THESIS ABSTRACT & CHAPTER 1 ON THE BRAND LOYALTY OF CHINESE AUTOMOBILE CONSUMERS: A CASE STUDY OF CHERY AUTOMOBILE COMPANY
THE BRAND LOYALTY OF CHINESE AUTOMOBILE CONSUMERS:
A CASE STUDY OF
CHERY AUTOMOBILE COMPANY
Brand loyalty is one of the most important topics or subjects in the marketing literature. This is because of the fact that different past studies showed that brand loyalty influenced the overall performance of a company, pertaining on the sales, profits and market share. There are different factors that are connected with brand loyalty, and there are different aspects in the emotion and behavior of the customers which affect their loyalty, or the continuous relationship and purchasing of a brand or product. This subject is important in the current condition and status of the Automobile industry in China. Brand loyalty is considered as a vital aspect because of the growing competition in the country, together with the different social changes, which affect the demands, preferences and needs of the customers in car industry.
This paper focused on analyzing the factors that affect brand loyalty among Chinese consumers and evaluating the advantages of brand loyalty in car marketers in China, using the data gathered from interview with the Chery’s managers and survey questionnaire with the Chery’s customers. The result of the study showed that brand loyalty is vital for the car marketers in China because it enables to help the company to maintain its market share and improve its financial (sales and profit) performance. Above all, it shows the importance and connection of the emotional attachment factors that affect the brand loyalty.
There are some consumers in the car purchasing industry that switch from one brand to another at trade-in time, while there are others who display their consistent choice in their each and every purchase (Sambandam & Lord 1995). The fortune of the automobile manufacturers and retailers depends on the decision of the customers to remain loyal to the previous purchased brand or switch to another. During the past, manufacturers focus on driving new vehicle sales by exchanging owners of the competitive brands. However, due to the different changes in the environment, particularly the increasing competition in the market, recently, the focus of the manufacturers had changed to the process of retaining the existing customers (Ewing 2000). Customer loyalty has always been a primary factor which strategic marketing planning focused, at the same time, it also provides a vital basis in the process of the development of a sustainable competitive advantage, the advantage that can be achieved via marketing efforts (Lyong Ha 1998).
Loyalty is always considered as a vital concept for marketing practitioners because of different reasons, including: brand loyalty can reduce the marketing costs; brand extension, brand loyalty can increase market share and return on investment. According to Uncles & Laurent (1997), customers who exhibit loyalty helps to reduce the marketing costs of doing business. This is primarily because of the fact that loyalty can help to lessen the need to earn customer acquisition costs (Reicheld 1996), which is very important in the service market. Aside from this, loyalty can cause positive word of mouth, which is considered as a possible mechanism which enables a firm to save marketing costs (Jones & Sasser 1995). Above all, according to Reichheld (1996), loyal customers are commonly less sensitive to price. On the other hand, loyalty also enables brand extension, which is considered as an increasingly proffered vehicle for a new product launches which focuses on taking advantage of the loyalty of the customers towards the parent brand, which help to lower the risk of introducing new products in the market. Most of all, according to Buzzell & Gale (1987) due to the fact that loyalty can help to increase market share, it can help also to increase the return on investment.
In addition, representing one of the most vital factors is believed to give details regarding the brand choices of the customers; as a result, the concept of brand loyalty has aroused a massive interest among academics, together with the practitioners in the field of marketing and consumer behavior. In the real world, those companies with huge loyal customers showed to have a large market shares, consequently, they have higher rates of return on investment. As a result, different findings regarding the advantage of brand loyalty motivates marketers to establish and keep hold of the brand loyalty among the customers. In the process of striving for the said goals, information that is related with factors that are determining the process of creating brand loyalty among the customers had become an important matter (Jensen & Hansen 2006).
There are different factors that are connected with brand loyalty. These factors involved aspects that are related with the feelings and behaviors of the customers including satisfaction and perception. As a result, different companies and organizations are focusing in different aspects that can help in order to maintain the loyalty of the customers because of the fact that companies in the world, particularly those established multinational brands are spending billions of dollars in advertising in order to develop their brands (Jensen & Drozdenko 2008).
Currently, the consumer market in China has become increasingly attractive for different multinational companies because of the hastening transformation of the country to a market economy, which result to the rapid and steady growth of the incomes of the consumer and purchasing power in the country. In addition, the level of brand awareness in the country’s more wealthy cities is beginning to get to the level of the US. While, an average American consumer is said to be able to name seven brands in a given category without any aid, on the other hand, an average Chinese consumer in Beijing can independently recall five brand names in the pharmaceutical category, while more trendy consumers in Guangzhou could name about nine brands (Kotler 2001). Given the said growing importance of branded products in the country’s market, if companies will be able to develop more efficient and successful advertising strategies and their connection with the brand penetration and brand loyalty, they will be able to maintain their competitiveness and profitability in the market, which will given them better position and market share (Yang & Bi 2005).
On the other hand, currently, the automobile industry is considered as one of the fastest growing industries in the world. As a result, automobile industry helped different countries including China and India, the fastest growing economies and emerging markets. In India, there are more or less 2 million automobiles rolling out yearly, and the industry is set to grow in further manner. The International Organization of Motor Vehicle Manufacturers (Organisation Internationale des Constructers d’Automobiles (OICA)), reported that there were a total of 73,152,696 cars produced in 2007, showing an increase of 5.7% from last year (see Appendix A, p. 84) (Automobile Industry n.d.).
US, Japan, China, Germany and South Korea are considered as the top 5 automobile manufacturing nations in the world. The US is the largest producer and consumer of automobile which enables the industry to produce 6.6 million direct and spin-off jobs which represents to more or less 10% of the US economy ($10 trillion). On the other hand, the worldwide automobile industry is being dominated by five vital leading and largest automobile manufacturing corporations or brands, which include, Toyota, General Motors, Ford Motor Company, Volkswagen AG and Daimler Chrysler. All of these companies have their presence in almost all nations in the world, and continue their growth by investing on different facilities which will help them to improve their performance and connection with the customers (Automotive-Online n.d.) (see Appendix B, p. 85).
Currently, there are different factors which affect the perceptions of the customers towards different products and brands in the market. Particularly, this case can be observed in the automobile industry, where in the needs and demands of the customers are being affected by environmental and social factors. Aside from that, manufacturers and sellers of cars must also focus on the growing competition in the market; therefore, it is vital for them to maintain loyalty and strong relationship with the customers.
Zhang and Chen (2006) investigated the necessity of making the strategic transition to mass customization in an emerging market like China. It was concluded that customer-order-driven production is a promising direction in a rapidly changing market such as China. Bremmer (2007) asserts that the worldwide popularity of the car is actually growing, as driven by Brazil, Russia, India and China. In fact, China’s car market had grew by 25% in the year 2006 and is continuing to do so, overtaking Japan to be the second largest car market in world with the sales of 8 million vehicles. Identified as a key market in the future, the reported statistics is six car owners per 100 people. Nevertheless, according to AC Nielsen, China also has more people who aspire to own a car. The main drawback, however, is that the average income of Chinese is less than $3,000 annually hence reaching the mass market is an opportunity for car manufacturers both local and foreign (Schifferes, 2007).
As a result, it is important for car manufacturers and sellers in China to focus on how they will maintain strong and long relationship with the customers by loyalty. This is in order to maintain their position in the market.
The main aim of the study is to analyze the extent to which brand loyalty affects consumerism in China and how it is going to affect the Chinese car marketing industry. The study was drawn from the case of Chery Automobile which is one of the leading automobile manufacturers in China. Chery Automobile markets its car produce on local, national, regional and international levels.
Specifically, the study will address the following research objectives:
- determine what shapes brand loyalty among Chinese consumers;
- evaluate whether brand loyalty affects consumerism in China;
- analyze in what specific ways brand loyalty affects car purchasing;
- investigate why brand loyalty affects Chinese car industry; and
- study how car marketers address brand loyalty-based consumerism.
Loyalty is s always considered as a vital topic in strategic marketing. Currently, the world of business is being affected by different force and factors which are important in order to ensure the position of a given brand in the market. This problem can be observed in the automobile industry, particularly in the emerging market, China. There are different factors that must be considered in order to drive and motivate customer loyalty. Based on these, this paper will helps to evaluate the different factors that are related with the brand loyalty in the Chinese market, which will enable to present list of factors that will help to inform automobile manufacturers about the behaviors of the Chinese market towards car purchasing.
Chery Automobile is an automobile company in People’s Republic of China (China Car Forums n.d.). The company was established by five local stated owned investment companies in Anhui in 1997 with the initial capital of RMD 3.2 billion. In March 18, 1997, the first construction of factory was established in Wuhu, Anhui Province, China. However, the first car came of the production line on December 18, 1999. Consequently, the one-millionth car of the company rolled out the assembly line on August 22, 2007 successfully. As a result, the company already gained its first-stage goal in the process of establishing a thriving independent Chinese brand and enables the company to focus on creating a world renowned brand by opening and development (Chery 2009).
As a result of continuous development in the company, Chery already achieved a total sales volume of 305,200 units in 2006, which showed an increase rate of 61.5% compared with the previous year; and in 2007, the annual sales volume of the company had reached 381,000 units showing 24.8% increase compared with 2006. Chery achieved an annual export volume of 119,800 units in 2007. Due to that, the overseas sales of Chery had doubled with an increase rate of 132%, which enables the company to be ranked as first in car export in China for 5 consecutive years (Chery 2009).
Currently, Chery has a full set of production and R&D units, including Car Factories, Engine Factories, Transmission Factories, Automotive Engineering and Research Institute and Planning & Design Institute, Planning & Design Institute and Testing Technology Center. All of these factors enables the company to boasts an annual output of 350,000 cars, 650,000 engines and 40,000 sets of transmissions. The company’s existing products include dozens of models under 10 car series which include: QQ3, QQ6, A1, Riich2, Cowin, Karry3, A5, Tiggo3, Easter and Cross Easter. All of the achievements of the company were because of its human resource, by the end of 2007, the number of employees of Chery had reached a total of 25,000, while its total assets had reached more than RMB 22 billion (Chery 2009).
The aim and vision of the company is to establish an independent famous Chinese brand, thus in order to achieve this, the company, from the very beginning, has set up the eternal aim of customer satisfaction as well as the quality of principle of taking offering customers with zero-defect products and considerate service as the persistent objective of each employee. In addition, the said philosophy enables the company to obtain their ISO9001 International Quality System Certification in February of 2001. On the other hand, the company also took its initiative to obtain ISO/TS16949 Quality Management System Certification from Germany TUV. In order to focus on the company’s commitment to insistent quality control, all of the cars made by Chery manufacturers must conform to the Chinese national and international standards. Due to the ceaseless efforts on the quality control, the company was appraised by Ministry of Personnel and General Administration of Quality Supervision Inspection and Guarantee of PRC as the Advanced Collective of National Quality Work and considered by the relevant authoritative ministry of China as the Chinese 21315 Quality & Credit Level AAA Enterprise (Chery 2009).
The company also focuses on the development of markets in local and international arena. As a result, the company had become the first Chinese car maker that exports whole vehicle, KD parts, manufacturing technology and equipment of vehicle abroad. Thus, in 2006, the export volume of Chery had exceeded 50,000 units, and the company was chosen as the National Vehicle Export Based Enterprise by the Ministry of Commerce and the National Development and Reform Commission of China. Currently, products of the company are being exported to about 60 countries and regions. The company also developed cooperative agreements with America Quantum, Chrysler and Italy Fiat in 2007, which had helped to create a new epoch of transnational cooperation for the Chinese auto industry. And in October 2006, Cherry was considered as one of the famous trademark of China, which made them to be ranked as the 62nd in 500 most valuable brands. In the same year, Chery was included by the Fortune Magazine as the 11th most favorable Chinese companies, thus the only Chinese car manufacturer that had been able to rank in top 25 in the list. Furthermore, in June 2007, the company was chosen among the top 20 most globally competitive Chinese companies and among the top 100 most competitive enterprises of the developing countries in December of 2007. As a result, overall, OICA reported that Chery ranked 27th in the world automobile industry (Chery 2009).
The next chapter will present and analyze the different literatures or studies that are related with brand loyalty and its connection with the customers’ behavior in the industry of automobile. A research literature review is a methodical, open and reproducible method in the course of recognizing, assessing as well as creating the current body of completed and recorded work produced by researchers, scholars and practitioners (Fink 2009). Chapter 3 will focus on issues that are related on brand loyalty in general, brand loyalty among Chinese consumers and automotive industry in china.
Chapter 1 shows the background information regarding the topic that must be understood and known by the readers of the study. Thus, it enables to give the overview of what to expect about the study regarding the outcome and its connection in the current literature of brand loyalty.
The next chapter will focus on presenting, reviewing and evaluating the different literatures or studies related to brand loyalty as well as car manufacturing. With this, the researcher enables to present the different possible information that can be encountered in the last two chapters of this paper.
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