ESOMAR Automotive Conference 2005

Audi vs. BMW: Who is the Underdog in China?

-- A case study of Audi A4 against BMW 3 Series in Chinas market place

Prepared by:

Tony Liu Min Xiao

Page 1 of 5

ESOMAR Automotive Conference 2005

RESEARCH BACKGROUND Like it or not, as a new comer to the premium car segment, Audi brand was often treated as a underdog by consumers, critics, and industry experts, etc., when was compared with his two German brothers, Mercedes and BMW. It is maybe true in else where. But when comes to Chinas market place, this matter has become more complicated than many people thought. In 1991, Volkswagen AG established its second joint venture in China with First Auto Work, the biggest Chinese Auto maker based in the province of Jilin in Northeast China. Unlike its first Joint venture in Shanghai, this one has the Audi AG involved in 1995 with 10 percent share, which allowed Audi to produce its brand products in China. The production of a modified Audi 100 with V6 engine was followed in January 2000 by the market launch of the A6. Together with FAW, this model has been specifically adapted to the needs of the Chinese market, which was an absolute first in the premium vehicle segment. After the great success of Audi A6 in Chinas market, FAW-Audi launched Audi A4 on April 12, 2003. Therefore, the Audi brand of FAW-Audi has became the brand both having C class product (Audi A6) and the B class product (Audi A4) in Chinas premium passenger sedan market. Six months after its debut, the accumulated sales volume of Audi A4 has exceeded 4,000 units with a price range from 380,000 to 560,000 RMB for various models, which has already fall into Audi A6s price range; the overall sale is steady. It looked like another success was underway, given that its direct competitors were mainly imported premium cars which prices were 25% to 35% higher than its price. But was it? While Audi was enjoying it success in China, its biggest rival wasnt sleeping. In March 2003, BMW and local partner Brilliance Auto Co. signed a 450 million euro deal to build a 50-50 joint venture. The JV was planned to produce BMW 3 series and 5 series in China and the products could be available to Chinese consumers by the end of 2003. Therefore, Audi A4 faced the problems of how to distinguish itself from Audi A6 in terms of product brand image and how to compete against BMW 3 and 5 Series after they were put into production in China. Were Audi A4 owners satisfied with the product? Had Audi A4 brand position been well communicated with consumers? Whatre the characteristics of Audi A4 owners? Were there any differences compare with its competitors? Which brands or models were Audi A4s competitors? Were there any differences in terms of their brand images? What were consumers perception toward Audi A4 and Audi A6? Was there a cannibalization between them? Did Audi A4s price strategy need to be adjusted in a proactive way before BMW 3 was launched in China? To answer these questions, FAW - Audi marketing department decide to conduct the market track study after Audi A4s launch, which will provide the reference basis to the afterward Audi A4

Page 2 of 5

ESOMAR Automotive Conference 2005

market decision making activities. RESEARCH OBJECTIVES The core aim of this study focuses on providing support to the reestablishment of Audi A4s product/marketing strategy. The detailed goals are as following: To understand the demographic and psychographics characteristics of luxury car owners. To understand the purchasing and using behavior of the owners of luxury car owners. To understand the cognition of brand image of Audi A4 and its competitive models. To understand the Audi A4 owners satisfaction and improvement suggestions to the product. To understand the consumers attitude toward the price of Audi A4 in the competitive environment, especially after BMW-Brilliances BMW 3 series come to the market. To provide SINOTRUSTs strategic suggestions to Audi A4s product and marketing strategies on the above study basis. CONCLUSION 1.Consumer Characteristics It is known from this study, the main demographic characteristics of Audi A4 are: age between 30-45, married, with high educational degree, total salary above 30,000 Yuan/month, private enterprise owners and senior managers As of the main personal value orientations, the study objectives are divided into 5 groups, different value oriented groups have different shopping styles: theory oriented group, tradition oriented, experience oriented, social oriented, fashion oriented. Most of Audi A4 owners are in tradition - oriented and theory - oriented groups. There are some differences on value orientations between the Audi A4 owners and other competitive model owners 2. Consumer purchasing and using behavior It is found through this study, the main competitive models of Audi A4 are Audi A6, BMW3 and BMW5.Audi A4 owners purchased Audi A4 mainly for personal reasons and emphasized its performance and appearance. Audi A6 owners consider mainly about its business image and emphasize its interior room; the main reasons for not purchasing Audi A4 are because of its small interior room, the appearance and the price.Imported luxury car owners also consider its business image, but the brand effect is more prominent; the main reason for not purchasing Audi A4 is for its overall brand image.Imported medium car owners also consider its business image, but the family demand is more important; the main reasons for not purchasing Audi A4 are for its interior room and the price.The study shows that Audi A4s brand image is represented by these aspects: young, elegant, unique and energetic. As for the overall brand image Audi A4 has less advantages than BMW brand; all the other single indexes are inferior to BMW brand except for the aspects of price, youth, popular and network coverage, etc.
Page 3 of 5

ESOMAR Automotive Conference 2005

As for brand image, there is not significant difference between Audi A4 and Audi A6; but Audi A4 is inferior to Audi A6 on the indexes of extraordinary safety performance, reasonable price, spacious room and comfort, etc. As for brand characteristics, the score of Audi A4s youth index is much higher than Audi A6s, while the scores of the indexes on success, ruggedness and pragmatism are much lower than Audi A6. As for the overall brand image, there are significant differences among Audi A4, imported medium sedans and domestic made medium sedans. 3. Localized marketing strategy When summarizing the experience of successful automakers in the Chinese automotive market, we discover that they have drawn on the marketing experience in mature markets in the in-depth research of the Chinese market, and have worked out their strategies in the Chinese market accordingly. In this case, we make recommendations on A4 pricing and brand strategies based on the above survey and analysis. This case reveals that successful and mature brands on overseas markets needs adjustments in their product positioning and marketing methods according to features of Chinese consumers and the specific phase of vehicle consumption in China when they enter the Chinese market. SAMPLE QUOTA Qualitative research: 4 focus groups and 82 in-depth interviews Quantitative research: 555 face-to-face interviews Sample qualification: Main decision maker and car owners of Audi A4, Audi A6, domestic Made medium cars (Honda Accord 2.4/3.0, Mazda 6, VW Passat 1.8T/2.8, Buick Regal2.5/3.0), Imported medium cars (Nissan CefiroToyota Camry), and imported luxury cars (BMW 3/5 series, Volvo S40/S60) City coverage: Beijing, Guangzhou, Shanghai, Chengdu, Shenzhen RESEARCH MODELS Brand Image Model: to measure consumers brand perception toward Audi and its competitive brands from 3 aspects-manufacturer image, product image, and product characteristics. Consumer Value Intention Measurement to classify the consumers base on their psychological characteristics. Consumer Satisfaction Model to measure consumers satisfaction toward product quality and performance.

Page 4 of 5

ESOMAR Automotive Conference 2005

APPENDIX AUTHOR Tony Liu From: SINOTRUST Marketing Research and Consulting Ltd Chief Research Director Master of Marketing Research, the University of Arizona, USA Six-year working experience in marketing research and consulting in the States, as a researcher at the University of Arizona, USA and consultant at VNU, USA Served a lot of the Fortune Global 500 companies (in the retailing, catering, finance, IT and telecommunications industries), Provided consulting services to domestic and international auto giants Phone: 86-10-58671166 Fax: 86-10-58671188 Email: liuweidong@sinotrust.com.mcn Address: 8/F,Zhaowei Building, No.14,Jiuxianqiao Road, Chaoyang District, Beijing, P.R.C. 100016 (HQ) Min Xiao From: FAW-Volkswagen Automotive Co., Ltd Manager of Audi Marketing Department, MBA, Business School of Jilin University, P.R.C Master of Engineering, Jilin University of Technology, P.R.C Six-year working experience in product marketing & Three-year working experience in marketing for Audi Brand in FAW-VW Ten-year working experience in Automobile Engine as project leader in FAW R&D Center, Changchun, P.R.C Phone:86-431-5750531 Fax:86-431-5750530 Email:min.xiao@faw-volkswagen.com Address: No.149-1, Dongfeng ST, Changchun, P.R.C. 130011

SUBJECT Discussion on localized management in different markets during the building of a global brand based on the pricing and brand strategies of Audi A4 in its launch in China. Type of paper: case study

Page 5 of 5