A recent interview with a senior executive from Toyota’s biggest joint venture in China provided some interesting insights about flogging cars into what is still the relatively young mainland market. So far, they seem to be doing things right.
After only three years manufacturing in China, FAW Toyota (Toyota’s biggest joint venture partner is northeast China based FAW, which also partners with Volkswagen) already sells nine different models in the mainland, including its luxury offering, the Crown, intermediate sedan brands Reiz and Corolla, the entry-level 1.3 and 1.5 liter Vios, its hybrid Prius, as well as three SUV’s, the Land Cruiser, the Prado, the Terios, and its Coaster bus.
Last year sales grew a whopping 89% to 156,717 vehicles, while China’s entire passenger vehicle market only grew around 26.5%. Here’s Dong Haiyang, vice president at FAW Toyota Motor Sales Co., Ltd, with his thoughts during a March 1st interview at China headquarters in Beijing, on the challenges and opportunities of the business:
Q: Who are your target customers? What are two or three things in a car that matter most to the Chinese consumer? How important is low price for Chinese consumers?
A: I can first give you a picture of China’s individual auto buyers. There are four types: price shoppers, quality shoppers, brand shoppers, and value shoppers.
The percentage of automobiles purchased for individual use has risen from 40% to 90% in the past ten years [in China]. In the past, people wanted a really low price. Now, they have added something. They also want quality. The Chinese auto consumers are transforming from price shoppers to quality shoppers.
Toyota is a newcomer to the market. In the past we only imported vehicles. From ’03 we started manufacturing vehicles in China. Now we have nine brands. FAW Toyota’s buyers are mainly value shoppers. But they are very similar to those buyers in the U.S.—they are “QRD” buyers. That’s quality, reliability, and durability.
Q: China, of course, is a nation of first time car buyers, where brand identity is often very weak. How does Toyota build its brand identity? How do you use media, including traditional and online?
A: The brand concept was only introduced in China about ten years ago. Fifteen years ago there was no such concept at all. So yes, the concept of brand is not so strong. But now Chinese customers are learning quickly.
We divide our promotion into three levels: for our central marketing, we use national media like TV, newspapers and the Internet. This is to promote the core values of our brand—for example, we will say ‘buy Crown.’ The second level we use regional marketing—we may say [to our potential consumers] ‘buy Crown now.’ And the third level is at the dealerships. Our message is ‘buy Crown, here and now.’ For all three levels we use all of these media also including magazines, radio, and websites.
It also depends on the vehicle. For the Crown, the potential buyer is strongly influenced by golf and other high end magazines. The entry level buyer is strongly influenced by websites and the Internet, though.
We ask basic background information of every visitor to our dealerships. We do phone interviews with Toyota owners. We also organize promotional and marketing events. We take a brand localization approach. Therefore, many of such events are at the dealership level. We invite customers to have a party during Chinese traditional festivals, for example.
Q: Who do you see as Toyota’s biggest competitors in China?
In high-end market, there are Audi, BMW, and Benz. But I think the biggest competitor is our self. Crown now has a 30% market share and that only after a year in China. [It’s challenging to grow that fast.] At the low-end of the market, there are too many new cars—we don’t even know how many brands there are out there. China is a booming market. Every year the rank [of who is leading] changes. Somebody goes up and somebody else goes down. It’s a shoving [match] in China. It’s not like the U.S.
Q: How do you expect the overall auto market in China to grow this year and how do you expect it to grow for Toyota?
A: Our projected growth for 2006 is 8-12%, but in January the growth rate was very good. It reached 90%. Right now, we still have a very low car capacity. We want to sell 210,000 this year. Our sales in 2005 were 156,717.
Q: Do you see the potential for a significant market for used Toyota’s in the future?
A: I think there is a great future for the used car business and we are working on this. Our target is to have all dealers have the capacity to do used-car business, offering certification, training and licensing.
Last year we sent a delegation to Taiwan to check the used car market there. The Taiwan used car market is very large. And Toyota has an advantage because of the quality and durability of our cars.
Q: What is the biggest challenge you are facing in China?
A: It is a big problem to attract and retain managerial-level staff, and wages are rising. So far we have 500 staff. 420 of them are young and have less than 2 years of working experience. Our staff are very young and lack experience. And young people like to change jobs regularly. This challenge is one general to all industries [operating] in China.