BEIJING - Volkswagen Group China is changing its marketing strategy to hold on to its sinking market share here. It will target different groups of consumers for the models assembled at its two joint ventures in China.
"The focus will be in differentiating each joint venture's models," says Weiming Soh, vice president of sales and marketing for Volkswagen Group China. "We categorize Shanghai Volkswagen customers as classic elite and FAW-Volkswagen customers as modern elite."
FAW-Volkswagen Automotive Co., VW's joint venture with China's biggest automaker, First Automobile Works, makes VW brand's Jetta, Bora, and Golf models as well as the Audi A4 and A6.
Shanghai Volkswagen Automotive, the German automaker's joint venture with China's No. 2 automaker, Shanghai Automotive Industry Corp., produces the Passat, Touran, and Santana models.
In the past, VW segmented the Chinese market along traditional demographic lines such as age and income, and into low, middle, and high-end price groups. But the country's fast-changing market mandated a different approach, says Soh.
Now, Volkswagen has divided Chinese consumers into 48 distinct customer groups based on values, affordability, and life style.
"We are looking at the market from the perspective of who are our customers," says Soh. "One of the difficulties we have is that customer profiles develop so fast in China."
VW has the largest distribution network in China, and the most chaotic. Each of its joint venture partners has its own dealership network. The dealerships are not evenly distributed, leading to uneven sales.
"The focus is on how to increase throughput for our dealers," says Soh. "Right now, our throughput is 500 to 600 units a year. Our goal is to increase that to 900 units."
Volkswagen's downturn in the China market was partly a result of its inability to respond quickly to the changing market.
When Volkswagen began assembling cars in China in the late 80s, the government was the main customer, and there was little need to react to market demands.
But individual buyers now account for more than half of China's car market. And they demand better models, more often at lower prices. VW's old Germany-centric management model couldn't react quickly enough to the change.
Consequently, VW's market share has plunged. In 2003, it sold 694,018 new cars in China, giving it 33.3 percent of the 2.08 million unit market, according to Automotive Resources Asia, a consultancy in Shanghai. By July of this year, its market share had fallen to 11.9 percent with 192,228 units sold.
VW reacted by reorganizing its China operation last year to place more decision-making power here.
Soh was hired away from DaimlerChrysler earlier this year to head a new sales and marketing department.
VW aims to sell more than 530,000 cars in China in 2005, says Soh. In the first half of the year, sales were 265,000 units, by Volkswagen's reckoning. It counts retail rather than wholesale sales, which it claims produces a more representative figure.