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Chinese SUV Brands in Hot Pursuit of International Competitors

08 December 2018
This article is more than 2 years old.

· Chinese SUV brands in the semi-premium segment making quick headway in the market with WEY going from no sales to 200,000 units in only two years.

· Brand Finance original research shows prejudice against Chinese brands is waning with WEY considered more “Stylish” and “Cool” than Land Rover by a new generation of consumers.

· Brand value of the top 5 Chinese brands has risen 92% from 2017 to 2018, largely thanks to local demand. In comparison, the value of brands from other countries has risen only 9%.

· The gap between international and Chinese SUV brands is closing. Chinese brands offer products that have greater value for money and can better cater to the needs of young Chinese customers.

· Chinese SUV brands have significant potential for growth with WEY a brand worth-watching.

The gap between international and Chinese SUV brands is closing with improved technology raising prices of Chinese models and a significant increase in competition prompting discounts by Joint Venture firms, according to a new industry report by Brand Finance – the world’s leading independent value-based brand strategy consultancy.

Although most Chinese brands are still in the middle to low-end market, some Chinese brands – such as WEY (owned by Great Wall) and Lynk & Co (owned by Geely) – are targeting a slightly higher income segment by using better technology and more differentiated, premium marketing. In fact, in August 2018, in the 150-200 CNY price segment, WEY commands a 7% market share while Lynk & Co – 4%, with WEY going from no sales to 200,000 units in two years.

Brand Finance’s original market research shows that Chinese customers – particularly the young – are increasingly aware of the technical quality of Chinese brands and so, where aspirational Chinese customers would in the past consider trading up to a more expensive Western model, an increasing number are considering these Chinese brands.

Alex Haigh, Auto Industry Director at Brand Finance, commented:

“Chinese brands have struggled to extend overseas largely because – at their price point – they have been seen as less safe and less desirable alternatives to Western brands. Especially WEY – which has a specific objective to expand overseas – appears to be breaking this mould. We may therefore start to see their models become as much a staple of not only Chinese but also European and American motorways as Toyotas and Volkswagens are today.”

Nevertheless, international brands still score better among customers on comfort, prestige, and technology and it will be some time before Chinese brands are able to position themselves realistically as luxury alternatives. However, in some instances, desirability for Chinese brands is surpassing that of international ones. Brand Finance’s original market research shows that there is clearly no instinctive barrier to demand against Chinese brands as country of origin is among the least important drivers of preference.

With the right combination of models, service, communication, distribution and a more established position in the market, it seems likely that demand could expand considering the advantages bestowed on domestic manufacturers. Our research show that more people consider WEY’s model to have a “Stylish Design” than Land Rover (41.1% v 38.1%) as well as to have a “Cool Brand” (28.2% v 26.7%). During the 2018 World Cup, WEY signed Cristiano Ronaldo as a brand ambassador; these sort of marketing activities are likely to lead to further improvement in perceptions and performance in the near future.

Alex Haigh, Auto Industry Director at Brand Finance, commented:

“The key to breaking through into more premium segments is improving brand perceptions to move away from a competition on price. In the SUV segment, customers are mainly looking for spacious, reliable and high-tech brands. Whether a product is made overseas or made in China is actually the least important consideration for customers.”

Time is on Chinese brands’ side

Brand Finance’s original research shows that there is a reasonably low familiarity and understanding of the Chinese brands’ offer – WEY for example has only 60.3% familiarity versus 86.2% for Honda. This is largely because it takes time to raise brand awareness and familiarity. Honda has been in the Chinese market for 20 years whereas WEY has been established for only two years.

Despite this, 60.3% of the market is familiar with WEY and those who are aware are so far positive. The brand, as with Lynk & Co, can be considered a blank canvas on to which the right messaging and product quality will paint positive perceptions.

WEY is actually considered more technologically advanced than Jeep, Honda, and Kia – among those who know them. It is also considered more stylish than all three as well as Land Rover and the most closely linked to electrification. It is clearly poised to take advantage of one of the most important trends in car manufacturing – useful in a market that now contributes almost half of all electric car sales.

Alex Haigh, Auto Industry Director at Brand Finance, commented:

“As Korean and Japanese brands before them have shown, there is no instinctive or structural reason why brands from outside the US or Europe could not compete with their Western equivalents. With enough breathing space available to develop offerings and invest in effective communications, Chinese brands will be taking a greater share not just of the domestic but also the international stage.”

Looking at social media sentiment, Trumpchi, WEY and Lynk & Co are all within the top four brands for positive performance online over the last month – continuing a year-long trend of positive performance. Trumpchi, which has performed best in this measure, has invested considerably in promotion. WEY and Lynk & Co have yet to follow suit with similar investment but considering strongly positive online responses to their brands a small investment is likely to go a long way.

See the full Brand Finance Chinese Automobiles 2018 report here

ENDS

Research Methodology

Brand Finance surveyed a sample of 405 car owners and intenders in China based on statistical model, ‘intenders’ being people who expected to buy a car in the next 3-6 months. All currently own an SUV or would consider buying one for their next car.

The sample comprised people aged 18-65, with quotas set by age and gender in order to ensure that the sample broadly reflected the current/potential SUV market in China.

Fieldwork was conducted via an online survey in partnership with Toluna, a global leader in online research data collection. Toluna operates proprietary survey research panels in 68 countries, and in China has a panel of over 6 million consumers.

In addition to the survey research, Brand Finance analysed sentiment in online social media conversations in China about key SUV brands (including WEY), during the month of October. We used the Radarly social listening platform, which captures and analyses 150 million sources (including social media, blogs, forums and websites) every day, and has particularly good coverage of Chinese social media such us Weibo and WeChat.

Note to editors

For full research results and expert insights, please consult the Brand Finance Chinese Automobiles 2018 report.

Data compiled for the Brand Finance league tables and reports are provided for the benefit of the media and are not to be used for any commercial or technical purpose without written permission from Brand Finance.

About Brand Finance

Brand Finance is the world’s leading independent value-based brand strategy consultancy, with offices in over 20 countries. We provide clarity to marketers, brand managers and investors by quantifying the financial value of brands. Drawing on expertise in strategy, branding, market research, visual identity, finance, tax and intellectual property, Brand Finance helps clients make the right decisions to maximise brand and business value and bridges the gap between marketing and finance.

Media Contacts

Konrad Jagodzinski
Communications Director
Brand Finance
Florina Cormack-Loyd
Associate Communications Director
Brand Finance

About Brand Finance

Brand Finance is the world’s leading brand valuation consultancy. Bridging the gap between marketing and finance, Brand Finance evaluates the strength of brands and quantifies their financial value to help organisations of all kinds make strategic decisions.

Headquartered in London, Brand Finance has offices in over 20 countries, offering services on all continents. Every year, Brand Finance conducts more than 5,000 brand valuations, supported by original market research, and publishes nearly 100 reports which rank brands across all sectors and countries.

Brand Finance is a regulated accountancy firm, leading the standardisation of the brand valuation industry. Brand Finance was the first to be certified by independent auditors as compliant with both ISO 10668 and ISO 20671, and has received the official endorsement of the Marketing Accountability Standards Board (MASB) in the United States.

Methodology

Definition of Brand

Brand is defined as a marketing-related intangible asset including, but not limited to, names, terms, signs, symbols, logos, and designs, intended to identify goods, services, or entities, creating distinctive images and associations in the minds of stakeholders, thereby generating economic benefits.

Brand Strength

Brand strength is the efficacy of a brand’s performance on intangible measures relative to its competitors. Brand Finance evaluates brand strength in a process compliant with ISO 20671, looking at Marketing Investment, Stakeholder Equity, and the impact of those on Business Performance. The data used is derived from Brand Finance’s proprietary market research programme and from publicly available sources.

Each brand is assigned a Brand Strength Index (BSI) score out of 100, which feeds into the brand value calculation. Based on the score, each brand is assigned a corresponding Brand Rating up to AAA+ in a format similar to a credit rating.

Brand Valuation Approach

Brand Finance calculates the values of brands in its rankings using the Royalty Relief approach – a brand valuation method compliant with the industry standards set in ISO 10668. It involves estimating the likely future revenues that are attributable to a brand by calculating a royalty rate that would be charged for its use, to arrive at a ‘brand value’ understood as a net economic benefit that a brand owner would achieve by licensing the brand in the open market.

The steps in this process are as follows:

1 Calculate brand strength using a balanced scorecard of metrics assessing Marketing Investment, Stakeholder Equity, and Business Performance. Brand strength is expressed as a Brand Strength Index (BSI) score on a scale of 0 to 100.

2 Determine royalty range for each industry, reflecting the importance of brand to purchasing decisions. In luxury, the maximum percentage is high, while in extractive industry, where goods are often commoditised, it is lower. This is done by reviewing comparable licensing agreements sourced from Brand Finance’s extensive database.

3 Calculate royalty rate. The BSI score is applied to the royalty range to arrive at a royalty rate. For example, if the royalty range in a sector is 0-5% and a brand has a BSI score of 80 out of 100, then an appropriate royalty rate for the use of this brand in the given sector will be 4%.

4 Determine brand-specific revenues by estimating a proportion of parent company revenues attributable to a brand.

5 Determine forecast revenues using a function of historic revenues, equity analyst forecasts, and economic growth rates.

6 Apply the royalty rate to the forecast revenues to derive brand revenues.

7 Discount post-tax brand revenues to a net present value which equals the brand value.

Disclaimer

Brand Finance has produced this study with an independent and unbiased analysis. The values derived and opinions presented in this study are based on publicly available information and certain assumptions that Brand Finance used where such data was deficient or unclear. Brand Finance accepts no responsibility and will not be liable in the event that the publicly available information relied upon is subsequently found to be inaccurate. The opinions and financial analysis expressed in the study are not to be construed as providing investment or business advice. Brand Finance does not intend the study to be relied upon for any reason and excludes all liability to any body, government, or organisation.

The data presented in this study form part of Brand Finance's proprietary database, are provided for the benefit of the media, and are not to be used in part or in full for any commercial or technical purpose without written permission from Brand Finance.

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