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What we drive mirrors our personalitiesLu Nengneng
March 25, 2013, Monday
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Print Edition
Print Edition
AS China's love affair with premium cars enters its second decade, it's time to compile a detailed psychological profile of buyers to understand the emotional factors of auto purchases, consulting firm McKinsey & Co suggested in a report released this month.
After growing at an impressive rate of 36 percent annually over the past decade, China's sales of car models priced over 200,000 yuan (US$32,200) reached 1.25 million units last year - second only to the US.
McKinsey predicts that the Chinese premium auto market will continue to expand, though at a more moderate rate of 12 percent per year through 2020, and to rank first in the world as early as 2016.
The premium sentiment will be underpinned by increasing disposable income, confidence in the economy and a willingness to spend, the report said.
"Buying a car" is now as much a priority as "buying an apartment" or "paying for children's education," according to a McKinsey survey of 1,200 premium car buyers in 12 big Chinese cities at the end of last year.
Why do people like high-end cars?
The first generation of premium car buyers sought status and a way of showing off their wealth. But more reasons are creeping into the market.
Twenty seven percent of respondents in the latest survey cited "self-indulgence" and more nuanced responses, like "my car as my 'business card' of credibility," "sophisticated functions and innovative design" and "the car as a source of fun in life." Each of these responses received 20 percent to 25 percent agreement.
"The words we heard most frequently were 'the sense of being,'" said Sha Sha, a partner in McKinsey's Shanghai office and lead author of the report.
Expensive cars have become part of a way of life that buyers want to share with their families, friends and business partners, she added.
That largely explains the rise of premium car owners who choose to drive rather than be driven. The chauffeured ride is becoming a thing of the past with many people.
McKinsey said there's a linear relationship between affordability and preference for powertrain technology among Chinese premium car buyers. Interestingly, it coincides with the dominance of German brands in China, which boast reliable, advanced power engineering.
And that is just one of many cases highlighting how "premium personality," or "brand DNA," may affect purchase decisions. A car often reflects its owner's set of values.
Japanese brands lagging
Though quite a success in the US, convenience-oriented premium carmakers from Japan have been long overshadowed and marginalized in China. One possible explanation is that their exquisite interior features and excellent services are not considered as competitive differentiators by China's car buyers, who tend to believe quality is a given because of the premium price tag, Sha said.
"Japanese players don't seem to have projected a very clear high-end image here, which is a big problem for them," she added.
"At the other end of the spectrum, American premium carmakers who have established a distinctive brand personality around the concepts of excitement and individualism may have defined themselves too narrowly," McKinsey pointed out in the report.
To reach a bigger market in China, American premium car brands may have to borrow a page from corporate compatriots like Apple, Google, and Pixar, where reputation is built on simplicity, innovation and imagination.
A foreign car brand marketing its own name often includes marketing the culture represented by its nationality, Sha said.
Though China's domestic car industry is still suffering from an image of cheapness and low quality, 41 percent of survey respondents said they expect Chinese carmakers to develop globally recognized premium brands priced higher than 400,000 yuan in the next five to 10 years. If that occurs, respondents seemed to suggest they would consider buying domestic high-end models.
Players in China's premium car market will have to play catch-up. Since the segment is already overcrowded, they "will need to deploy a more focused segment-based approach, such as addressing the sporty, younger premium personality, or catering to the entry-level premium consumer," said McKinsey.
The number of new mainstream middle-class households in China, with annual disposable incomes of 100,000 yuan to 200,000 yuan, will surge from 37 million to 171 million by 2020, McKinsey reckons.
It estimates that 300 cities in China will have consumers with sufficient household income to buy premium cars. That's up from about 100 cities today.
McKinsey said newcomers in the premium market should focus on specific, fast-growing city clusters.
With the connection between "brand DNA" and the personality of a car owner deepening in the next decade, value-added services in car finance and trade-ins will become important considerations in establishing customer loyalty, which is all about taking care of a car throughout its life cycle, said Sha.
After growing at an impressive rate of 36 percent annually over the past decade, China's sales of car models priced over 200,000 yuan (US$32,200) reached 1.25 million units last year - second only to the US.
McKinsey predicts that the Chinese premium auto market will continue to expand, though at a more moderate rate of 12 percent per year through 2020, and to rank first in the world as early as 2016.
The premium sentiment will be underpinned by increasing disposable income, confidence in the economy and a willingness to spend, the report said.
"Buying a car" is now as much a priority as "buying an apartment" or "paying for children's education," according to a McKinsey survey of 1,200 premium car buyers in 12 big Chinese cities at the end of last year.
Why do people like high-end cars?
The first generation of premium car buyers sought status and a way of showing off their wealth. But more reasons are creeping into the market.
Twenty seven percent of respondents in the latest survey cited "self-indulgence" and more nuanced responses, like "my car as my 'business card' of credibility," "sophisticated functions and innovative design" and "the car as a source of fun in life." Each of these responses received 20 percent to 25 percent agreement.
"The words we heard most frequently were 'the sense of being,'" said Sha Sha, a partner in McKinsey's Shanghai office and lead author of the report.
Expensive cars have become part of a way of life that buyers want to share with their families, friends and business partners, she added.
That largely explains the rise of premium car owners who choose to drive rather than be driven. The chauffeured ride is becoming a thing of the past with many people.
McKinsey said there's a linear relationship between affordability and preference for powertrain technology among Chinese premium car buyers. Interestingly, it coincides with the dominance of German brands in China, which boast reliable, advanced power engineering.
And that is just one of many cases highlighting how "premium personality," or "brand DNA," may affect purchase decisions. A car often reflects its owner's set of values.
Japanese brands lagging
Though quite a success in the US, convenience-oriented premium carmakers from Japan have been long overshadowed and marginalized in China. One possible explanation is that their exquisite interior features and excellent services are not considered as competitive differentiators by China's car buyers, who tend to believe quality is a given because of the premium price tag, Sha said.
"Japanese players don't seem to have projected a very clear high-end image here, which is a big problem for them," she added.
"At the other end of the spectrum, American premium carmakers who have established a distinctive brand personality around the concepts of excitement and individualism may have defined themselves too narrowly," McKinsey pointed out in the report.
To reach a bigger market in China, American premium car brands may have to borrow a page from corporate compatriots like Apple, Google, and Pixar, where reputation is built on simplicity, innovation and imagination.
A foreign car brand marketing its own name often includes marketing the culture represented by its nationality, Sha said.
Though China's domestic car industry is still suffering from an image of cheapness and low quality, 41 percent of survey respondents said they expect Chinese carmakers to develop globally recognized premium brands priced higher than 400,000 yuan in the next five to 10 years. If that occurs, respondents seemed to suggest they would consider buying domestic high-end models.
Players in China's premium car market will have to play catch-up. Since the segment is already overcrowded, they "will need to deploy a more focused segment-based approach, such as addressing the sporty, younger premium personality, or catering to the entry-level premium consumer," said McKinsey.
The number of new mainstream middle-class households in China, with annual disposable incomes of 100,000 yuan to 200,000 yuan, will surge from 37 million to 171 million by 2020, McKinsey reckons.
It estimates that 300 cities in China will have consumers with sufficient household income to buy premium cars. That's up from about 100 cities today.
McKinsey said newcomers in the premium market should focus on specific, fast-growing city clusters.
With the connection between "brand DNA" and the personality of a car owner deepening in the next decade, value-added services in car finance and trade-ins will become important considerations in establishing customer loyalty, which is all about taking care of a car throughout its life cycle, said Sha.
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