According to Kotler P. et al. (2012), “there are four basic segmentation dimensions that are commonly used”. The segmentation can be geographical, demographic, psychographic and behavioral (Kotler P. et al., 2012). Based on Kotler market segmentation, the following features of Chinese market should be taken into account in order to get the majority number of consumers. There are significant differences in the regional markets in China. Consumers in Southern China have the greatest purchasing power and are receptive to the emergence of new and luxurious products.
Consumers in East China are the trendsetters in the products of the ‘lifestyle’ (Cui & Liu, 2000). Consumers in these regions lead an active lifestyle and are more individually oriented. In Central, North and South-West regions, consumers are more satisfied with their lives. However, there is a significant gap between them and consumers of coastal areas in most product categories, and the penetration of many new products is much lower in the Northern and Central regions.
In the past the main focus of automakers was paid to coastal cities. However, the trend is changing, currently most multinational automakers focused on the markets of Central and Western China to cover future growth capacities. This market segment became the major battleground for multinational and local manufactures. Automakers offer a small and competitive car for potential customers. Thus, this segment can be one of the opportunities in order to entry in the Chinese automotive market. Although targeting economy vehicle segment will be a challenge because of enormous amount of big players are in the market with already well-established infrastructure, distribution network and brand identity.
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Another opportunity is premium segment. Despite the fact that major cities in China face serious traffic problems, the Chinese people do not refuse to buy new cars. Buying a car more often gives a social status and becomes a symbol of financial success and stability. Positive developments in the car industry have benefited both domestic automakers and large international automotive brands, which increased its investment in order to expand their presence into the growing market. Sales of luxury cars are growing in China. Chinese consumers prefer expensive cars as local and as foreign brands. Therefore, in recent years, the demand for high-quality and premium cars is well maintained, especially German luxury brands. The share of the premium segment in the general market (DBS Group Research, 2017) is still low in China compared to Western markets, and therefore the growth potential is high in the long term.
One of the most promising segments of the market now and in the future is new-energy vehicles (NEVs). NEV includes electric vehicles and plug-in hybrids, 60% and 40% of which are in the NEV market, respectively (Statista, 2018). In 2017, sales of new energy carriers amounted to 777,000 units, they grew by 50% compared to 2016 (CAAM, 2018). The Chinese Government persistently promoting NEVs in order to reduce air pollution and modernize the local auto industry. However, currently this segment is mostly occupied by local Chinese automakers, which add NEV to their lineup very quickly. Foreign automakers are hampered by the Government policy, that forces them to develop NEV only with Chinese partners. In addition, local producers receiving subsidies are able to produce them quite cheap.
Thus, as per above options, it is suggested to choose premium segment of automotive emerging growing market. It is recommended to use the adaptation model of marketing strategy, because such differences of Chinese market as purchasing power, infrastructure, culture and traditions, customers, laws, technological development are crucial and should be taken into account before to enter in foreign market.
Thus as target positioning we choose the Chinese middle class and growing upper-middle class with rising income and address our product to both men and women. This group will become trendsetters for consumption, which will be able to buy premium cars, branded and luxury goods (The Economist Intelligence Unit, 2016). The current middle-class consumers are young people who are younger than 35 years old. They born in the 80s, 90s and at the beginning of this century – a segment that is known in China as the ‘young generation’, unlike consumers born in the 50s, 60s and 70s, become the dominant force in the consumer market.
Consumption by the young generation is growing exponentially (PWC, 2017). Young Chinese spend more than their elders. Most consumers over 40 years have experienced periods of instability and consequences of economic crises. They are known to be modest (Forbes, 2017). The young generation is more motivated and selected. Young Chinese are also inclined to be more sophisticated consumers than those who are over 40 years old. They often become college graduates. They travel abroad. And they are more conscious than the older people. According to McKinsey&Company report the following trends are identified, currently:
- The middle class consumers are more motivated in buying a premium car and pay more attention to the prestige of the brand. They are attracted by intangible features such as appearance and performance, as these functions can enhance their perception of status;
- For many Chinese people buying a car is a higher priority than buying an apartment or paying for the education of children;
- The role of women in choosing a car in the market of premium cars is growing very quickly. Choosing a model of the car, women pay more attention to the exterior style, safety functions and comfort and do not take into account the attributes that are paramount for men, namely the transmission technology, socially recognized premium brands and larger models;
- Consumers of the automotive industry began to change their cars more regularly due to the new consumption attitude to the car.
So the product should be positioned as essential attribute of prestigious lifestyle with sophisticated premium features, high quality and that is produced by recognized premium brands. China’s premium automotive market presents a real opportunity for newcomers. It is very important to identify exclusive positioning and then distribute key brand values to customers. Since the main premium segments are crowded, in terms of market positioning, it is proposed to choose a more specific target, for example using sporty young personality as target positioning or exclusive luxury consumer.
It takes time to create a distributed network, and new automakers will face replication troubles. It is recommended that newcomers adopt creative approaches to distribution, such as focusing on specific, fast-growing urban regions, using of digital marketing and e-Commerce, creating a particular social media community. This will help to reach a potential consumer in a more focused and economical way.
