Brilliance Auto is a rising star in the local brands of China automotive industry. Since its birth, Brilliance Auto always adhered to the concept of ‘Build own brand from high starting points’ and unique development mode of the ‘the combination of the capital market and automobile industry.’ This opened up a new way for the development of middle-high-class brand in China.
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However, the ‘high starting point’ development model brought various difficulties to Brilliance Auto. It experienced official certificate for business issue, production quality crisis, etc, which caused that Brilliance Auto has been ignored by its competitors in the domestic automotive markets. This situation has not been changed until 2006 JunJie was introduced to the market. As the best-selling product, JunJie has entered a recession in its product life cycle. Brilliance Auto has the urgent need to introduce a new product to continue JunJie’s success in sales. FRV is the first economical hatchback product of Brilliance Auto, officially launched on May, 31th, 2008. It is also the first strategic product since Brilliance Auto implemented its new strategy: expand product line from middle-high end market to low end market. There are huge opportunities in the China Automobile industry in the next five years. How to make the right marketing strategy according to the market is the key for Brilliance Auto to gain competitive advantage and finally achieve its strategic objectives.
FRV needs to enter the hatchback cars market and it will expand its brand effect. It helps the Brilliance to expand its product types and get more market share.
Brilliance China is one of the leading automotive manufacturers in China through its subsidiaries, associated companies and joint ventures in the PRC. The Group’s operating segments are divided primarily into the manufacture and sale of (a) minibuses and automotive components, and (b) sedans. Its commercial vehicle brands include “JinBei” and “Granse” minibuses and its sedan brand includes “Zhonghua”. In 2003, the Group also established a joint venture with BMW to produce BMW 3-series and 5-series sedans in China. The Group is also engaged in the manufacture of gasoline engines for use in minibuses, sedans, SUV and light trucks and automotive components, including but not limited to window moldings, strips, axles, stamped parts, etc. To further support its goal as the leading automotive manufacturers in the PRC, the Group has also established strategic partnerships or working relationships with leading global automotive companies, such as Toyota, and Mitsubishi. (www.brilliance-auto.com)
PEST analysis stands for “Political, Economic, Social, and Technological analysis” and describes a framework of macro-environmental factors used in the environmental scanning component of strategic management. Some analysts added Legal and rearranged the mnemonic to SLEPT; inserting Environmental factors expanded it to PESTEL or PESTLE, which is popular in the UK. The model has recently been further extended to STEEPLE and STEEPLED, adding education and demographic factors. It is a part of the external analysis when conducting a strategic analysis or doing market research, and gives an overview of the different macro-environmental factors that the company has to take into consideration. It is a useful strategic tool for understanding market growth or decline, business position, potential and direction for operations. The growing importance of environmental or ecological factors in the first decade of the 21st century have given rise to green business and encouraged widespread use of an updated version of the PEST framework. STEER analysis systematically considers Socio-cultural, Technological, Economic, Ecological, and Regulatory factors. Political factor, are how and to what degree a government intervenes in the economy. Specifically, political factors include areas such as tax policy, labour law, environmental law, trade restrictions, tariffs, and political stability. Political factors may also include goods and services which the government wants to provide or be provided (merit goods) and those that the government does not want to be provided (demerit goods or merit bads). Economic factors include economic growth, interest rates, exchange rates and the inflation rate. Social factors include the cultural aspects and include health consciousness, population growth rate, age distribution, career attitudes and emphasis on safety. Technological factors include ecological and environmental aspects, such as R&D activity, automation, technology incentives and the rate of technological change.The model’s factors will vary in importance to a given company based on its industry and the goods it produces. (Kotler.P & Armstrong.M 2008)
Purchasing Power Theory
It is the number of goods/services that can be purchased with a unit of currency. For example, if you had taken one dollar to a store in the 1950s, you would have been able to buy a greater number of items than you would today, indicating that you would have had a greater purchasing power in the 1950s. Currency can be either a commodity money, like gold or silver, or fiat currency like US dollars. As Adam Smith noted, having money gives one the ability to “command” others’ labor, so purchasing power to some extent is power over other people, to the extent that they are willing to trade their labor or goods for money or currency. If money income stays the same, but the price level increases, the purchasing power of that income falls. Inflation does not always imply falling purchasing power of one’s real income, since one’s money income may rise faster than inflation. For a price index, its value in the base year is usually normalized to a value of 100. The purchasing power of a unit of currency, say a dollar, in a given year, expressed in dollars of the base year, is 100/P, where P is the price index in that year. So, by definition the purchasing power of a dollar decreases as the price level rises. The purchasing power in today’s money of an amount C of money, t years into the future, can be computed with the formula for the present value. (Robbins.P & Judge.A 2007)
Porter’s Five Forces Theory
The Porter’s Five Forces tool is a simple but powerful tool for understanding where power lies in a business situation. This is useful, because it helps you understand both the strength of your current competitive position, and the strength of a position you’re looking to move into. With a clear understanding of where power lies, you can take fair advantage of a situation of strength, improve a situation of weakness, and avoid taking wrong steps. This makes it an important part of your planning toolkit. Conventionally, the tool is used to identify whether new products, services or businesses have the potential to be profitable. However it can be very illuminating when used to understand the balance of power in other situations too.
Porter’s Five Forces assumes that there are five important forces that determine competitive power in a situation. These are: Supplier Power: Here you assess how easy it is for suppliers to drive up prices. Buyer Power: Here you ask yourself how easy it is for buyers to drive prices down. Competitive Rivalry: What is important here is the number and capability of your competitors – if you have many competitors, and they offer equally attractive products and services, then you’ll most likely have little power in the situation. If suppliers and buyers don’t get a good deal from you, they’ll go elsewhere. On the other hand, if no-one else can do what you do, then you can often have tremendous strength. Threat of Substitution: This is affected by the ability of your customers to find a different way of doing what you do. Threat of New Entry: Power is also affected by the ability of people to enter your market. Porter’s Five Forces Analysis is an important tool for assessing the potential for profitability in an industry. With a little adaptation, it is also useful as a way of assessing the balance of power in more general situations. (Baker.M 2000)
Market Position Theory
Positioning is a perceptual location. It’s where your product or service fits into the marketplace. Effective positioning puts you first in line in the minds of potential customers.
As individuals, we continually position ourselves. The responsible older sibling, the class clown, a number cruncher, a super genius are all examples of positioning. These identifiers help us define ourselves and distinguish our abilities as unique and different from other people.
Positioning is a powerful tool that allows you to create an image. And image is the outward representation of being who you want to be, doing what you want to do, and having what you want to have. Positioning yourself can lead to personal fulfillment. Being positioned by someone else restricts your choices and limits your opportunities. That’s why it’s so important for entrepreneurs to transform their passion into a market position. If you don’t define your product or service, a competitor will do it for you. Your position in the market place evolves from the defining characteristics of your product. The primary elements of positioning are: Pricing, Is your product a luxury item, somewhere in the middle, or cheap, cheap, cheap. Quality, Total quality is a much used and abused phrase. But is your product well produced? What controls are in place to assure consistency? Do you back your quality claim with customer-friendly guarantees, warranties, and return policies? Service, do you offer the added value of customer service and support? Is your product customized and personalized? Distribution, how do customers obtain your product? The channel or distribution is part of positioning. Packaging, Packaging makes a strong statement. Make sure it’s delivering the message you intend. (Srinivasan.R 2008)
Marketing Mix Strategy
Marketing mix strategy is about achieving your marketing objectives through proper analysis of the 4Ps or elements of marketing, namely: Product, Price, Place, and Promotion.
A successful marketing mix depends on the right combination of these marketing elements. For example, if the pricing of a product or service is higher, instead of changing the price, you can add new features to the product or change the service. You can also make the product or service available more conveniently to the customers. Each elements of marketing mix strategy affects the other and the proper combination of these four elements is the key to the success of any marketing process. Product Strategy is about determining features of your product or service. Product mix strategy deals with: The product life cycle, Brand name, Packaging, Design, Quality, Safety, and after sales service. Pricing Strategy is a tool that helps in settling on a pricing strategy, considering the followings: Retail price, Wholesale price, Special offers, Penetration pricing, Price skimming, Optional product pricing, Geographical pricing. Place Strategy is nothing but distributing product to the customer. Few instances for this: Warehousing, Distribution centers, Reverse Logistics, Transportation and Inventory Management. Promotion strategy deals with the available tools for marketing communications. This element helps in deciding on the location, where the customers will get the product or service. Promotion mix strategy also deals with: Sales promotion, Distribution channels, Advertising, Sponsorship, Trade Fairs and Events, Logistics, and Storage. (Anderson.H & Vincze.W 2000)
Research Methodology And Limitations
Firstly, the student analyzed the Macro-environment. The article analyzed consumer motivation, consumer behavior, market segments, competitors and other elements which got the FRV’s key competitive advantages, so the company can make the FRV’s marketing strategies to achieve its strategic objective. Of course, there is a Figure one to show the research’s method, as follow:
There are Five Basic Methods of Market Research: Surveys, Focus groups, Personal interviews, Observation, and Field trials. From the research methods, the student knew there were some disadvantages, so when the student got the information, the student could not get the intact database. At the same time, some classified information is not got by the research, so this research maybe has some limitations. The student only got the information from the books, magazine, and internet. Research for this resource document was carried out between 2007 and 2008. Some of the links may need to be updated as some of the links may have changed. Qualitative reviews are entirely narrative and therefore susceptible to the reviewers’ own subjective interpretations. Another problem has to do with precision because some information is old. When the student wrote this article, the student did not enough time to gather more information, so data has some limitation. Most of information is from China, but the student wrote the article in Malaysia. This is inconvenience for student to get general information. When the student gathered the information, the interviewee did not tell everything because something included personal questions. Despite of large amount of market research as methodology and data analysis, the dissertation has its own limitation in applying to the practical business world. The primary market research data of direct interviews or questionnaires with the strategy and decision management of FRV account for small proportion of the market research, so the research database is heavily relies on the university library, on-line academic database, and international trade related lectures.
Analysis Of Automobile Marketing Environment
1) Encourage The Automobile Industry Development Policies
Stuck by the world-wide financial crises, the global automobile market is facing a severe situation at present. Chinese auto market is affected by the international either. In order to revive the auto market, the State Department decides to reduce the vehicle purchase tax on part of passenger cars. The issuance of reduction policy will play a significant role in cultivating automobile consumption market, effectively encourage automobile consumption, expanding domestic demands, as well as facilitating the steady and rapid development of domestic automobile industry.
a) Nurture the automobile of consumer market: Provisionally reduce 5% vehicle purchase tax on passenger cars with 1.6L or under delivery capacity from January 20th 2009 to December 31st， 2009. The time of implementation refers to the date of purchasing the cars rather than the date of tax declaration. The date of purchase shall be defined as the date on the effective documents， like the Uniform Invoice of Motor Vehicle Sale or the Special Covering Warrant for Customs Duties. (www.ifeng.com)
b) Implementation of the strategy for new energy vehicles: Pilot programs for the demonstration of energy conservation and new energy vehicles will be launched in 13 cities including Beijing and Shanghai, according to a circular issued by the Ministry of Finance and the Ministry of Science and Technology on Jan 24 2009.
2) China´s Road Construction Policy
In order to keep the automobile market to develop very well, the government enhances the plans, as follow: the plans include giving priority to the construction of Express highways and accelerating the main framework construction of the National Express Highway. The ministry is also promoting the integration of unconnected road.
Ren Jianhua, Vice Deputy Director of Planning Department, Ministry of Transport, said, “It is estimated that more than 6-thousand kilometers of unconnected roads need to be integrated, and we will also construct 300-thousand kilometers of roads for rural areas, investing about 50 or 60 million Yuan.” (www.moc.gov.cn)
China’s road and expressways developed very quickly, as follow:
Sources: National Statistics Institute
1) Rapid development of economy
The economy of the People’s Republic of China is the third largest in the world, after the United States and Japan (2008) with a nominal GDP of US$4.91 trillion (2009) when measured in exchange-rate terms. It is the second largest in the world after that of the U.S. with a GDP of $8.8 trillion (2009) when measured on a purchasing power parity (PPP) basis. China has the 5th fastest-growing economy, and has had the fastest growing major economy for the past 30 years with an average annual GDP growth rate above 10%. China’s per capita income has likewise grown at an average annual rate of more than 8% over the last three decades drastically reducing poverty, but this rapid growth has been accompanied by rising income inequalities. The country’s per capita income is classified in the lower middle category by world standards, at about $3,180 (nominal, 104th of 178 countries/economies), and $5,943 (PPP, 97th of 178 countries/economies) in 2008, according to the IMF. China is the largest trading nation in the world and the largest exporter and second largest importer of goods. ( www.chinaeconomicreview.com)
The Figure three shows the China’s GDP and CPI from 1988—2008, as follow:
Sources: National Statistics Institute
2) Purchasing power
According to international experience, when average per capita GDP hits about $1000, a country will start to see households purchasing cars. When the average per capita GDP is about $3000, the most of families will get the cars. The figure four will show the Per capita GDP and Number of Motor Vehicles Owned by Individuals unit, as follow:
Sources: china statistical yearbook
China’s gross domestic product reached US$2.6847 trillion and per capita GDP surpassed $2000 for the first time in 2006. The student guesses the per capita GDP will reach the $3000 in 2009, so there are a lot of cars will be bought by Chinese people. (www.dailyfinance.com)
With a population of over 1.3 billion, the PRC is very concerned about its population growth and has attempted, with mixed results, to implement a strict family planning policy. The government’s goal is one child per family, with exceptions for ethnic minorities and flexibility in rural areas. The government’s goal is to stabilize population growth early in the 21st century, though some projections estimate a population of anywhere ranging from 1.4 billion to 1.6 billion by 2025. Hence, the country’s family planning minister has indicated that China will maintain its one-child policy until at least the year 2020. (www.bic.cass.cn/english)
The Chinese government has accepted a great deal of traditional Chinese culture as an integral part of Chinese society, lauding it as an important achievement of the Chinese civilization and emphasizing it as vital to a Chinese national identity. Since the Cultural Revolution ended, various forms of traditional Chinese art, literature, music, film, fashion and architecture have seen a vigorous revival, and folk and variety art in particular have gained a new found respectability, and sparked interest nationally and even worldwide.
Of course, the China developed very fast, so there are different values. The Chinese like to buy the various cars. The more and more people like the hatchback cars.
China has the world’s second largest research and development budget, and is expected to invest over $136 billion in 2006 after growing more than 20% in 2005 the past year. The Chinese government continues to place heavy emphasis on research and development by creating greater public awareness of innovation, and reforming financial and tax systems to promote growth in cutting-edge industries. (www.chinatechnews.com)
In 2006, President Hu Jintao called for China to make the transition from a manufacturing-based economy to an innovation-based one and the National People’s Congress has approved large increases in research funding. Stem cell research and gene therapy, which some in the Western world see as controversial, face minimal regulation in China. China has an estimated 926,000researchers, second only to the 1.3million in the United States. (www.bloomberg.com)
China is also actively developing its software, semiconductor and energy industries, including renewable energies such as hydro, wind and solar power. In an effort to reduce pollution from coal-burning power plants, China has been pioneering the deployment of pebble bed nuclear reactors, which run cooler and safer, and have potential applications for the hydrogen economy.
Domestic And International Automobile Industry Status And Trends
International Automobile Market
The automotive industry crisis of 2008-2010 was a part of a global financial downturn. The crises affected European and Asian automobile manufacturers, but it was primarily felt in the American automobile manufacturing industry. The downturn also affected Canada by virtue of the Automotive Products Trade Agreement.
On December 22, 2008, Toyota declared that it expected the first time loss in 70 years in its core vehicle-making business. Loss of $1.7 billion, in its group operating revenue, would be its first operating loss since 1938 (Company was founded in 1937). Toyota saw its sales drop 33.9 percent and Honda Motor by 31.6 percent in December 2008 Honda Motor Company announced that it would be exiting Formula One race with immediate effect due to the 2008 economic crisis and are looking to sell the team. Japan’s vehicle sales may fall to the lowest in 31 years in 2009, according to the country’s automobile manufacturers association. On December 16, 2008 Fiat in Italy announced that it will extend its temporary plant closures in Italy by a month; the Pomigliano d’Arco, the main plant for its Alfa Romeo cars will be shut for four weeks. However, on February 20, 2009, reacting to actions by the Italian government to stimulate the automotive sector, Fiat said its plant closures would be curtailed. The company also forecast that sales in Europe will drop by 14 percent in 2009. New car sales in Europe slumped by 7.8 percent in 2008, marking the biggest annual drop in 15 years, the European Automobile Manufacturers’ Association (ACEA) reported Thursday. Among major European manufacturers, Volkswagen posted a 4.4 percent decline in full-year sales, Renault a 6.9 percent drop, PSA Peugeot Citroen a fall of 9.1 percent and Fiat a drop of 5.5 percent. Struggling U.S. manufacturers General Motors, Chrysler and Ford saw 2008 European sales fall 13.9 percent, 22.5 percent and 5.2 percent respectively, while Japan’s leading car manufacturer Toyota Motor also posted a drop of 12.4 percent. (www.globalissues.org)
The international financial crisis and the sharply slowing economy dealt a heavy blow to car sales in Europe as demand dampened in the background of increasingly dimming economic prospects.
Domestic Automobile Market
China’s annual automobile production capacity first exceeded one million in 1992. By 2000, China was producing over two million vehicles. After China’s entry into the World Trade Organization (WTO) in 2001, the development of the automobile market further accelerated. Between 2002 and 2007, China’s national automobile market grew by an average 21 percent, or one million vehicles year-on-year. In 2006, China’s vehicle production capacity successively exceeded six, then seven million, and in 2007, China produced over eight million automobiles. In 2008, 9.345 million motor vehicles were manufactured in China, surpassing the United States as the second largest automobile maker, after Japan. (www.insideline.com)
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SAIC, FAW car and FAW are the large automobile companies. In 2008, their sales volume is 4,574,179 cars and market share is 48.8%. GAIG, BAW and China Auto are three small groups. Their sales volume is 2,158,995 cars and market share is 23%. Independent corporations have CHERY, JAC and Brilliance, their sales volume is 1,072,722 and market share is 11.4%. Private-owned Enterprises have GEELY, BYD and GREAT WALL, their sales volume is 598,017 cars and market share is 6.4%. The other is about 68 companies, their sales volume is 976,598 cars and market share is 10.4%. The Figure 5 shows the China Auto Industry market share. (www.businessweek.com)
Sources: china statistical yearbook
Three large companies and three small companies are basic joint venture companies. Their main products are B class and C class cars which market share is 71.8%, so they produced the A0 and AOO class cars in order to get more market share in the domestic market.
Through analysis of joint venture companies which improve their market share in the native automobile market. Independent corporations will meet the bigger and bigger problems, so they need to adjust their product strategy.
Brilliance Auto Internal Environment
The Group has achieved its goal of returning to profitability in 2007 after experiencing two years of losses attributable to equity holders of the Company. The Group also registered unit sales growth in all of its three main product categories. The Group achieved revenues of approximately RMB14.1 billion in 2007, representing a 34.9% increase from 2006. This increase in sales, coupled with the implementation of cost saving measures, has led to a turnaround of the Group’s performance from a net loss attributable to shareholders of RMB398.4 million in 2006 to net profit attributable to shareholders of RMB97.1 million for 2007. During the year, the Group continued to enhance the quality and diversity of its products and services. The Group sold 106,770 Zhonghua sedans in 2007, representing a solid 71.4% increase from 62,281 vehicles sold in the previous year. (www.highbeam.com)
Brilliance minibus continued to maintain its market leading position in 2007. A total of 73,415 minibuses were sold in 2007, representing an increase of 10.8% from the 66,245 units sold in 2006. Unit sales of our mid-price Hiace minibus was encouraging, with a 14.3% increase in volume during the year, whereas the deluxe minibuses maintained steady sales. (www.hangzhou.com.cn)
The Figure six shows Brilliance Auto’s JinBei sales volume and market share.
Sources: China Association of Automobile Manufacturers (CAAM)
Brilliance Overall Workshop
1) Press workshop
It owns 32 large and medium mechanical press imported from German Erfurt Co., and a 3200 ton press production line imported from Mike Co., Italy, and 1830 high efficiency production line for uncoiling, blanking, painting and piling, made by Komatsu manufacturer, Japan. (www.brilliance-auto.com)
2) Welding workshop
It has 10 production lines imported from Japan, and one car adjusting line; and equipped with 1 conveyor line, 15 overhead transportation device, 4 automatic welding-machine, 23 welding robots, hanging weld-machine 235 sets, fixed electric welding machine 68 sets, and 30 CO2 protective welding machine, with a total production capacity of 80,000 cars. (www.brilliance-auto.com)
3) Painting workshop
The painting production line is designed and made by Paka Co., Japan, consisted of 32 sets of production equipment. (www.brilliance-auto.com ) The painting technology is composed of seven parts, i.e. pre-treatment line, sealing glue line, intermediate painting line, coloring line, finish painting line, adjusting line, and auxiliary line, with the features of completeness, advancing and good and stable painting quality.
4) Assembling workshop
It owns a 570 meter long general assembling line, composed of push-bar hanging line, common hanging line, single plate ground line, and double plate ground line, and three sub-assembling lines, equipped with automatic guided lifting (AGV) system, for engine, chassis, rear axle, and fuel tank correspondingly. It owns also end testing line for the whole car, imported from Schenck Co., Germany, and various types of oil filling machine. (www.brilliance-auto.com)
FRV Of Brilliance Auto Chances And Challenges
FRV is the first economy hatchback car of Brilliance Auto and also Brilliance Auto expands the products from the high-end to low-end first strategic product. The FRV officially comes into the market in May 31th, 2008. (www.gminsidenews.com)
The Brilliance FRV belongs to the hatchback car family which is increasingly sought by young consumers and small families. The car is generously equipped with the latest technologies as well as various special features. It comes with a 5-speed manual gear shift, in addition to the different recreational and comfort features like the high-performance air conditioning system, the central lock, and the front and rear cup holders. The Table one shows the FRV’s performance and dimensions.
Sources: China Association of Automobile Manufacturers (CAAM)
FRV’s Market Chances
People can see category of china’s Passenger Car Vehicle from the Table two. Along with the economy increasing, the more and more Chinese like hatchback cars. In fact, the hatchback cars increased quickly because of Fit hatchback. This car had market share about 47% in the AO-level market. (www.business.highbeam.com) Of course, hatchback gradually being accepted by people, people should learn the Fit’s success. (Modeling, functional, quality demands as well as for brand and Internet service.) Although the pattern of market changed rapidly, a positive overall trend is for sure: the new car or a new design concept of the form will be more and more go into the market. The Table two shows the different styles of cars’ levels.
Sources: China Association of Automobile Manufacturers (CAAM)
People can see: A-Class and AO-Class are the largest of the market in the domestic passenger car market. In the past years, A-Class had increased very quickly, but the growth rate has dropped slightly because of the national policy to encourage energy-saving emission reduction as well as the consumption of the increasing maturity of the concept of potential consumers makes B-Class-to A-Class, so the AOO-Class market share will increase very fast. In the future, who belongs the AOO-Class or A-Class, it will get cars’ market share.
Sources: Official Website of Federation of Automobile Sports of PRC
Along with the automobile industry becomes more mature and diversity of consumer demands, the consumers’ maturity and purchase of consumer decision-making are changing. FRV’s does not have enough product lines and hatchback cars can not meet the diversity of consumer demands.
Economy hatchback’s competitive market becomes sharply and more joint venture brands enter the market, so FRV will have the new pressure.
Actually, the brand is very important for the companies to improve its market position, but Brilliance Auto’s brand is not strong and multi-brand strategy has not been established. Driving force of China Passenger Car market is in the second-tier cities. However, the third-tire cities increase speed very quickly, but Brilliance Auto’s network is very weak and the company does not to want to invest the more sources to internet.
Analyze Customer Behavior And Choose The FRV’s Target Market
Consumer behavior research is important for marketing research contents. Through consumer motives and features, the companies can segment markets. Base on the segment markets, competitive market and own resources, the companies will confirm the goal and es
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