I have always thought that when a car company advertises a certain model, the primary intention is to sell as many units of that model as possible. It had never occurred to me that a given model might be promoted for marketing purposes other than the goal of necessarily selling that model. "Loss leaders"?-- that is for the local pharmacy; "bait and switch"--that is for the local supermarket. Surely neither of these marketing ploys could have any relevance for the marketing and promotion of an automobile brand.My, oh my -- was I wrong!

Consider the following two items that appeared in separate December 2011 issues of The Economist. In the first article ("Difference Engine: Volt farce") here, which appeared in the 8 December issue, the focus is on the challenge facing GM in dealing with questions over the safety of the electric battery, the technological centerpiece of the highly touted Volt electric car here.

Against that background, the article stated as follows:

"For General Motors, a good deal of the company’s recovery from its brush with bankruptcy is riding on the Chevrolet Volt (Opel or Vauxhall Ampera in Europe), its plug-in hybrid electric vehicle launched a year ago. Not that GM expects the sleek four-seater to be a cash cow. Indeed, the car company loses money on every one it makes. But the $41,000 (before tax breaks) Chevy Volt is a “halo” car designed to show the world what GM is capable of, and to lure customers into dealers’ showrooms—to marvel at the vehicle’s ingenious technology and its fuel economy of 60 miles per gallon (3.9litres/100km)—and then to drive off in one or other of GM’s bread-and-butter models."

Stated otherwise, the "Volt" brand is being promoted no less for the broader message that the brand is intended to convey about the technological capabilities of a reborn General Motors than for the the direct sales potential of the model (at least for the foreseeable future, which remains uncertain). While the Volt is not exactly a loss-leader, I am sure that GM wants to make a lot of money on this vehicle, if for no other reason than the costs of bringing a new car model to market. Still, the current tribulations of the Volt car point to the fact that GE cannot really allow customer perception of the vehicle as a symbol of the company's technological prowess, even if the model itself is not directly contributing to the company's bottom line.


But this is hardly the first time that an automobile model has been used to serve purposes other than the direct sale of the model in question. This was brought home in the article in the 17/24 December issue of the same magazine ("Retail Therapy: How Ernest Dichter, an acolyte of Sigmund Freund, revolutionised marketing") here. Dichter, while today largely forgotten, was a seminal figure in the marketing revolution that took place in the 1930s and 1940s, where the focus was how to exploit irrational purchasing behaviour for better sales performance. Dichter was a committed student of Freud, and his focus was on the Freudian preoccupations of the day, emphasizing the emotional, the irrational and the sexual.

In this context, perhaps Dichter's most creative marketing ploy was his approach to the then new line of Plymouth cars. The problem was that sales of the Plymouth brand were lagging. Dichter reasoned that the problem could be found in the slogan--""different from any other one you have ever tried." Dichter reasoned that the slogan triggered an unconscious fear of the unknown in purchasers. The solution that he fashioned was ingenious. Dichter gleaned from interviews that, while only 2% of car purchasers (in 1939) owned a convertible, they (especially middle-aged men) almost all dreamed of owning one.

And so the ploy. The male would be drawn into the showroom to look at the convertible--a symbol of "youth, freedom and the secret wish for a mistress". He would then return with his wife, who had no interest in sharing her husband with a mistress, even of the four-wheeled variety. The compromise was the purchase of a sensible sedan -- of the Plymouth variety of course. It was a clever scheme to leverage one model to encourage the purchase of another.

It would be overstated to suggest that the Volt is a "loss leader" in the traditional sense, or that the Plymouth convertible was a "bait and switch" tactic. Still, there are tantalizing points of similarity. In the auto industry as well,the interrelationship among the mark, the brand and the product are at once both more and less than that which meets the eye.

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The challenge of creating durable brands, especially those with traction outside of one's home territory, is not unique to Chinese companies. But the sheer size and potential international reach of Chinese companies makes their branding potential a matter of particular interest. It is against this backdrop that I found some intriguing insights in an article that recently appeared in the September 3rd issue of The Economist ("Privatisation in China: Capitalism Confined") here. The focus of the article, based on a study by Professors Jie Gan, Yan Guo and Chenggang Xu, is a typology of privatisation of Chinese companies. The first category contains massive infrastructure and utlility providers (such as banks, transport, energy and telecoms). In effect, these companies still remain largely within the purview of government ministries. Branding appears to be a minor or non-existent consideration.

Of more interest are two other categories: (i) joint ventures, comprised of a private (usually a foreign entity) together with a firm backed by the Chinese government; and (ii) companies that are largely in private ownership, but over which the government still exercises various forms of influence. At the risk of generalization, it appears that the second category of company is more attuned to branding matters than the first category. Even with that distinction, certain types of industries appear more likely to be concerned with branding issues than others, for instance, the automobile industry. Let's expand those thoughts.

Joint ventures--As has been often described (and sometimes decried), in the joint venture arrangement, the private, usually Western partner, seeks to gain access to the Chinese market in exchange for sharing its know-how with its Chinese partner. Criticism of this arrangement has centred on the charge that either by premeditated design or by later developments, the foreign partner is pushed aside or even squeezed out.

With respect to branding, most attention has been drawn to the car industry. As attributed to Michael Dunn, a car-industry consultant, the Chinese government has pushed the foreign company "to form "indigenous brand' joint ventures with intellectual-property and export rights." However, the article goes on to observe that "the efforts of the Chinese joint-venture partners to develop their own brands have yet to produce much success, despite their access to Western technology, vast resources and political pull."

The reason seems to be that, although the Chinese partner is interested in the economic well-being of the company, there is an absence of the long-term commitment that is required to build a brand. In particular, the Chinese representative is more likely to be tied to the government (indeed, that may well be the reason that he was chosen) and therefore it is also likely that he will return to a politically-related position. Under such circumstances, the chances that a joint-venture arrangement will successfully develop a strong brand appear weak.

Largely Private Company--Here the Chinese government appears to have less, or no direct involvement (indirect involvement and financial incentives are a different matter, but perhaps not so different than the situation with Western car companies as well). Again, focusing on the automobile industry, it is here that Chinese car companies have been most successful in brand development, pointing to the BYD, Chery and Geely brands. Further afield, the same situation is said to apply to ZTE and Huawei in the telecoms industry, Lenovo, the PC maker, and TCL, an electronics manufacturer. The common denominator for this has been ascribed to the different type of Chinese management in such companies--"[t]he bosses are not political appointees but charismatic businessmen in pursuit of commercial goals."

There is a potential darker side to these developments. The article goes on to decribe other types of "largely private" companies, most of which are in industries that are characterized as "strategic", such as energy, medical equipment and drugs. Here, industrial policy is more blatant, with protection against foreign challengers, liberal R&D support, and subsidized government purchasers. The jury is still out about whether such companies will able to develop their brands overseas successfully, once they venture out of their supportive local environment.

In this context, it would be instructive to learn whether any research has compared the trajectory of these companies with the success of both Japanese and Korean companies to create world-famous companies with powerful brands spanning the globe. More generally, it will be interesting to track the success of Chinese brands as a function of the degree that such companies are more, or less, privatised.

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