An Empirical Investigation into Chinese Generation Y Car Purchasing Behavior: A Focus on marketing Communication & German Luxury Car Brands

CONTENT

Chapter 1 A General Introduction
1.1 Introduction
1.2 China Automotive Market
1.3 German Luxury Car Brands in China
1.31: A short Introduction
1.32: Localized Market Communication Strategies
1.4 Understanding the Chinese Costumer
1.41: Introduction to Chinese Consumers
1.42: Chinese Generation Y
1.43: Common Features of Chinese Consumer Behavior
1.44: Bates 141 research of the “The Changing Chinese Car Consumers”

Chapter 2 Theoretical Background
2.1 An introduction to Marketing Communication
2.11: An Introduction to the Process
2.12: The Marketing Communication Task
2.13: The Marketing Communication Mix
2.2 Buyer Behavior
2.21: Information Processing
2.22: Decision-Making Process
2.3 Local Customers
2.31: Understanding Local Consumers
2.22: Consumer Markets

Chapter 3 An Empirical Investigation
3.1 Previous Case Studies
3.2 Scenario
3.21: Location
3.22: Target Group
3.23: Incentive
3.3 Methodology
3.31: Research Method
3.32: Question Design
3.4 Findings
3.41: Car Consumer Profile
3.42: Usage of Mass and Personal Communication Channels,
3.43: Car Consumer Decision Making Process
3.44: Car Consumer Behavior in light of Bates 141 Research Findings
3.45: Car Consumer Acknowledgement of German Luxury Car brands

Chapter 4 Implication of Findings and Conclusion
4.1 Implication of findings
4.11 The Chinese Generation Y Car Consumer - My theory
4.22: The Link to Marketing Communication of German Luxury Car Brands
4.2 Conclusion

Bibliography

Dedication & Acknowledgments

CHAPTER ONE

An Introduction

1.1 Introduction

China’s Automotive Market has grown tremendously in the last decade and pursued its goal of becoming Worlds largest in 2009. Not having much background into China’s automotive market, this news may be impressive for some and taken granted by others. In a country of 1.3billion, it has only been 17years since private car ownership was legalized. When combining this knowledge with the circumstantial world economic crises at the time of its world leading automotive market succession, it only fair to point out that the news were not surprising after all.

In a consumer market of 130 USD billionaires and 825,000 residents worth more then 10million million each, the automotive market is almost implied to grow in the first years of existence without much investment into marketing communication efforts. After couple of years of peak glory, the Chinese Automotive market has yet again slowed down and the new car purchase restriction in Beijing of 240,000 only per year, certainty did not help. However, standing by a positive attitude, it is worth mentioning that the number of based millionaires in Shanghai is growing by 8.2 percent a year, therefore there will be demand for sure, but not only for car purchase but for better performance. By performance, I would like to refer to the car brands necessity to stand out and not to disappoint. To make my point clearer I would like to imagine yourself told that you can only eat one meal per day. I am confident you would think twice the usual time what to eat and further expect every meal you have to be exceptional.

The importance of implying good marketing communication strategies by luxury car brands in China will become essential. Equally so, effective communication, both to mass audiences and to carefully targeted audiences will grow critical. In order to do so, the marketing communication manager must first understand the buyer behavior of its local consumers as costumers in different places may want the same basic things, but specifically, their product needs and preferences vary considerably. The reasons for the variations lie in cultures and socioeconomic and geographic environments, that is, the conditions under which products are used and consumed. These locational and sociological factors affect buyer behavior directly. Equally so, does buyer behavior affect the choice of marketing communication tools, message content and media choice respectively.

Buyer behavior can be traced down to the way we process information (informationprocessing), the way we make our decisions (decision-making process) and our culture. As consumers in different markets vary considerably, therefore so has to the marketing communications in different markets vary accordingly.

Marketing communication can be defined as a management process through which an organization engages/communicates with its audience. It is part of corporate communication studies, however incorporates mass and personal communication at different stages of its process. Mass communication relates to Marketing Communication in the various means by which an organizations/brand relay information through mass media to large segments of the population at the same time - usually by newspaper, magazine publishing, radio, television and film media.

Personal communication, on the other, relates to marketing communication in the way information is communicated by the Sales Person to the potential costumer (Personal Selling), as well as how information from media sources are interpreted and second- handily communicated to others who rely on your opinion (Word of Mouth).

Taking Merry Bergstrom (owner of the Bergstom Group) statement of “Chinese youth are the most influential group of costumers in the world - not only because there are 500 million of them under the age of 30, but because they also have parents, grandparents and later in-laws and young children listening to them and relying on them for new information” into account, I have chosen Chinese generation Y as my target group of the investigation. It could be said that they are the ones establishing new order.

Generation Y are not the main consumers of the luxury car market at the moment, however are the future generation of consumers who posses new values, higher education and have different means of using media channels. Generation Y is on the peak of restructuring the consumers that will be around for the next decades and it is therefore, important to turn to and understand in order to know what marketing communications strategies to plan for the upcoming years.

Based on the example of German Luxury car brands in China, my goal of this master thesis is to understand the Chinese car purchase behavior define a successful marketing communication strategy targeting Chinese Generation Y consumers. Due to the fact that this topic is still at an embryonic stage, I will personally carry out an empirical investigation.

Further interesting questions explored in this paper are: What is the new Chinese consumer looking for in a Car? What influences their decision process of choosing a specific car brand or product? How do they choose in between car brands of the same luxury status and of the same origin?

This master thesis is divided into five chapters which will introduce you to the Chinese automotive market, consumer behavior, marketing communication, market differences and lead you to the findings of the empirical investigation in question. Prior concluding this paper, an attempt to imply my research finding to form a marketing communication plan for German luxury car brand in China targeting Chinese generation Y consumers will be defined.

Chapter one covers an introduction to the Chinese Automotive Market, German luxury car brands in China and the Chinese Costumers.

Chapter two will strive to give you a theoretical background of Marketing Communication, Buyer Behavior and Local Consumers Markets.

Chapter three will discuss the empirical investigation into “Chinese purchasing behavior of German Luxury car brands’ including relevant previous studies, methodology and findings.

Chapter four defines the Chinese car consumer profile based on the research findings and discusses the possible implications of my findings for marketing communication strategies of German Luxury car brands in China.

Finally, I will conclude my thesis my summarizing my learning’s from this paper as well as evaluate possible improvements for future studies purpose.

1.2 China Automotive Market

To discuss China’s automotive market is seems like such a common topic these days, though it’s only been 17years since the car ownership was actually legalized in the Peoples Republic of China. If you try to Google it, you will find a piece of information in regards to the rollercoaster sector the china automotive market is at the certain period of time:

“According to the statistics released by National Passenger Car information Exchange Association 7th of November, the sales Volume of Chinese car is 1,216,500, which a decrease od 7.6% on a month-on month basis, and increase 1% compared with the same period last year” (Source: Chinese Car News, November 29,2011)

Inside of the rollercoaster sector we have many different players, national and international, that contribute to the overall performance of the countries placement in the World Automotive Market. The statement above may have very little meaning to some who are not aware of the fact that Chinas over all car sale of year 1998, was a total of only approx.250, 000 cars.

In only 17 years, China has gone from close to zero private owned cars to being number 1 automotive market in the world.

Graphic 1.21 Vehicles sold in China from 2000 to 2010 (Source: China Car News, Nov. 30, 2011)

During the 1990s ownership remained restricted to a wealthy elite. Seeing a black Volkswagen or Audi Santana with tinted windows driving past on the street was a moment to stop and stair. More prosper newly weds where requesting wedding pictures with a black limousine in the background rather then the ocean and a blue sky.

When private car ownership was legislated in 1994, it still took a good couple of years until cars became affordable to the Chinese consumers. Looking at graphic 1.12 (above), it can be observed that the first big blossoming of the Auto Industry didn’t occur until the beginning of year 2002. What factors facilitated China’s 50percent sales growth?

More then one factor effected China’s sudden car buying craze. One major factor was the manufacture’s price-cut due to the extremely high competition and the over- estimation of the China Market (Source: Justin Li, 2008). Another factor is that the Agriculture Bank of China offered 10 billion RMB in loan for car buyers in 2002. Although the car loan system was still at its initial stage, the availability of loans was thought to be a driving force by many Chinese costumers with low but rising incomes. Furthermore, the 50 percent reduction of tariffs on imported cars after China’s accession to WTO also made the car purchase easier then before. Finally, the rapid increase of personal income (GDP/Capita), which is usually considered a prerequisite of car purchase, was also a valid reason considered to be part of the rapid increase of car sales in this period of time.

Graphic 1.22 China per Capita in US Dollar at Constant Prices Since Year 2000

(Source: Trading Economics, 2011)

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Back in 2000, with only 2,146,000 vehicles sold in China, most people were already really proud that China had become the 8th largest market. In 2004, data showed that China ranked 4th in the world and on top of this China Automotive Market have had achieved the fastest growth rate in the world (Source: PaoHua Economic Research Institute, 2005). Following this incredible boom in the Chinese Automotive Industry, the market cooled down in sharply in 2004 and 2005. The growth rate declined to 12.8% during which many car dealers tasted the pain of losses.

Starting from 2007, China became the World 2nd largest market, taking the place of Japan and rocked again in 2009 with a sale accomplishment of 6.1million in the first six months (Source: www.autosinomind.cn ). Along with this success, China surpassed United Stated as the World biggest car market. Though we have to factor US’s economic depression in the financial crisis for China’s top ranking, the blooming of car market in China was incontestable. Furthermore, at the end of the same year, the national government, in part to combat the global economic collapse, halved the sale tax on small (below 2L) engine cars (Source: Michael Wines, New York Times, Dec. 22,2010).

Remarkably, 2years seems to be a limit of the peak times for Chinas Automotive Market as early this year the market cooled down yet again with sales nearly 20 million units. Though, it is still relatively high, the growth rate has decreased to less then 10 percent - the worst rate since year 2000. The reason behind this cool down of the market mainly lies in the cancelation of preferentiality policy for purchase tax and buying restriction in some cities in Mainland China.

Although, the China Automotive Market has yet again slowed down, taking the statistics of car ownership in perspective of the population size give hope for further increase. Compared with 90 percent car ownership in the United States and 80 percent in the United Kingdom, there are just six car owners per one hundred people in China ( Source: www.factsanddetails.com ). Along with the growing car amount government restrictions in China and stronger competition from national car brands, foreign automaker aiming to expand market shares in China will have to adjust their marketing strategies, including implementing more agile and flexible arrangement for car models based on the demands of Chinese consumers, to be continuously successful (Source: www.chinatimes.com ).

1.3 German Luxury Car Brands in China

1.31 A Short introduction

Along with the China accession to WTO in 2001, many German Luxury car brands settled their base in the land of the predicted future leading world economy. Others, such as Audi and Mercedes Benz arrived prior to the government’s legislation of purchasing cars for private usage.

Audi, with more than 20years of development experience in China, was the first global premium car brand to realize domestic production in China. It can be traced back to 1986 when Audi made an official contact with China and together with FAW, began a joint feasibility study of certain technology in Changchun. With sales in China to surpass 300,000 vehicles in 2011, it is on the clear direction on its target of moving to 1million units in the country from 2011 - 2013.

Mercedes Benz, the most successful premium automobile brand in the World, started to shine its three pointed star symbol brightly across China the same year as Audi, nevertheless its development has been visibly slower. Though, it was announced to be the fastest-growing luxury auto brand in Mainland China in 2009 with a year-on-year growth of 77% it only delivers a ’record-high’ of 68,500 units in comparison with the 300,000 units of Audi and 195,868 units sold by BMW.

BMW Group and Porsche (China) Motors Ltd. both entered the Chinese Automotive Market post the accession to WTO in 2001. BMW Group and Brilliance China Auto Ltd. together submitted the program proposal for setting up a joint venture and officially up its operation in 2003. They are now building a second factory at its joint venture in Shenyang which is said to increase its annual sales from 200,000 units up to 300,000units according to demand . (Source: “ Booming luxury car sales ” at www.asiaone.com ).

Porsche (China) Motors Ltd., a subsidiary of parent company Dr. Ing h.c. F Porsche AG, commenced operations in 2001 to support Porsche partners in China through dedicated personnel who oversee every aspect of sales marketing and after sales function. With an annual sale of only 14, 785 cars to costumers in Mainland China it can hardly be compared to the sales of its German competitors. Porsche is not often compared with Audi, Mercedes Benz and BMW due to sales and luxury segment differences. Nevertheless, due the popularity of the Porsche Cayenne at the Chinese Automotive Market along with the introduction the Porsche Panamera “family sized car” in 2009, I believe it is more then appropriate to have it involved as a point of comparison. Its sale statistics may not be comparable with its German competitors, however its sudden increase from only 27 units sold in 2002 to 14,000 vehicles in 2011, is a perfect reasonable answer as to why Porsche is a good point reference when investigating Car purchasing behavior in Shanghai.

The question that has to be asked now is, what triggers costumers to purchase such a luxury vehicle and what strategies do these brands use in order to appeal to the Chinese costumers?

1.32 Localized Marketing Communication Strategies

I will not strive to answer the above questions (1.21) like a literature student trying to interpret a poem, but strive to investigate these questions by reaching out the Chinese market directly. Though, prior to moving on to doing so, it is interesting to have a little overview of what marketing strategies these four German luxury car brands have already executed in China in hope to appeal to the local costumers.

When the Audi first was introduced to the Chinese Market as a luxury sedan in 1988, it filled the serious shortage of high-end cars. Chinese Government officials and state-held enterprises soon became the brands leading costumers having purchasing an estimate of 70% of all sold vehicles in the 1980’s (Source:

www.chinacartimes.com ).The core idea of the brand turned its own development and became a symbol of power and status. The experience of an Audi became about avoiding being stopped by the police rather then about its outstanding performance. In other words, owning an Audi car was a reason to be admired (Source: Alibabab.com). These developed ideas were somehow an alienation of its core brand experience. In China, the brand became associated with being the car of the “upper-class” rather for what qualities, values and costumer service it provides. Though, this was a good starting point for the its success in China, Audi’s status as the carmaker of choice for Chinese bureaucrats has been said to have emerged as an obstacle in the world biggest automobile market today as BMW, Mercedes Benz and Porsche gain traction with a generation of rich young buyers.

“ Audi is seen as being a big old fashioned because of its association as being a government car. Wealthy consumers today want something sexier, more indulgent, which is why BMW and Mercedes have done well. ” said Shaun Rein, Shanghai based managing director of China Market Research Group . (Source: www.chinacartimes.com ) Audi has recently tried to break out of this path of brand reflection by focusing on portrayal of its social and environmental awareness. This was brought to light by launching its A3 TDI diesel technology through a spot called “green police”. The “Green Police” commercials were shown during 2010’s Super Bowl and gathered more then 2.2million views ton YouTube (Source: www.e90post.com ).Besides communicating its values by advertising, Audi has been involved with approaching its potential costumers directly by inviting them to test drives and road trip events. This approach is not very economical in terms of mass exposure, however a good step forward explaining its brand advantages and core values away from its narrow minded view of only being a luxury sedan driven by chauffeurs of its bureaucratic costumers.

Mercedes Benz, though not being the leading German Luxury car brand on the Chinese Automotive Market, has been more successful understanding what appeals to its target audience and communicate its brand values accordingly.

“ When we communicate with Chinese costumers, we not only tell them that Mercedes is a luxury car brand, but we describe the core values of our brand, and the message of what Mercedes brings them ” - said Anders-Sundt Jensen, the vice president of Mercedes-Benz and head of communications. (Source: www.chinadaily.com.cn )

The brand is insisting that it has not changed its marketing positioning in China from that in other places, however simultaneously points out that its combines some special Chinese characteristics. One of the most impressive market performances has come from Mercedes’ Smart brand. In a market that is known for usually preferring something larger, a unique short car was thought to become a challenge. Mercedes first focused on introducing the car as a best solution to city driving with environmentally friendly advantages.

“We began the adverts indicating the survival of the fittest ” - said the Mao Jingbo, the vice president and head of marketing at Mercedes Benz (China) Ltd. (Source: www.chinadaily ,com.cn).

Furthermore, the company cooperated with contemporary Chinese Artist Liu Ye and Fang Lijun on a series of marketing events that illustrate “the art of being smart”. This year, Mercedes made the next move by signing NBA basketball star Kobe Bryant as smart’s brand ambassador to China. This further illustrated smart’s unrivaled mobility and introduced the all-new “Big, in the city”.

Other approaches of the brands communication strategies have been leaned toward the world of fashion and Music by signing a partnership with China Fashion Week, the National Center of Performing Arts in Beijing and the Mercedes Benz Arena in Shanghai. Over the next few months, Mercedes will also hold a series of activities and test-drives to bring an entirely new experience to smart’s China fans, one that characterizes the brand’s artistry and unique personality.

BMW Group with its sales higher then Mercedes Benz but lower the Audi, truly recognizes that with the fierce competition on the luxury Automotive Market in China, they need to break their originally unilateral images, successfully realize brand reset and inject more added values into their brand though innovation and local cultural characteristics. In the whole marketing of 2010, BMW added many Chinese traditional elements, for instance, the promotion of “Pleasure of BMW” adopted Beijing Opera facial makeups, Chinese landscape paintings and Chinese seals. Furthermore, BMW signed a contract with Chinese Olympics Committee and became the exclusive auto partner in the future six year, which demonstrated that all public benefit events of BMW are based on strategic level. This “label” of Chinese Olympics Committee partner helped BMW to win dual recognitions from the Chinese market and Chinese social value at a new level. Dr. Christoph Stark, President and CEO of BMW (Greater China), said, “BMW has joined hands with Olympic sports in China not only because of our products and technology, but also for resonance with our values and dreams. China Olympic sports not only brought reputation and self-pride for the country, but also is the symbol of hundreds million of Chinese people dream, passion, vitality and creativity, which conforms perfectly to the spirit of “Pleasures of BMW ” (Source: Tong Na, China Economic Net). Furthermore, Xu Zhijun, President of BMW (China) Automobile Trade.Co,, Ltd, stated, “ BMW has a dream in China. It wishes to fuse its development of brands and products into Chinese social development, economic development and cultural development.” (Source: Tong Na, China Economic Net).

Finally, looking at Porsche China brands reflection in China, we can definitely not focus on sales statistics. On top of it’s the importance of the brands heritage, incredible history of sports, technological innovations and the perfect amount of ‘luxury’, it has an element that distinguished it from Audi, Mercedes Benz and BMW. This element is “exclusivity”. It has non-comparable sales, however, we cannot forget that its element of “exclusivity” implies less reachability. A limited amount of imported vehicles reflects visibly on sales. The Porsche importer Jebsen & Co.. Managing Director for China, Mark Bishop, commented, “ We are exclusive and have to maintain this exclusivity, but in China it helps to let people feel and touch”. (Source: Normandy Madden at www.adage.com ). Porsche (China) is deeply involved with letting their potential costumers having a real Porsche driving experience, due to which they invested a lot in marketing communication activities such as Test Drives, Road Shows, Sport driving School and Motorsport. In celebration of its tenth year in Mainland China market this year, Porsche released a limited edition China-only commemorative 911. The 10th year anniversary 911 was tailor made for the Chinese market with China-focused alternations features including special AlcAntara sports sears, carbon fiber trim and new sports design steering wheel, but other touches like unique commemorative floor mats and “China Tenth Anniversary” insignias hit the right balance of localization and flash so popular among Chinese luxury buyers. Porsche (China) is, however, focused on keeping its heritage in place and only alter its global marketing communication strategies where necessary, meaning by special China model editions and reaching out to its costumers in a direct yet exclusive way.

To give a little summary all in all, Audi is striving to implant the sense of technology into itself; Mercedes Benz hope to be younger and more fashionable; BMW, which is always proud of its pleasure of driving, switched its attention from vehicle to driver and wishes to be more stable and introverts so as to come deeply into the Chinese society; and Porsche tries to keep its historical brand image in place while shifting towards enhancing brand knowledge, feeling of belonging and the experience of exclusivity to its local Chinese costumers.

1.4 Understanding the Chinese Costumers

1.41 Introduction to Chinese Consumers

In order to understand why different brands apply different marketing strategies, it is important to understand the consumer itself. Costumers in different places may want the same basic things, but specifically, their product needs and preferences vary considerably. A brand has to establish its standards to be distinguished by its audience but also has to communicate with the same audience of its competitor in a distinguished way. This can only be accomplished by getting to know your costumers in the best possible manner.

In 2009, Chinese spent 9.4billion on high-end luxury goods, which is 27.5% of the world luxury goods spending (asia.investorplace.com). In 2010, there were more then 1million US dollar millionaire in China and according to Hurun rich report, China now has 825,000 residents with a net worth of more then 10million Yuan each” (Source: China Daily). Furthermore, the vice-president of sales and marketing of Mercedes Benz Car, Joachim Schmidt pointed out that, “China will become the world’s biggest luxury market in five to seven years. Today there are 130 USD dollar billionaire’s in China. Five years ago there were only three” (Source: China Daily). Yet, an interesting point is that wealthy individuals in China are approximately 20years younger then counterparts throughout Europe and the US. The Asia Pacific regional director for Rolls Royce told China Daily, “ It’s interesting to note that our clients in China are 15-20years younger ” (Source: China Daily).

One billion, three hundred million costumers - Who are these individuals?

Vice President and leader of BCG’s consumer goods and retail practice for Asia Pacific region, Robert Hsu, tried to explain the above question by stating that, “China is Urbanizing but is still a ‘country of extremes’. It’s a land of haves and have-nots” (Source: Knowledge Wharton) . China is home to 1.3 million people, but only about 400 million are in urban areas. In urban areas, income has been growing at the same rate of approximately 10% annually, while incomes of rural people rice by only 1% a year (Source: Knowledge Wharton). Joeph Wan, director and vice president of BCG Hong Kong further commented that, “It’s difficult to generalize overall about Chinese consumers. Companies are only beginning to realize that the difference among consumers. In terms of geographical segmentation, most companies are pretty good at understanding that consumers in the western versus eastern parts of China are different. But there are so many intricate nuances that it’s almost impossible to generalize - and things can change so rapidly” (Source: Knowledge Wharton ). In line with theses statement, the strategic planning director of for China BBDO, Singh, made a very relevant comment of his own pointing out that, “The number-one challenge in this market is to achieve consistency of brand communication, yet permit sufficient flexibility to meet specific need of individuals markets within the bigger China market” (Source: Knowledge Wharton).

Following Deng Xiaoping’s open policy in 1978, individuals allowed themselves to pursue wealth through various means. Economic development transformed the social structure from a model that was horizontally equal to that of vertical extension and growth. Now, after three decades of inexistence from 1950 to 1980, social classes have reemerged. The Mainland Chinese costumer saw better financial opportunity and became increasingly wealthy. Financial and career success and achievements naturally became a way for people to distinguish themselves from others. This is when open display of a person’s success, luxury goods and designer brands, effectively communicated success and wealth. However, at the core of newfound wealth, and status was the honest pursuit of better living conditions. Better living conditions meant for higher quality products and upscale brands. Therefore, international luxury brands perfectly fulfilled the need of Mainland Chinese consumers from all angels - cultural, social and economic - attributing for more modern, powerful and self-confident approach to life. Singh stated: “The way people look at buying brands are the way they look at themselves as people with money. Chinese have come to see that money can be an “enabler” and that economic freedom means, in part the ‘freedom to be wooed by brands’” (Source: Knowledge Wharton).

It is important to notice that in lower tier cities, with the imbalance of economics and income, the picture is different.

Graphic 1411: Number and Population density of China’s higher and lower tier cities

(Source: Shanghai Business Review, Dec 11)

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With less exposure to fewer brands, some young people in lower tier cities take cue from peers in top tier cities as they develop their tastes as consumers, but there are still significant differences. Zafka Zhang ,the co-founder of a research-based consultancy named China Youthology added that, “The meaning of a brand is quite shallow for lower tier youth. They can identify a brand’s relative status, but they cannot usually see the technology, culture and identity that comprise the brand’s meaning” (Source: Shanghai Business Review, Dec 2011). In top tier cities, the use of Internet is a very common tool to access the targeted costumers, while costumers in lower tier tend to spend less time online. That means, that in lower tier markets, traditional marketing strategies such as TV advertisements or brand advice from sales people still work comparatively well. Many local brands continue to place advertisements on popular television channels such as Hunan Satellite TV (Source: Shanghai Business Review, Dec 2011).

Along with the top tier markets becoming quickly saturated the next opportunity for companies to grow will be via lower tiers cities and by focusing on the younger generation. The owner of the Bergstrom Group, Merry Bergstrom, said: “Chinese youth are the most influential group of costumers in the world - not only because there are 500 million of them under the age of 30, but because they also have parents, grandparents and later in-laws and young children listening to them and relying on them for new information. They are conduits for communicating new products and brand activities within their communities and have established sophisticated social values for consumption. In many ways, young Chinese are establishing a new order” (Source: Shanghai Business Review, Dec 2011).

1.42 Chinese Generation Y

In line with the statement mentioned by Merry Bergstrom above (1.31), it is worth to further look into the younger Chinese Consumers of Generation Y. While many luxury brands still focus on targeting the “lost generation” who acquired sudden wealth after the Cultural Revolution as their key costumers, this age group now above 50years old, are not going to be around for forever. With the modernization of the Chinese society, the costumers who will inherit the fortunes of the “lost generation” and rise in line with the rise of the countries economy is namely Generation Y. This generation consists of individuals in their elate teens and early twenties. (18-25)

Graphic 1.421: China Population Pyramid Year - Age and Sex distribution of Year 2010. (Source: www.nationmaster.com )

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Graphic 1.422: China Population Pyramid Year - Age and Sex distribution of Year 2050. (Source: www.nationmaster.com )

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Observing the graphic 1.421 you can see that the generations that are below 50 of age are bigger then the generations above. Accordingly, by looking at graphic 1.422, we can observe that the younger modernizing generation of 20-24 (graphic 1.421) will develop (in the next 40 years) the way consumers will behave in the upcoming generations.

Studies have shown that Chinese consumers under age of 30 are quite different from those over 60. They have had different experiences and have different dreams and aspirations. The younger ‘generation Y’ Chinese are highly active information seekers and likes to share information. Members of Generation Y are also more likely then generation X (25-30), to have read a book in the last year, and they are more likely to have read newspapers and magazines (Source: Gallup.com)

Graphic 1.423: Media Consumption and Purchasing in China, by Age (Source: Gallup.com)

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Graphic 1.424:Rating/Awareness of Manufactured Goods in China, by Age (Source: Gallup.com)

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Gallop Poll of China research statistics showed in the two graphics above (1.423 & 1.424) illustrate that the Chinese Generation Y is more active, may also be a bit skeptical in traditional ways and appear eager to establish their own paths rather then simply follow in the footsteps of those who’ve gone before. In contrast with young

Generation X, China’s Generation Y consumers are less enamored of the quality of Chinese products and they are more attuned to good produced elsewhere. Other statistics released showed that although Generation Y may have brand preferences, nobody “own” them. Only one in 19% in this age group believe only one brand is the best, only 34% feel there’s is only one beer for them, and finally 30% say a single brand of athletic shoes stands out from all the rest (Source: Gallup.com).

1.43 Common features of Chinese Consumer Behavior

Previous studies and investigation into the Chinese Consumer behavior have structured their key finding and put them along the following labels: Brand & Decision Making; Ethnocentrism; Face; and Consumer Knowledge.

In regards to Brand & Decision making, a McKinsey study from 2008 revealed that 63% of the Chinese costumers has a shortlist of preferred brands when planning to buy a product. They further stated that it is important to get on that shortlist, but companies need to take under account that Chinese Costumers on average are only willing to pay a premium of 2.5% for branded products. (Source: Mckinsey, ‘ What ’ s new with the Chinese consumer ’ , p,1) . Other studies have shown that it is very typical for Chinese to make last minute purchasing decisions. Statistics illustrated that 78% of the buyers decides what to buy in the store, 37% is easily susceptible for promotions and only 22% sticks to its original idea before entering the store. The advice following this this study was to engage more in in-store promotions and to invest in salespeople that influence the costumers (Source: Chinese Consumer behavior by France Giele).

Ethnocentrism as a feature of Chinese Costumer Behavior refers to the preference of domestic brands. Gallup’s research has shown that brand preferences during a five year period until 2004 had dropped from 78% to 67% and that the preference for foreign brands had increased from 19% to 22%. Furthermore, Mckinsey survey published in 2008, even indicated a further increase in foreign brand preference by showing that only 30% of the respondents “only trust Chinese brands” (Source: Chinese Consumer behavior by France Giele).

The label of ‘face’ as an important feature of consumer behavior, I believe most readers can agree that it is a widespread wisdom. Li and Sun demonstrated in their research that Chinese are much more likely to buy luxury products to improve or keep their face, even if they do not have enough money to pay housing or to buy sufficient food and clothes. Traditionally Chinese consumers would buy products to publicly fulfill certain social needs: e.g. Drinking when one has guests. Brand and price are important in such situations. Li and Su therefore developed the concept of ‘face consumption’ which they defined as the following: “The motivational process by which individuals try to enhance, maintain or save self-face, as well a s show respect to others’ face through consumption of product (Source: Journal of Consumer Studies and Hope Economics 23:3).

Finally, in regards to the feature of ‘Consumer Knowledge’, Guo and Meng concluded in an international comparison study that Chinese Consumers are more inclined to make stereotypical judgments then French consumers. Furthermore, the Chinese costumers remembered more of the product attributes then the French consumers. According to Guo and Meng, these findings are attributable to the particularities of the Chinese language: much more categorization leads to more stereotypical judgments and the use od Mandarin asks more of the human brain, therefore Chinese are better in remembering product attributes. (Source: Chinese Consumer behavior by France Giele).

1.44 Bates 141 research on “The Changing Chinese Car Consumers”.

Along with the increase of private owned cars from 827 units in 1998 to approximately 20million in 2011, it is worth to take under consideration that the Chinese car consumers have also evolved accordingly.

An interesting investigation by Bates 141 Research Company discovered that there are three generations of Chinese car buyer namely: Me, Young Family and New Master. Each generation has its’ own needs, desires and purchasing power (Source: Change Bite by Bates 141,2009.

Graphic 1441: Illustrative Pictures of the Three-Generation Car Buyer (Source: graphic based on images from “Change Bite” by Bates 141,2009).

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“Me” generation are usually born between year 1978 and 1987 and many of them are a single child beneficiary of China’s economic miracle. They are first time buyers and perceive owning a car as an escape from the grid of subways and public transportation. Furthermore, Bates 141, points out that purchasing a car for “Me” generation is an early material symbol of fulfilling the certain ‘expectations’ that are put on them.

Members of the “Young Family” Generation, on the other hand, are mostly born between the year of 1968 and 1977. Having to often support three family generations - themselves, a young child and the retired parents, they are burdened with responsibility. This generation is already used to plan out their lives and led by reasonable decisions. These are also the car costumers who salespeople can expect to be very tough at bargaining.

The third generation of car consumers named “New Master”, were born during the Cultural Revolution (between 1958 and 1967), following which they have had the opportunity to enjoy a healthy growth in personal assets. Bates 141, labeled car consumer belonging to this generation as price insensitive, wiser and tougher. Most importantly, they realize that money and success has little meaning if not enjoyed. These consumers have already achieved career success and are now looking for meaning and contentment outside of work life power (Source: Change Bite by Bates 141,2009.

Bates 141,further discovered in their research that nine following changes have occurred to the Chinese car consumers: 1) Change from mobility to self actualization 2) Change from being chauffeured around to personal driving pleasure 3) Change from car envy to car crazy 4) Change from badge value to cash value 5) Change from growing up lonely to car buddies (Źo) 6) Change from Standard to equipment to pimp my car 7)Change from external show-off curves to internal comfort and mental space 8) Change from paying lip service to green action 9) Change from sales outlets to experience centers and concierge service.

The first change that was noticed by Bates 141, was the change of car purchasing reasons from mobility to self actualization. This change meant that consumers changed the perception of a car from a transportation tool only, to the perception a car as a form of lifestyle and state of enjoyment. This idea can be illustrated in form of a personal fulfillment ladder in the graphic below.

Graphic 1442: Change of car culture from mobility to self- power (Source: Change Bite by Bates 141,2009).

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Furthermore, studies showed that car consumers in higher ranked tier cities feel different values as to owning a car in comparison to car consumers of lower tier cities. Consumer of higher ranked cities pay less importance to qualities of a car and more importance of how they felt and liked the car (self expression) and lower tier cities illustrated the exact opposite. The graphic below (1443), was used as sourced from Sinotrust by Bates 141 and used as a map to show the different values the car consumer pay most importance to when expressing the meaning of a car. The areas in red colour illustrate the heat of importance and the blue expresses the less important factor taken into consideration.

Graphic 1443: Consumers in top tier cities see purchasing a car more as a form of self-expression then those living in lower tier cities power (Source: Change Bite by Bates 141,2009).

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The second changes that was discovered in the research by Bates 141, was the change of being chauffeured around to personal driving pleasure. For decades status meant being chauffeured around in an luxury car brand, while now, the ‘new master’ generation finds the joy in driving the beautiful, exclusive driving machines themselves (Source: Change Bite by Bates 141,2009). In reference to this discovery, we can notice the change of recent campaign by BMW called “BMW sheer the driving pleasure”, which drifted its the attention from the vehicle to the driver.

Graphic 1444: “BMW Sheer Driving Pleasure” advertisements online. (Picture source: www.feelcars.com and www.projectsjugaad.com )

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The third discover of the research was that Chinese consumers have gradually changed from envying others who can own a car to being crazy about purchasing a car on their own (Source: Change Bite by Bates 141,2009). Traditionally, Chinese car consumer’s pay for their car purchase by hard cash and even up to 2009 only 8% of car buyers purchased their cars via loan (Source: China Economic Net ). Nevertheless, statistics show that more and more Chinese are willing to purchase a car by applying for a loan. According to the a survey jointly launched by Moneyweek and Sinotrust targeting 2011 auto consumption credit market and collected 1,263 valid questionnaires, 80% respondents believe car loans can solve problems they are facing, among which 16.6% uphold car loans due to better life quality can be achieved and the other 64.1% respondents think car loans can not only ease their cash flow but also can meet their purchase demand (Source: China Automotive Newsletter, 2011)

Graphic 1445: What Chinese car consumers think about car loans 2011 (Source: China Automotive Newsletter by Motorlink and Sinotrust)

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Above data show that 84.6% respondents accept car loans, whereas 15.4% clearly state their unwillingness which can be attributed to three major factors, namely unworthy repayable interest rates, adequate capital and complicated loan application procedures. 44.8% of the unwillingness agrees to the first factor (Source: China Automotive Newsletter, 2011). Bates 141, in standing by its point that the Chinese Car consumer mindset is changing as increasingly many new consumers are considering purchasing a car without hard cash on hand.

The fourth discovery by Bates 141 was that car purchasing behavior in changing from Badge Value to Money Value. Unlike the newly rich of 10years ago who were eager to signal their arrival by purchasing a car, today’s young generation base their car purchasing decision a lot more on cash value rather then mere badge value. Consumers are starting to look for more value for money they spend on purchasing a car such as gas mileage efficiency, low maintenance fee, hassle free maintenance service given their busy lives etc. It’s a change of viewing the car for only its high tech qualities to an overall picture of how much they have to invest (time and money) for the ownership of the chosen car (Source: Change Bite by Bates 141,2009).

Yet another discovery by Bates 141, was the change of Chinese car consumers from “growing up lonely to car buddies”. The key behind this discovery was that friendships that are made over social networks such as car clubs have become increasingly popular. As the consumers come of age with a job and financial independence it is time for them to get into meaningful social networks. It was discovered that after work mates and internet friends, Car buddies is one of the most important social networks (Source: Change Bite by Bates 141,2009). One of the biggest car buddy club XCAR has chapter all over China.

Furthermore, the research agency found out that Chinese car consumers have become increasingly interested in pimping their cars. In a survey by Sinotrust a staggering of 85% of car consumers said they are thinking of personalizing their car in the near future (Source: Change Bite by Bates 141,2009).

Graphic 1446: Chinese Consumer Statistics in regards to car modification status

(Source: Change Bite by Bates 141,2009).

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When asked if why they would like to modify their car, 37% of the participants answered that it would be a reflection of their individuality and 34% equated pimping up their car with “enhanced driving pleasure” (Source: Change Bite by Bates 141,2009).

Graphic 1346: Chinese Consumer Statistics in regards to car modification reason

(Source: Change Bite by Bates 141,2009).

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The 6th founding into changes in Chinese car consumer behavior in recent years was the growing importance of internal comfort of the car. China’s urban population density is three times the world average and 24% of white collar workers in Beijing, Shanghai and Guangdong spend an average of 1-2 hours daily on transportation to work and back (Source: 51.job.com). Due to this reason, the ‘mental space’ of the car has grown increasingly appealing for consumers.

Graphic 1447: Time spent on transportation from and to the office on daily basis in tier 1 cities (Source: Change Bite by Bates 141,2009).

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Yet another reason behind the valued importance of the interior design of the car is the amount of people in China that usually has to fit into a car. In previous years, the generation that could afford purchasing a car where post Cultural Revolution wealthy consumers. These day, “young family” generation also can afford to purchase their own vehicle which has to comfortably fit in three generations. The little things inside of the car such as boot space; cup holder etc. can be the stimulus for car choice.

The eight change in the Chinese car consumer behavior noticed by Bates 141, was the rising nature of eco-friendly attitude in China. In a report released in July 2008 called “The impact of Chinese Consumer Perception of Climate Change on Business”, Paul McNeil, Havas-owned Media Planning Groups (MPG) Greater China CEO said that China is “actually one of the most globally aware nations in the world in the realities of climate change” (Source: Change Bite by Bates 141,2009). In a survey launched by McKinsey in 2008, already 33% of Chinese consumers answered that they want to understand the environmental impact of the products and service they buy. Another 35% of the participants answered that they trust companies that reveal the environmental impact of their products more then companies that don’t (Source: Change Bite by Bates 141,2009).

Graphic 1448: Comparison of attitude toward environmental friendly products.

(Source: Change Bite by Bates 141,2009).

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Furthermore, according to another study released in 2008 by WPP Group agencies, 69% of the Chinese participants expect to spend more money on green product at the upcoming years in comparison to the US participants where only 38% of consumers expected to increase their spending on green products in 2009 (Source: Change Bite by Bates 141,2009). It is also worth to mention, that China plans to become a world leader in clean-energy vehicles, pledging to invest more than 14 billion by 2020 (Source: timesofmalta.com, 2011).

The final change mentioned in Bates 141 research is the growing importance for Chinese car consumers to experience the brand prior purchase. The growth of web based specialized media has heightened consumer expectations. The old-fashioned car outlet/dealer center now has to deliver the experience that digital media has created (Source: Change Bite by Bates 141,2009) . Another study by KPMG published in 2011, has further confirmed Bates 141 findings by stating “emotive factors such as experience and self-reward have now emerged alongside status-seeking and needs- based factors as key drivers” (Source: www.kpmg.com , 2011).

In this chapter an overview of the Chinese Automotive Market history and current situation, status and marketing communication strategies of German Luxury car brands in China and as well as an insight into the Chinese consumers was acquired. In the following chapter we will strive to achieve a better understanding of what marketing communication is, how consumers process information & make purchase decisions and finally look into how local consumers in different market places differ.

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