1、Upward Mobility: The Future of Chinas Premium Car MarketAutomotive McKinsey M-View; McKinsey China Premium Car Research (2012)1181591862022282509471,2461,7005301782951691912823505921,0672,3273,00012345678910142002 2012e 2020e120 4-1 22 131 52 32 0-3 54 1-3 4CAGR, Percent2002-12e 2012-20eGlobal premi
2、um car sales ranking, thousand units1236McKinseyIHS Global InsightAlong with the sales increases comes a rapidly changing market landscape. The older generation of premium car owners purchased vehicles mainly to reflect their social status, but the increasingly sophisticated new generation of buyers
3、 is expressing other reasons for buying premium autos. This is one of several important findings from a 2012 McKinsey survey of 1,200 Chinese premium car consumers in 12 of the countrys biggest cities that examined brand sentiment, key buying factors, and touch points along the consumer decision jou
4、rney.31 For the purposes of this report, the premium car market comprises Acura, Aston Martin, Audi, Bentley, BMW, Cadillac, Ferrari, Infiniti, Jaguar, Jeep Wrangler, Land Rover, Lamborghini, Lexus, Lincoln, Lotus, Maserati, Mercedes, Mini, Porsche, Rolls-Royce, Smart, Volkswagen Phaeton, Volkswagen
5、 Touareg, and Volvo. 2 The percentages cited are compound annual growth rates.3 McKinseys consumer decision journey is a novel way to look at the consumer decision-making process that goes beyond the traditional marketing funnel. The circular, iterative journey comprises four steps, from initial con
6、sideration to active evaluation to moment of purchase to the post-purchase experience that drives loyalty and future impressions. Digital and social media are integrated into the traditional funnel approach to best understand consumer touch points today. 5Upward Mobility: The Future of Chinas Premiu
7、m Car MarketThe survey sheds light on consumers evolving needs in the premium car market, including the increasing importance to them of value-added services. Multinationals dominate Chinas premium car market, with German automakers (e.g. Audi, BMW, Mercedes, and the Volkswagen Group premium cars) a
8、ccounting for 80 percent of market share; other European, Japanese, and US brands make up the remainder. However, competition is heating up, putting pressure on profit margins.How should automakers address this fast-growing but increasingly complicated market? To seek answers, McKinsey conducted not
9、 only the survey noted above, but also a series of focus groups to zoom in on consumer preferences and purchasing habits as well as interviews with about 60 automotive executives, dealership managers, and industry experts. In addition, we carried out in-depth home and drive-along visits with individ
10、ual buyers and analyzed more than 6 million Internet and microblog postings for insight into customer perceptions of the premium car market in 2012. Then, we compared our results in China with those of a 2010 McKinsey survey of premium car customers in Germany. In this report, we synthesize our find
11、ings, reviewing the state of the Chinese premium car market, identifying the most important trends, and suggesting what they mean for multinational premium automakers. We dont claim to offer a complete picture of the premium car market in China but rather provide an overview of the trends and consum
12、er preferences that will likely influence automaker responses to the big changes ahead in the market.THE NEW FRONTIERS OF GROWTHMcKinseys consumer research has shown that 80 percent of Chinese premium car owners have annual disposable household income of more than RMB 200,0004. Unsurprisingly, the i
13、ncomes of premium car owners surveyed by McKinsey exceeded this threshold level: the weighted average of annual household disposable income of all surveyed families was RMB 450,000. We expect this affluent segment to grow at a compound annual rate of 16 percent between now and 2020, offering underly
14、ing support for the premium car market. By 2020, we forecast that there will be 23 million affluent urban households in China 7 percent of the population and roughly equal to the total number of households in Great Britain today (Exhibit 2). In particular, our analysis shows that 300 cities in China
15、 will have consumers with sufficient household income to buy premium vehicles by 2020 (Exhibit 3).Exhibit 2Strong growth will be driven by an extraordinary boom in affluent and new mainstream middle class families in ChinaOther premium car marketsNumber of urban households by annual disposable incom
16、e bracket, million householdsAffluent(more thanUSD 34,000)New mainstream(USD 16,000 -34,000)737 17123338219141013 910 1212 714 24252012 2020SOURCE: McKinsey Insights China Macroeconomic model update (2012) ; Canback Dangel4 In our research, we focused on car owners/potential buyers of premium cars o
17、f up to RMB 1.25 million, which represents 85 percent of the premium market in China.6Exhibit 3 SOURCE: Team analysis; McKinsey Insights China macroeconomic model update (2012)2942610712020171.41434201236.5303520012.0563678100% =Tier 1Tier 2Tier 3Tier 4202023.218363820127.121363620010.8633160Affluen
18、t(more than USD 34,000)New mainstream(USD 16,000 - 34,000)million households300 cities in China will have consumers with sufficient household income to buy premium cars by 2020Household distribution by city tier, percent1 Based on McKinsey city definition: 4 tier-1 cities, 46 tier-2 cities, 211 tier
19、-3 cities, and 554 tier-4 citiesMore than half of the incremental growth in affluent and new mainstream households will come from lower-tier citiesIn general, premium car buyers are optimistic about their future. A quarter of those surveyed said they have a high degree of confidence in their career
20、and business prospects and therefore spend more lavishly. For example, their willingness to pay for premium cars was 30 percent higher than car buyers with similar household disposable income. Our research also points to the emergence of an “entry-level” group of potential premium car consumers. Thi
21、s segment, which we call “new mainstream” households (with annual disposable incomes of RMB 100,000 to 200,000), has confidence that its incomes will continue to grow, opening the way for them to at least consider purchasing a premium car. The new mainstream households care more about style, brand,
22、and exterior than more affluent consumers, who tend to value functional factors such as powertrain technology and vehicle performance. We identified several other important trends: What motivates the Chinese middle class to upgrade to premium cars? The first generation of premium buyers sought statu
23、s and the ability to show off. But there are more reasons in play now. In our survey, 30 percent cited “reflection of social status” as the top reason to upgrade to a premium car, while 27 percent cited “self-indulgence.” More nuanced responses include: the “car as my business card for credibility,”
24、 “attracted by sophisticated functions and innovative designs,” “the car as a source of fun in life,” and “demanding excellent service.” These responses all obtained 20 to 25 percent agreement among the premium car consumers that we surveyed. In fact, over 60 percent of survey respondents regarded “
25、buying a car” as much a priority as “buying an apartment” and “paying for childrens education.” Most Chinese families replace their cars every six to eight years. In our research, premium owners and those intending to buy premium cars said they would replace their cars two to three years faster than
26、 the average. Only about 30 percent of the premium segment was firsttime buyers, the survey found, compared with 70 percent in the overall passenger car market. A quarter of families that owned a premium vehicle later bought an additional car 7Upward Mobility: The Future of Chinas Premium Car Market
27、for various reasons, including providing a car for the spouse, family usage, or suitability for different business circles, but only 20 percent traded down to mass-branded cars. Women are playing an increasingly important role in the premium car market in China. In our survey, we found that when cho
28、osing a vehicle model, women value exterior styling, safety features, and comfort, over the attributes favored by their male counterparts, such as powertrain technology, socially recognized premium brands, and bigger models. Given the unsettled macroeconomic environment across the globe, there is in
29、creasing concern in the auto industry about the volatility of demand for premium cars in China and what that means for continued market growth. We assessed what we call premium sentiment, which focuses on three critical drivers: confidence in the growth of the Chinese economy and expected household
30、income growth; willingness to pay for premium cars; and the influence of societal attitudes on displays of wealth. Our analysis found that despite some uncertainty about the direction of the economy, and shifting social attitudes about public displays of wealth, 80 to 85 percent of Chinese consumers
31、 surveyed are confident in future growth and will continue to buy premium cars.In the last three years, the premium car market undoubtedly has grown more competitive because of the entrance of additional premium carmakers, a large number of localized models, and higher sales targets set by leading p
32、remium brands. These moves reflect a clear strategic decision by leading automakers to embrace “new mainstream” consumers as potential customers. We also see that premium-segment prices are declining 4 to 5 percent a year in nominal terms, resulting in declining profitability for both premium automa
33、kers and dealership groups. In the battle for premium car market share it is increasingly important to offer more value to customers, differentiate models along key emotional attributes, and prepare to ramp up market presence in Chinas fast-growing lower-tier cities. PROFILING THE UNIQUE CHINESE PRE
34、MIUM CAR BUYEROur survey identified important behavioral characteristics of Chinese premium car buyers. We also derived a detailed consumer segmentation from our survey. This level of granularity is now essential for automakers hoping to understand this evolving market. Key buying factors what truly
35、 matters? Premium car owners prioritize five key buying factors out of 22 possibilities we offered in our survey. Overall, they rate safety as their number-one concern, perhaps in response to the media attention that has been devoted in recent years to a spate of traffic accidents associated with pr
36、emium cars. This may also be due to increased consumer awareness of active and passive safety systems. Other key factors cited by respondents include brand, reputation, powertrain technology, and exterior. Quality and handling were not differentiating factors for Chinese premium car buyers as much a
37、s they were for German buyers who participated in our 2010 survey. Automakers need to be careful when interpreting this finding. Chinese consumers may believe “quality is a given” because of the premium they pay for the vehicles. High expectations for quality and craftsmanship usually surface only a
38、fter theyve purchased their vehicle and have had a chance to drive it. When Chinese premium auto owners discover defects in their vehicles, they sometimes react emotionally. 8In another comparison of Chinese and German consumers, we found a linear relationship between affordability and powertrain te
39、chnology in the Chinese market. This implies that affluent car owners in China are more attracted to powerful, high-tech cars with advanced powertrain systems. In both markets, consumers place a high value on car exteriors (Exhibit 4).Exhibit 4Chinese and German premium auto buyers value exterior, b
40、ut differ significantly in preference for powertrain technology and price sensitivitySOURCE: McKinsey China Premium Car Research (2012); Germany Premium Car Research (2010)High affordability low willingness High affordability high willingnessLow affordability low willingness Low affordability high w
41、illingness1.00.30.81.00.9Comfort 0.6Fuel efficiency 0.8High tech 0.8Exterior 1.0Powertrain 2.3 2.1High tech 0.6Handling 0.6Price 0.7ExteriorPowertrain 1.301.21.31.31.20.20.70.90.50.9Fuel efficiency 1.0Quality 0.50.7ComfortExterior 1.1Price 3.41.31.20.61.30.3Price 0.6High tech 0.6Handling 0.7Fuel eff
42、iciency 0.7Exterior 1.1Chinese buyers have a preference for advanced powertrain technology no clear preference among German buyersChinese buyers have a preference for advanced powertrain technology German buyers value handling and high-tech, and no price sensitivityBoth groups value exterior as key
43、factor otherwise no differences between Chinese and German buyersSignificant difference in price sensitivitybetween Chinese and German buyers11 Indicates ranking of the top 5 most important attributes, from most important (5) to least important (1)111Breaking down the premium marketWe identified eig
44、ht consumer segments based on the distinctive needs we observed in our survey, including how likely consumers are to afford premium cars, how willing they are to pay a premium for these cars, and how they associate premium cars with personal identity. Two examples follow: “Business cards.” This segm
45、ent (11 percent of the premium market) comprises business owners or people holding senior management positions. They consider a premium car a business necessity but dont see it as a source of fun or a pleasurable indulgence. Their attitude might be characterized by statements like these: “I need the
46、 car for credibility in business circles I have to fit in The car is like a business card for me.” They would pay a premium for advanced powertrain technology, favor VIP services such as 24-hour roadside assistance, and are comfortable buying niche premium models, as long as they fit their business
47、circle. “Deal hunters.” Consumers in this segment agreed with the statement, “A car may be just a means of transportation, but I wouldnt want to drive a cheap model. Brand is important to me. I would only purchase a premium car if I can find a deal.” In general, while deal hunters say they love prem
48、ium brands, they do not exhibit a preference for a particular brand, and they do not seem to care much for the driving experience. They are interested in trade-ins, and value heavily discounted premium cars. The segment (13 percent of the premium market) is not as large as we originally thought, whi
49、ch might mean that discounting may be less necessary than automakers expect. 9Upward Mobility: The Future of Chinas Premium Car MarketChinas increasingly sophisticated premium car market will require automakers to adopt a segment-based approach to serving their customers. For example, value-added services such as car financing and used-car sales are less appreciated in China than in more developed car markets. From our survey, only 14 percent of premium car consumers favor financing options. However, our segmentation showed that attitu
