China’s Auto Makers, Dealers Must Embrace Digital Marketing to Achieve Growth

For more than a decade, China’s auto industry has been a stand-out sector. Pent-up demand fueled rapid growth, and in 2009 China became the world’s largest market for new passenger vehicles.

But now the pace is slowing. A recent JP Morgan report predicts that a coming industry shake-out, combined with government policies aimed at fostering more sustainable economic growth, will reduce the industry’s compound annual growth rate from around 25% before 2010 to roughly 7% over the next decade.

Even so, tremendous opportunities remain, especially in lower-tier cities and premium segments such as luxury cars and SUVs. The key for original equipment manufacturers (OEMs) and dealers is to stay competitive by managing costs and engaging consumers in a way that generates profitable growth. Doing so will require that they make greater use of digital tools for converting leads to sales, creating communities, and activating brand awareness and loyalty.

Digital marketing presents dealerships with huge potential for customer engagement, as well as for cost containment and increased efficiency. Chinese auto dealerships have about twice as many employees as those in the US, but their profits are roughly similar. This suggests that there is room for radical improvements in efficiency in China, especially in lower tier cities where full-service dealership are comparatively rare, forcing consumers do most of their pre-sale research online.

Fleishman-Hillard Beijing convened a panel of experts to get their thoughts on the prospects for China’s auto industry and how it was being transformed by digitaltechnology.

• Sha Sha, Principal–McKinsey&Company
• Jason Jiang, Senior Manager–J.D.Power China
• Mike Liu, Vice President-Partnership–iSoftstone
• Li Hong, Senior Partner, President (China)–Fleishman-­Hillard

Key Findings

With sales slowing, dealers and OEMs are seeking the next source of growth. Digital marketing holds the key to unlocking that growth potential. US and European dealers have not embraced digital marketing – but China is different.

Most advertising and marketing professionals focus on campaigns – finite bursts of communication peggedto a particular theme. Key performance indicators (KPIs) tend to be things such as reach rate and the cost of every thousand people reached. But in the near future, lead generation will become, if it has not already, the gold standard of all marketing communications.

After-sales service, rather than the sale of new cars, is now the main source of dealer revenue and will be a key factor in dealers’ ability to remain profitable.

In the first half of 2012, nearly half of all dealerships in China (49%) lost money. Under these conditions, simply making the sale is no longer good enough. Instead, customer engagement and efficiency are increasingly important. In addition to providing financing for buyers, they are the most important tools dealers have for boosting revenue.

The rising proportion of profits accounted for by after-sales service raises an interesting question: at dealerships where service and parts make a greater contribution to profits, what is the source of that profitability? Are dealers simply charging more for the same parts and service? Or are they becoming more efficient? The average Chinese car dealership employs 97 people, while the average US dealership employs 53. Yet with nearly twice as many employees, Chinese dealerships still generate roughly the same profits as their US counterparts. This suggests an opportunity to use technology to lower costs and increase efficiency, while at the same time engaging customers on a deeper level.

Despite short-term challenges, such as rising inventory and slowing sales, the long-term macro environment for China’s auto industry is encouraging. China’s 12th Five-Year Plan calls for three modernizations that are related to the industry, directly or indirectly; and the macro environment is encouraging over the intermediate to longer term.
Digital and social media have created platforms for activation and customer engagement that will help China’s OEMs and dealers thrive and prosper. Combining digital marketing campaigns with offline promotions can raise consumer awareness and enhance loyalty.

To increase sales using traditional marketing requires a high cost: opening new shops and renovating existing ones, hiring new staff or training existing staff more intensively; or taking other steps to enhance the user experience. But digital is low cost, with a high payback: deeper customer engagement plus potentially greater efficiency. This is especially true in China, where consumers have eagerly adopted digital technologies, and where people in lower tier cities will likely be located far from the nearest full-service
dealership and so more likely to research their auto purchases online.

Fleishman-Hillard forms strategic partnerships with companies such as iSoftstone and uses technologies that help companies find, attract, engage, and convert consumers across digital platforms including web, email, social, and mobile. Fleishman-Hillard goes beyond conceiving and executing marketing campaigns to gather insights from data that help clients communicate in a way that drives repeat purchases.

A publication of Fleishman-Hillard (China), copyright is reserved