Selling Sedans in Southeast Asia

Passenger automobile manufacturers with high growth potential are increasingly difficult to find around the world. Exceptions are Singapore and Vietnam, both of which have few car owners and optimistic economic growth projections. However, these countries’ stiff government regulations, including high taxes that grossly inflate car prices, have created major challenges for automakers. This paper is a synopsis of research conducted as part of Kellogg’s Global Initiatives in Management program into the impact of Singapore and Vietnam’s regulatory environments on the four key elements of marketing cars: product, price, promotion, and place. The main finding of the research is that brand equity plays increasingly important role in markets of abnormal price inflation. In addition to a Four Ps analysis, the research offers recommendations for how a U.S. automobile manufacturer can tailor its marketing to build brand equity under the unique competitive conditions imposed by the Vietnamese and Singaporean governments.

Singapore’s Automobile Market

Singapore’s car market grew over 11% annually from 2003 to 2007, with about 125,000 autos sold in the last calendar year of that period. Only 162 of every 1000 Singaporeans own a car, compared to about 500 of every 1000 Western Europeans. Yet future forecasts of car sales point to deceleration in this market, due mostly to the government’s use of regulations—including automobile-related taxes and other charges such as road fees and certificates of entitlement designed to minimize road congestion and diminish the environmental impact of driving. These surcharges can inflate car prices up to threefold. To further discourage auto use, the government offers an extensive public transportation infrastructure, including bus services and park-and-rides, and the Singapore Land Transport Authority plans to enhance this award-winning system significantly.

Consider the “Three C’s” of Singapore’s automobile market:

Consumer. The typical Singaporean auto consumer is a car aficionado. As a marketing manager at a major US automaker puts it, such consumers seek a car that “reflects their personality, values, and lifestyle.” Singapore’s cultural heterogeneity and relative youth as a nation, along with the deep penetration of Western products, have made it easier for US multinationals to market products.

Company. Surveys of Singaporean consumers suggest that they see “no appeal” to US cars and view them as expensive to fuel and repair. Unaided brand awareness is 12% for Ford and 5% for Chevrolet. Moreover, US car manufacturer’s narrow focus on short-term results makes it difficult for them to invest in longer-term brand-building.

Competition. Despite these challenges, 44 car companies currently compete in Singapore. The top five players control more than 70% of the market. General Motors/Chevrolet, a major U.S. automobile manufacturer with operations in Singapore, has carved out a niche as a value option for entry-level car consumers, but holds less than 4% market share. Japanese players such as Toyota and Nissan hold much stronger positions, with Chinese manufacturers having a strong hold on “off-peak” cars, vehicles only allowed on the road during limited times and thus taxed at lower rates. In addition, “parallel importers” purchase vehicles not typically offered in Singapore and then sell them there, representing one out of six auto sales.

Vietnam’s Automobile Market

Between 2006 and 2007, Vietnam’s automobile market grew 260%, and rapid overall economic growth is predicted. Yet here too, protectionist measures that grew out the government’s dream of nurturing the domestic car industry pose major challengers for foreign automakers. For over a decade, Vietnam’s taxes on new cars amounted to 100% of the purchase price; this is now about 60%, but additional taxes can raise that figure. WTO mandates have resulted in some cuts, but the Vietnamese government policies have proven unpredictable in this area.

Consumer. Roughly 60% of Vietnam’s population is younger than 30 years old, and consumers there place significant emphasis on status. Nonetheless, there is also a strongly utilitarian-focused segment, resulting in growing sales for Toyota and Honda. Not surprisingly, elements of the status-utilitarian divide splits largely along geographic borders, with southern Vietnamese representing more risk-taking but actually lower levels of image-consciousness.

Company. US automakers have solid but not spectacular brand images in Vietnam. GM/Daewoo/Chevrolet has strong brand equity, partly because it was among the first foreign manufacturers to enter Vietnam, and cars like the Corvette have high nostalgic value. However, as in Singapore, carmakers’ emphasis on short-term profits limits funds for Vietnam-focused initiatives. Supply-chain inefficiencies are a disadvantage, contributing to waits of over one year for popular cars.

Competition. As one Ford Vietnam manager put it, “everybody’s here.” Indeed, Mercedes and Lexus vehicles currently appeal to the nation’s wealthy, and lower-end Chinese manufacturers exist there in abundance; Indian carmaker Tata is also considering entry. US players compete in the middle market, but Toyota holds 25% of the total market and Honda is growing quickly. All carmakers face the challenge of competing with motor bikes, which have 94% penetration in urban Vietnam.

Recommendations

Given the regulatory characteristics of these Southeast Asian markets, automakers must focus on building strong brand equity to offset the high price of car ownership. For example, Audi recently entered the Singaporean market with an emotive campaign designed to develop an affinity between Singaporean consumers and the brand. GM has had similar success with its Buick and Chevrolet lines in China. Toyota’s strong lead in Singapore and Vietnam reflects its strategic brand-building. Ford, on the other hand, has done little with regard to branding, and recently lost 43% of its market share in Vietnam to competitors and new entrants.

US players may be particularly well-served by a brand identity representing freedom and adventure, given Asian manufacturers’ strong hold on quality and reliability. Consider this brand positioning in the context of a 4 Ps framework:

Product. Automakers have already addressed the inflated costs of their products in these markets by reducing available features and offering greater choice of trim levels (e.g., Honda Singapore offers 18 trims for its City model) to appeal to consumers. For consistency with the brand image of freedom and adventure, their focus must be directed toward unique features and performance, along with country-specific alterations such as premium suspensions for Vietnam’s challenging roadways.

Price. While Ford prices its products in Vietnam higher than those of its peers, reasoning that consumers perceive price as a reflection of quality, others sell cars for lower prices to offset the high taxes. Yet most manufacturers report high profit margins in these markets, and lower price points are inadvisable as they may confuse consumers and start a dangerous price war with Japanese and other cost-leaders.

Promotion. Faced with regulatory challenges in Singapore and Vietnam, automakers have been inclined to cut promotional spending, sometimes setting it as a percentage of sales, as Ford Vietnam does. Such cuts have resulted in poor outdoor billboard placement and other suboptimal tactics. More effective promotions have included exclusive “Owners’ Clubs” and low-cost print and radio advertising. In general, carmakers must develop consistent, brand-focused communications strategies that are integrated across multiple channels, with a focus on longer-term results. Internet advertising is another, potentially cost-effective tool, and a focus on placing ads on websites that target adventurous consumers would be ideal for the brand positioning recommended here.

Place. Heavy taxes in Vietnam and Singapore have prevented strong growth of the dealership infrastructure, resulting in drab dealer settings—“ghost towns,” as one interviewee described them—and poorly trained, often standoffish salespeople. An exception is the Mercedes-Benz Brand Center in Singapore, which features young, attractive saleswomen and upscale events including wine, art, and luxury items such as Louis Vuitton bags. The Brand Center has helped cultivate a strong brand for Mercedes in Singapore, and BMW is exploring similar options. American manufacturers might consider similar approaches, with an emphasis on American branding (e.g., Hollywood) through interactive displays.

A thoughtful strategy incorporating the above elements will help American automakers develop the brand equity they need to succeed in Singapore and Vietnam. Future research efforts in this area should consider the overall costs and benefits of competing in Singapore and Vietnam, the potential monetary benefits for Vietnam’s government if it chooses to relax automobile taxation, and the quantifiable advantages of building country-specific automobile brand equities for these Southeast Asian nations.