as it is considered to be car choice for the politicians and the other segments, and the young people are not much attracted to the brand. The consumers in China have unique preferences, the wealthy people unlike in the past where they preferred vehicles associated with the government, today the young and wealthy prefer unique cars and they find it unnecessary to be associated with officialdom. This has posed a very great on the Audi cars in China (Gao, 2002, p. 144).

Marketing strategies

Marketing strategy refers to a plan that a company develops outlining how it will offer the products in the market. Marketing strategy can be divided into four categories that are product, place, price and promotion. Marketing strategy is usually shaped by the company goals and objectives of the company (Kotler & Keller, 2012, p. 123).

Product design and quality has the ability to attract consumers or putting them off. Companies strive to make their products attractive to the consumers by making them unique and ensuring that they have most of the attribute that are preferred by the target market. In the automobile industry, the fuel consumption, interior features, the power of the energy are the features that consumers tend to look for when purchasing a car. Luxury cars usually have some unique interior features that consumers are attracted to. Some consumers are very cautious in analyzing the safety features fitted in a particular vehicle before purchasing it (Cant, 2006, p. 43).

The Chinese consumers are very much in the quality of products and the services that they receive from a company. There have been concerns about the Chinese made passengers cars especially concerning the engine there have also been several non-automotive scandals in China making some of Chinese develop negative attitude towards them (Wang & Yang, 2008, p. 461).

China is focused on reducing their carbon emissions thus the new energy cars demand are expected to increase. The government is imposing new restrictions about the manufacturing of vehicles which is aimed at reducing air pollution. The car demand in China can be classified into two major categories, the tier1 cities will be characterized by decreased growth rates, lower replacement growth, and the prices are likely going to be higher. On the other hand, the regulation are going to make the demand for the vehicle in lower-tier to go higher, and the prices are likely going to be lower (Jullens, 2014, par 3).

Pricing strategy

In China, pricing is very important and need to be considered when marketing products into this country. Apart from prices, the Chinese customers are also very sensitive to the quality of products and services that receive from the company. To succeed in the Chinese market, Audi will need to be careful and ensure quality products and services and at the sometimes ensure that they offer attractive prices so as to obtain a competitive advantage. There are several pricing strategies that companies apply to sell their products. There are several pricing strategies such as cost-plus, psychological pricing strategy, skimming, premium pricing, the penetrating and the market-oriented pricing (Dewan & Bing Jing, 2000, p. 15).

The cost-plus pricing strategy is the pricing that the firm calculates all the costs involved in coming up with the product and then adding a given percentage so as to obtain profits. The psychological pricing strategy is the pricing strategy that considered the psychology of the consumer and their likelihood of interpolating the price. In most cases, this strategy usually makes use of prices that end with a nine as the consumers are likely to round off the product to the nearest lower price and not to the nearest whole number. Premium pricing strategy involves setting a high price for the product that is usually meant to reflect the quality of the product. Premium pricing is usually common in luxurious products that the consumers perceive quality to be high and deserve the higher pricing. This is pricing strategy can be applied to target those consumers who are not price-sensitive. Penetrating pricing strategy is the case where an organization set a considerably lower price than the competitors so as to ensure that they can obtain a market share in the new market. Once the organization obtain a good market share and already establish customer loyalty, they then increase the prices. Skimming pricing strategy is another common pricing strategy that is used by organization. It involves organization setting high prices at first and then go on reducing the prices so as to increase the market share. The company chooses to set higher prices so as to make profit even at low sales. This strategy is only applicable if the company is targeting consumers who are not price sensitive and lower the price later to attract the price-sensitive consumers (Hollensen, 2015, p. 56).

Distribution

Distribution is a market strategy that a firm uses to ensure that products reach the market at the right time and be available at the right place. Availability has a great impact in creating awareness of the product, as well as enhancing the image of the product. There is increased the change in the traditional dealership in the auto industry. Instead of providing all the information to the customer when they visit the dealers shop, most dealers have embraced technology and are providing the most important information that customers are likely to ask for on the internet. This is meant for enhancing consumer satisfaction and helping them make an informed decision about the car to purchase. However, although consumers can obtain all in the information needed before purchasing is available online, dealers are still considered to be important (Kotler & Keller, 2012, p. 57).

Promotion strategy

Promotion strategy is a strategy through which a company spread communication about the brand. Promotion activities involve several activities such as an advertisement, personal selling direct selling and the sponsoring among others. Most successful companies employ integrated marketing communication to communicate their brand message to the potential consumers. Integrated marketing communication involves using various media to communicate the same message to the potential customers thus enhancing brand equity. According to Hollensen (2015, p. 76), integrated marketing communication usually has a greater impact than when a firm uses only one mode of communication.

Media advertising

Media advertising is an advertising strategy that is widely used by businesses. Media advertising can be of various forms that range from mass media, printed media, and billboards. Social media has become very popular in brand communication. Opening profile page for the product has become very popular as the trends in technology makes a social media advertisement become very popular. According to Constantinides and Fountain (2008, p. 231), the Chinese consumers tend to over-rely on the internet when searching for the product information that help them in making their purchase decision. This makes social media very popular in China thus forcing many companies to embrace it a mode of advertising.

Television is considered to be very powerful tool for advertising product as it has an impact through the movements, sight, and the sound. The television advertisement is a very popular mode of advertisement in China. Despite the increasing growth of social media advertisement, television remains relevant in the Chinese market. In spite of being very expensive comparing to other modes of advertisement, many firms still rely on the television adverts. The main reason for the increased popularity of his type of advisement is because it can reach a considerably high number of potential consumers (Hollensen, 2015, p. 45).

Factors influencing development of marketing strategy

Competition

Competition is another factor that influences the type of marketing strategy to employ in a particular market. The marketing strategy helps an organization to look different from the competitors thus attracting he target market. Understanding the competitors would help the company to decide the best marketing strategy to employ. Furthermore, a company can get some ideas from the competitor marketing thus remaining ahead (Hawkins & Mothersbaugh, 2009, p. 33).

Economy

Economic factors influence the way people spend their money. A company may need to use a strategy that will be attractive to consumers even during the economic down- turn. According to Armstrong Adam, Denize and Kotler (2014, p. 274), some companies have been able to experience growth even during the recession. A company should ensure that their marketing strategy fits the economic condition.

Budget

The budget influences the type of marketing strategy that a firm uses in a particular market. The budget can depend on various things including the size of the firm and the available money. A company with little money may find it difficult to place expensive adverts. However, a firm with enough more money at their disposal may have no problem in placing their adverts in different media including the expensive once (Hawkins & Mothersbaugh, 2009, p. 33).

The target market

The target market behavior has great influence of how a firm carries out its marketing. It is important for a company to understand the demographics of the target consumers so as to better reach them and influence them to purchase the product. Consumers should take the time to learn the habits of the target market to better communicate with them. For example, if the consumers are heavy web users, it would be meaningful to provide more information on the internet than through publications. Chinese are heavy searchers of information over the internet. Thus, it is necessary for any firm seeking to succeed in China to consider using the internet (Armstrong, Adam, Denize, & Kotler, 2014, p. 272).

 

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