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Winning consumers by allowing give-backs
July 8, 2009, Wednesday
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AS American auto makers struggle for survival, South Korea's Hyundai Motor appears to be gaining on the pack with bold marketing and broad-based initiatives to improve quality.
The company made a splash earlier this year when it unveiled its Hyundai Assurance program allowing customers to return a car if they lost a job.
Years earlier, however, Hyundai had already begun to invest in new models and quality programs that have put the company on solid footing to profit from the current chaos in the global auto industry. "There's a sense that what Hyundai is doing on many fronts is working in terms of actually gaining some advantage during the crisis," says Wharton management professor John Paul MacDuffie.
In 2008 - a brutal year for the auto business --Hyundai's global unit sales rose 2 percent, lifting revenues by 5 percent. In the first three months of this year, the company's global market share rose to 4.7 percent, compared to 4 percent a year earlier.
MacDuffie says Hyundai first made a name for itself in the United States in the late 1980s when it exported the low-cost Excel to the American market.
The car was popular at first, but soon earned a reputation for developing rust and other quality problems.
In the 1990s, Hyundai attempted to introduce a range of high-priced vehicles into the US.market, but MacDuffie says the company was "haunted" by its reputation: "Quality has always been Hyundai's Achilles heel in ... the US."
It was another economic crisis - the 1997 Asian financial collapse - that sowed the seeds for Hyundai's recent success, according to MacDuffie.
He notes that during that global economic slump, the South Korean currency fell sharply. As a result, Hyundai's competitor Daewoo went into bankruptcy and Hyundai was able to acquire another Korean auto maker, Kia Motors.
Surviving consolidation in its home market, Hyundai emerged from the crisis with new strength to address its problems. Beginning in 2001, MacDuffie says, Hyundai launched a major push to upgrade quality. At the same time, to help overcome its reputation for poor quality, the company announced a 10-year, 100,000-mile warranty.
The Hyundai program was far more comforting than the industry's standard three-year, 30,000-mile warranty, and essentially guaranteed the car for its entire expected working life.
"It was risky, but a powerful impetus to improve quality," says MacDuffie. "They pulled it off and it helped them make a major jump forward." This year, Hyundai's Genesis was named 2009 Car of the Year by independent automotive journalists at the North American International Auto Show in Detroit.
Meanwhile, as it was working to improve quality, the company also was expanding in Europe, the US and in developing markets. MacDuffie notes that the Hyundai Sonata was selected to be the official taxicab during the Beijing Olympics and the company has been more successful than some of its Japanese competitors in gaining market share in India and China.
In January, Hyundai grabbed attention in the US as consumers were reeling from the collapse in housing and stock market prices and growing fears of unemployment, by offering to take back a car that is financed or leased by a worker who subsequently loses a job.
When it was introduced, the Hyundai Assurance program was seen as more than just a marketing campaign, but also as psychological affirmation that the economy was not going to collapse entirely. "What they are doing is empathizing with the plight of people who are struggling," says Wharton marketing professor David J. Reibstein.
He observes that the Assurance program is similar to the warranty that Hyundai used to build confidence among consumers. "There might be hesitancy to buy because people don't know if they will be employed, but this provides the safety net which allows them to say, 'I can still afford to be in the market.' Clearly, the market needed some stimulation and Hyundai was able to provide that stimulation."
Analysts proclaimed the program a success when Hyundai reported US sales were up 14 percent in January compared to the same month a year earlier, while the entire US auto market fell 37 percent.
Reibstein says the offer was a groundbreaking concept, which was later adopted by other companies.
The idea might be used successfully in other industries to inspire confidence among consumers, he adds. Big-ticket durables would likely benefit the most, although he says the idea might also succeed in real estate.
Pfizer has a similar program assuring the users of its products that they will be able to continue to receive medication if they lose their jobs.
"It won't work with every product," explains Reibstein. "It's got to be a product with greater risk. What this strategy does is reduce the risk to the customer."
John Zhang, another Wharton marketing professor, agrees the program was a good move by Hyundai. He adds that the company's US customers, who tend to buy cars at lower price points, may be more affected by the recession than other car makers' customers.
"Economic uncertainty and layoff threats will make customers think twice before they purchase a new car," he says. "Hyundai's offer will convince those on the fence to jump over now."
(Reproduced with permission from Knowledge@Wharton, http://www.knowledgeatwharton.com.cn. Trustees of the University of Pennsylvania. All rights reserved. Shanghai Daily condensed the article.)
The company made a splash earlier this year when it unveiled its Hyundai Assurance program allowing customers to return a car if they lost a job.
Years earlier, however, Hyundai had already begun to invest in new models and quality programs that have put the company on solid footing to profit from the current chaos in the global auto industry. "There's a sense that what Hyundai is doing on many fronts is working in terms of actually gaining some advantage during the crisis," says Wharton management professor John Paul MacDuffie.
In 2008 - a brutal year for the auto business --Hyundai's global unit sales rose 2 percent, lifting revenues by 5 percent. In the first three months of this year, the company's global market share rose to 4.7 percent, compared to 4 percent a year earlier.
MacDuffie says Hyundai first made a name for itself in the United States in the late 1980s when it exported the low-cost Excel to the American market.
The car was popular at first, but soon earned a reputation for developing rust and other quality problems.
In the 1990s, Hyundai attempted to introduce a range of high-priced vehicles into the US.market, but MacDuffie says the company was "haunted" by its reputation: "Quality has always been Hyundai's Achilles heel in ... the US."
It was another economic crisis - the 1997 Asian financial collapse - that sowed the seeds for Hyundai's recent success, according to MacDuffie.
He notes that during that global economic slump, the South Korean currency fell sharply. As a result, Hyundai's competitor Daewoo went into bankruptcy and Hyundai was able to acquire another Korean auto maker, Kia Motors.
Surviving consolidation in its home market, Hyundai emerged from the crisis with new strength to address its problems. Beginning in 2001, MacDuffie says, Hyundai launched a major push to upgrade quality. At the same time, to help overcome its reputation for poor quality, the company announced a 10-year, 100,000-mile warranty.
The Hyundai program was far more comforting than the industry's standard three-year, 30,000-mile warranty, and essentially guaranteed the car for its entire expected working life.
"It was risky, but a powerful impetus to improve quality," says MacDuffie. "They pulled it off and it helped them make a major jump forward." This year, Hyundai's Genesis was named 2009 Car of the Year by independent automotive journalists at the North American International Auto Show in Detroit.
Meanwhile, as it was working to improve quality, the company also was expanding in Europe, the US and in developing markets. MacDuffie notes that the Hyundai Sonata was selected to be the official taxicab during the Beijing Olympics and the company has been more successful than some of its Japanese competitors in gaining market share in India and China.
In January, Hyundai grabbed attention in the US as consumers were reeling from the collapse in housing and stock market prices and growing fears of unemployment, by offering to take back a car that is financed or leased by a worker who subsequently loses a job.
When it was introduced, the Hyundai Assurance program was seen as more than just a marketing campaign, but also as psychological affirmation that the economy was not going to collapse entirely. "What they are doing is empathizing with the plight of people who are struggling," says Wharton marketing professor David J. Reibstein.
He observes that the Assurance program is similar to the warranty that Hyundai used to build confidence among consumers. "There might be hesitancy to buy because people don't know if they will be employed, but this provides the safety net which allows them to say, 'I can still afford to be in the market.' Clearly, the market needed some stimulation and Hyundai was able to provide that stimulation."
Analysts proclaimed the program a success when Hyundai reported US sales were up 14 percent in January compared to the same month a year earlier, while the entire US auto market fell 37 percent.
Reibstein says the offer was a groundbreaking concept, which was later adopted by other companies.
The idea might be used successfully in other industries to inspire confidence among consumers, he adds. Big-ticket durables would likely benefit the most, although he says the idea might also succeed in real estate.
Pfizer has a similar program assuring the users of its products that they will be able to continue to receive medication if they lose their jobs.
"It won't work with every product," explains Reibstein. "It's got to be a product with greater risk. What this strategy does is reduce the risk to the customer."
John Zhang, another Wharton marketing professor, agrees the program was a good move by Hyundai. He adds that the company's US customers, who tend to buy cars at lower price points, may be more affected by the recession than other car makers' customers.
"Economic uncertainty and layoff threats will make customers think twice before they purchase a new car," he says. "Hyundai's offer will convince those on the fence to jump over now."
(Reproduced with permission from Knowledge@Wharton, http://www.knowledgeatwharton.com.cn. Trustees of the University of Pennsylvania. All rights reserved. Shanghai Daily condensed the article.)
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