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Will lowering the Price Save Qoros?

Date:05-22 17:06 Source:autochina.comnews.cn Authour:He Lun

——Auto Market Hotspots Q&A (127)

Qoros, a “new high-end” Chinese car brand that has been marginalized, has made all sorts of moves in the past six months – launching the “Amphibious Strategy” and “2.0 Strategy”, investing RMB 550 million Yuan to build a plant in Yibin, displaying its Model K-EV at Shanghai Auto Show, and announcing that it will launch 3 new models within the year. This combination has built up some real momentum. But on the other hand Qoros sold only 3,996 vehicles from January to April, down by 39% over the same period in 2016. So what can Qoros do to save itself?

Will lowering the Price Save Qoros?

Q: Do you think these big recent moves will turn Qoros around?

A: I don’t think so. No doubt, Qoros has its good reasons to make these moves, but as I’ve said many times before, Qoros actually has only one real problem – the high price. So there is only one solution, and that is to lower the price. This may sound glib, but it is the key to the Qoros predicament (please refer to the article “Can its SUV Save Qoros?”), especially as Qoros is now starting to lower its sales channels and mainly target third-tier and fourth-tier cities.

Q: But Qoros produces really good cars. It has lowered the price of its first model, the Qoros 3, by nearly RMB 20,000 Yuan since it was launched more than 3 years ago, but still it doesn’t sell well. If it keeps lowering the price, will Qoros lose the “new high-end” brand image that it has been building all these years?

A: These are two questions. Let’s first talk about why the price reduction of the Qoros 3 did not pay off. In my opinion, there are two reasons: firstly, the price is still not low enough; secondly, the price was reduced at the wrong time in the wrong way – it’s like they were lowering the price covertly, so did not get the kind of price cutting impact they would have expected.

As for whether Qoros will lose its high-end brand image, Roewe has already faced the same challenge (see the articles “Roewe RX5’s Pricing Entails a Desperate Fight?” and “How should Competitors Respond to the Low-Priced Roewe RX5?). However, last July, to everyone’s surprise, the Roewe RX5 repositioned itself as a “mid-end” mainstream Chinese brand, turning itself into a hot seller and getting SAIC Motor Passenger Vehicle out of the red. The Roewe i6 followed the same path. Launched in mid-February this year, it had already achieved sales of 7,000 vehicles by March. In terms of branding, one thing is worth attention – for Roewe, first-tier cities contribute 26% of the total sales and second-tier cities contribute 27%, which is 53% altogether. This is quite different from the general market of “mid-end” and “low-end” Chinese brands, indicating that the effort Roewe put into building a high-end brand over all these years was not in vain.

Q: When do you think is the best time for Qoros to lower its price?

A: The sooner, the better, of course. From January to April this year, passenger vehicle sales dropped by 0.2% on a year-on-year basis. Under this huge market pressure, the price war is becoming ever fiercer, and Chinese brands are starting to polarize. Geely, GAC Trumpchi and Great Wall, while seeing rapid sales growth and gaining more market share, are forming the first camp together with Roewe and MG. If Qoros does not put aside its pride and grow together with these brands, its future looks grim.

If Qoros wants to turn things around, it should follow in Roewe’s footsteps. As for when to lower the price, I think Qoros should adjust the prices of its whole series next time it launches a new model.

Will lowering the Price Save Qoros?

Q: Qoros has already suffered heavy losses. If it reduces its price, won’t these losses increase?  

A: I have talked many times about the relationship between lower prices and higher sales, releasing production capacity, economies of scale, and profit (see the articles “Roewe Teaching Qoros a Lesson?” and “Chen Anning: Annual Sales of 40,000 Vehicles to Break Even”). Qoros only sold 24,000 vehicles in 2016 - far below its annual breakeven point of 40,000 vehicles - and it made a loss of RMB 1.9 billion Yuan (over the 3 years since it was listed, it has suffered a cumulative loss of RMB 6.5 billion Yuan). If price cutting can generate a significant increase in sales, Qoros will still make a profit even with a breakeven point of 60,000 vehicles, and at the same time its market share will see major growth. In this way, it may enter a benign cycle of brand strength, product strength, sales and profit. Of course, there will be risks, but it’s better than doing nothing. In fact, Qoros has no other choice now.

Q: Should DS, which has also been marginalized like Qoros, resort to price cutting, too?

A: DS and Qoros are having different problems. As a Chinese brand, Qoros will inevitably encounter greater hardship on its way towards the “high end”. It must make and market its cars at “high-end” standards and sell them at “mid-end” prices. Only after gaining more market share can it gradually increase its prices. Roewe worked hard to maintain its high price for a long time, but in the end it had to change its strategy and was rewarded by the market. That is the high-end road for Chinese brands.

DS, on the other hand, cannot lower its price any further. Take the DS 5 for example. It is offered at a starting price of 32,590 Euro in Germany (including the 19% VAT), while the BMW 3-series is at a starting price of 32,850 Euro. If the differences in dynamic performance and configuration are factored out, the price difference is less than 10%. However, in China, the DS 5 is offered at a starting price of RMB 219,900 Yuan, while the BMW 3-series is at a starting price of RMB 288,000 Yuan, constituting a price difference of up to 30%. In other words, DS is already offering the lowest price among luxury car brands, and if it keeps reducing that price, it will drop right out of the luxury brand camp. As for why it found itself in such a predicament, I have talked about that several times – mainly because DS started to sell its cars and set its sales targets too high when no one in China had ever heard of it. It was true that the price was tempting, but the brand had no consumer recognition, leading to a complete failure (see the articles “Seeking Quick Success – DS’s Original Sin in China”, “Reasons behind DS’s Low Pricing”, “DS Must Make One Last Stand?” and DS Trying to Make a Great Leap Forward? Take it Easy Please”).

Sources say that since the leadership reorganization, DS has already started its marketing reform – changing from basing sales on production to basing production on sales prospects, adopting shock therapy by shutting down production to address overstocking and sales fraud, making serious adjustments to the commercial policy for dealers, and completely straightening out the manufacturer-dealer relationship. Whether this reform can succeed needs our special attention (see the article “DS Must Make One Last Stand?”). After this marketing reform is complete, DS also needs to work harder on brand building.

Will lowering the Price Save Qoros?

Q: Everyone says that Qoros has good cars but doesn’t have good marketing. Speaking of marketing changes, besides price cutting or readjustment, what do you think Qoros should do first and foremost?

A: As far as I know, Qoros plans to add another 85 dealers in 2017, most of which will be concentrated in third- and fourth-tier cities. It also intends to persuade 15 dealers who are planning to drop out into staying so as to increase the number of dealers to 200. If its marketing system reform is limited to expanding its sales network, Qoros will get into serious trouble. Audi provides just this lesson – it is in a mess right now precisely because it overextended its sales network (see the article “5 Misinterpretations of the SAIC-Audi Cooperation”).

“Where there are dealerships, there are sales” – this kind of logic in sales network construction was created in times of a booming market when any store could make money. However, circumstances have now changed. There will still be sales as long as there are dealerships, but how many and whether they are profitable is a totally different thing. Last year, Qoros sold 24,000 vehicles with 115 dealerships, which means that each dealership sold an average of 208 units throughout the whole year. What are their chances of survival? The current problem is that even if you want to expand the network, who is willing to open new stores for you? Even the existing stores want out.

So if Qoros wants to turn things around, it must carry out marketing reform in the real sense: on the one hand, it should base its production on sales prospects and never overstock, and adjust its commercial policy for dealers so that they can make money as long as they can sell cars; on the other hand, it should adopt a new model in terms of network expansion – a localized, diversified and low-cost model. I have recently visited several 4s stores near my house, and I’ve found that even stores with great sales performance did not have visitors on weekdays. Such costly 4s stores being deserted like this is no doubt an absurd waste of money. It must establish an e-commerce platform exclusively for its brand (in combination with Qoros Cloud) and implement e-commerce after-sales service management and even sales to reduce costs and improve efficiency (see the articles “Can Car Owners Become God?”, “Is it Feasible to Sell Cars with “Zero Inventory”?”, “Zero Inventory! Tetsuya Ezumi’s Lexus Marketing Reform”, “Tesla Knows Better How to Sell Cars Than Traditional Carmakers?”, “Does Mercedes Benz Feel Challenged by E-Commerce?” and “How Should Audi Sell Its Cars?”).

 


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