*This article is reproduced from the autocarweekly WeChat Official Account.
Author: Finance Street Old Li
Great Wall Motors has quietly gathered “Seven Major Brands”, which has both support and controversy.
At this year’s Shanghai Auto Show, Great Wall Motors’ booth can be described as full of vigor and vitality. Whether it is Haval or WEY, Ora or Tank, or Latte, Mocca, and Punk Cat, there are always brands or products that fit each individual.
Compared to the dazzling C-end market, the voice of the capital market is more focused. Since the first quarter, brokerage researchers who support Great Wall Motors have repeatedly blown the grand blueprint of Wei Jianjun’s “Seven Major Brands” to fund managers. In their view, whether it is a new force or an old giant, expanding revenue and profits is the truth.
What are the innovative points of this plan?
Wei Jianjun is the chief product manager of Great Wall Motors and personally inspects every model. The military style deeply influenced Wei Jianjun and also affected Great Wall Motors. From the corporate strategic positioning to the vehicle testing, Wei Jianjun is personally involved and meticulous.
After the group’s sales exceeded one million units, Wei Jianjun started a gradual change for Great Wall Motors from 2016 to 2018, with the simple goal of achieving higher sales volume. The three-year transformation was focused on products, emphasizing youthfulness and high-end products, from Haval F series to WEY, from pickup trucks to Ora. The volume was not large, nor was it small. There were successes and failures. However, overall, Wei Jianjun’s three-year transformation had little effect. The Ora and WEY brands were below expectations. Friends working at Great Wall sometimes felt anxious: Wei only cares about products and not consumers.
In the past two years (2019-2020), Wei Jianjun and Great Wall have changed. When friends report to Wei Jianjun, he generally asks: What are the innovative points of your plan?
In the past, Wei Jianjun was most concerned about products, but now he is most concerned about innovation. When it comes to innovation, people first think of new forces, because this term has little to do with traditional giants. New car-making forces such as NIO, Xpeng, and Li Auto have seized the smart electric vehicle track with innovation, driving the industry’s self-iteration and bringing predicament to traditional automakers.
Geely has been stuck at 1.5 million units bottleneck for three years, Great Wall has been stuck at 1.1 million units bottleneck for five years, and BYD has been stuck at 500,000 units bottleneck for even longer. For traditional giants, they can survive in the short term without change, but in the long run, they will die. Change has the opportunity to soar. The key is how to change?
The traditional approach of state-owned enterprises is to focus on high-end products or brands, such as Dongfeng’s “Voyah”, GAC’s “Aion”, SAIC’s “IM” and R Automobile. In contrast, three private enterprises are more pragmatic in their approach, with a clear focus on the importance of actual revenue rather than just market value. Strategies for generating larger revenues are often closely tied to the entrepreneur’s genes, which have led to three different approaches among these private enterprises.
BYD’s Wang Chuanfu pursues a strategy of vertical integration, with self-supply for key upstream supply chains such as batteries, motors and electronic controls. This has led to a gross margin of more than 25%, which is industry-leading. In contrast, Li Shufu of Geely pursues a strategy of open platforms and external cooperation, with cost-sharing as the primary goal, whether partnering with Baidu or cooperating with Foxconn.
Wei Jianjun of Great Wall Motors has taken a different path, focusing on building multiple brands. While hardly noticed, Great Wall now owns seven major brands. Let Li introduce us to these brands and their goals:
- “SL”: A global leader among China’s new forces, creating a luxury brand that encompasses all types of products with prices starting at over 300,000 yuan.
- “WEY”: A high-end, intelligent SUV brand that originates in China and is aimed at a global market, with prices ranging from 120,000 to 300,000 yuan.
- “Tank”: The world’s leading off-road SUV brand, with products worldwide and a mission to challenge and capture a place among the top three brands in each market segment, creating an image as the global leader in off-road vehicles with prices ranging from 150,000 to 300,000 yuan.
- “Haval”: The world’s leader in economic SUVs, the “Volkswagen” and “Toyota” in the economic SUV market, with products ranging from 70,000 to 200,000 yuan.
- “ORA”: The global leader in economic BEV, focusing on the economic BEV market for the masses and creating a sense of global fashion and style, with prices ranging from 70,000 to 200,000 yuan.
- “Pao”: The global leader in economic pickups, with a focus on the domestic market while quickly expanding into overseas markets, creating an image as the global leader in economic pickups with prices ranging from 100,000 to 200,000 yuan.
- “Great Wall”: The leading global brand in economic sedans, focusing on emerging high-growth potential markets in China and creating a new sense of perception with intelligent and electrified products, with prices ranging from 100,000 to 200,000 yuan.
What theory drives Wei Jianjun’s enthusiasm for developing these brands?Multi-brand strategy is not a new concept in the automotive industry, as many car brands, like Volkswagen, General Motors, Chery, and Geely, have tried this strategy and faced challenges.
The difficulties of multi-brand strategy lay in the positioning of the brands and products. For instance, Geely’s brand positioning for its previous models, such as Emgrand, Geely, and Englon, was distinct, but the products had no essential differences. Meanwhile, Volkswagen and Skoda, both owned by the Volkswagen Group, are essentially economic brands, and their brand positioning is blurry. Although the differentiation between their products is present, it is not significant enough. As consumer demand continues to evolve, the effectiveness of the multi-brand strategy is decreasing.
Although other car companies have treaded the paths of Geely and Volkswagen, Great Wall Motors’ multi-brand strategy is unique.
As we know, Wei Jianjun is an advocate of positioning theory, and Lise Partner is a consulting firm that practices positioning theory. Great Wall’s multi-brand strategy originated from this theory. What is positioning? As the founder of positioning theory, Trout, said, “Positioning is making your business and products stand out, forming core competitiveness; for the audience, it is building a distinctive brand.” In reality, from corporations to personas, the application of positioning theory is ubiquitous.
Why is Great Wall bold enough to implement a multi-brand strategy? Firstly, the times have changed, and the application of category theory becomes more prominent. Secondly, Great Wall has transformed, daring to attempt a big single product in a niche market.
A. Times have changed, and the application of category theory becomes more prominent
Everyone is familiar with the pricing strategy of brands. When a company wants to try to cross its product level, whether upward or downward, it must use a multi-brand strategy. “Free-riding” acts of brands can lead to blurred brand positioning, which then causes consumers to have a distorted perception of the brand (price or product quality).
For instance, Volkswagen has a high-end brand, Audi, and an economic brand, Skoda, which rely on price differentiation as their primary brand strategy. Great Wall Motors also uses this pricing strategy, developing luxury brands like SL, high-end brands like WEY and Tank, and economic brands like Haval, Cannon, Euler, and Great Wall, based on the price gradient.
The logic of “satisfying the whole nation with one Spring Festival Gala” is no longer applicable. The refinement of society and consumption upgrades overturns the so-called “mass” consumption, giving rise to the category theory.
In the past, whether it was a Volkswagen brand or a Skoda brand, there would have been a category overlap in their products. The direct competition between Volkswagen’s and Skoda’s SUV products was inevitable. Therefore, Wei Jianjun’s multi-brand strategy goes further, using category theory.
Wey and Tank: Two Different Brand Strategies in China’s Auto Industry
WEY focuses on intelligent electric vehicles, while Tank focuses on off-road vehicles. There is not an obvious competition relationship between the two as the former aims at the mainstream high-demand market while the latter targets niche markets with weak demand. Similarly, the four major types of economic brands have distinct market positioning. Haval is focused on SUVs; Great Wall Pickup on pickup trucks; Great Wall Motors’ own brand on sedans, and ORA as a crossover brand. By doing so, each brand is servicing its corresponding consumer group.
Chang’an’s Bold Attempt in Niche Markets
If you were a car company’s CEO, which market group would you select? Most would choose the largest market, as it is the conventional point of view. Nevertheless, Chang’an broke the tradition and chose to develop a single product in a small market by prioritizing demand. Typically, low-end companies identify demands, mid-range firms satisfy those demands, and top-tier companies manufacture that demand. Chang’an’s multi-brand strategy continuously generates demand. Wei Jianjun, the CEO, pushed ahead with the introduction of the off-road style Tank 300, and the widely popular model caught the attention of many consumers. Tank 300 was initially a model under WEY, and if it had not exceeded the expected sales volume, Chang’an would not have dared to establish Tank as an independent brand.
Chang’an Cannon and ORA Punk Cat are also examples of developing demand, where Punk Cat shares a similar appearance to Volkswagen’s early Beetle. According to reports, the Punk Cat model faced criticism from the employees due to its design and low market relevance. Although Wei Jianjun surpassed dissuasions and introduced the Punk Cat to the market, the reason was simple: users had demands and even the smallest market could capitalize on a niche product.
Deng Delong presented the concept of location. When a consumer has a need, they will select a brand that fills that need. In other words, this brand occupies that positioning. To better explain, it is like differentiating gamers. In most cases, there is a group of gamers, but when you further classify them, there are individuals who play League of Legends, and others who play Honor of Kings.
Chang’an’s multi-brand strategy is based on a pricing theory, which differentiates between the group of individuals who play games. Originally, the brand strategy was only accountable for the cost range, but Chang’an used product category theories to scrutinize consumers who play League of Legends versus those who play Honor of Kings.
Only After Experimentation Will the Markets Reveal the Truth
Change is often controversial, and competitors hope to see their rivals make mistakes, while the masses enjoy being armchair critics after the fact.Between 2016 and 2018, Great Wall had both successes and failures. While the beginning was successful, the end resulted in more failures. The second transformation between 2019 and 2020, however, started off well, with Great Wall becoming an automotive group covering all price ranges and multiple product lines, like Volkswagen and Geely, through a series of planned expansions. Its strategy of having multiple brands allowed it to achieve both offensive and defensive capabilities, thereby increasing market share and enhancing competitiveness, creating an ideal situation.
Among Great Wall’s seven major brands, the majority of them evolved from product series to independent brands, such as Pao and Tank. During the initial stages of brand building, research and supply chain were often interlinked, so the pressure was relatively low. However, in the long run, new brands can face significant challenges.
Firstly, new brands directly impact Great Wall’s three cost ratios. Building an independent network and supply system causes a dispersion of resources. In the first quarter of this year, Great Wall’s gross profit margin decreased by 3%. If each brand does not receive sufficient sales support, the financial report will not look optimistic.
Secondly, new brands demand high marketing team capability. How to accurately grasp the target consumer group and increase sales, with clear brand and product positioning, is the first issue for the marketing team. If solved well, revenue and net profit will increase, leading to a greater marketing investment and a positive cycle. Haval is a successful example.
According to Wei Jianjun’s theory at the time, “Independent Haval is a strategic necessity. Great Wall will take SUV as the most important resource in the three categories (sedans, SUVs, and pickups) to develop multiple brands. Multiple brands must start after one brand has a solid foundation and takes the lead. If you cannot achieve the first place, don’t attempt multiple brands. A first place must be maintained. Only by establishing its own brand with strong categories under full market competition can it be successful.”
Wei Jianjun built Great Wall’s second brand according to this theory, moving on to the seventh brand that Pao and Tank are today. They followed the same path as Haval, separating sales and service from R&D and production. Haval’s success was based on a sale of one million units, and Pao and Tank will need time to achieve that.If the problem is not solved well, it will result in a vicious cycle, as demonstrated by Euler and WEY, the two brands that held the most promise for Wei Jianjun. In August 2018, when announcing the Euler brand, Wei Jianjun stated that “Euler insists on positive research and development, does not engage in ‘oil-to-electric’ or ‘policy cars’.” Euler experienced a short-term high in sales, but quickly declined, with monthly sales dropping below 1,000 units at one point; WEY had its moment in the spotlight, but sales did not meet expectations, falling from nearly 140,000 units in 2018 to nearly 80,000 units in 2020.
After experiencing rounds of market fluctuations and personnel adjustments, if it were not for Great Wall Motor’s categorical adjustment of the whole group’s product line, if it were not for Black Cat Good Cat, if it were not for Latte Mocha Macchiato, the future of Euler and WEY could have been very bleak.
When a company reaches a certain size, it is normal to think about improving brand premium. Eight years ago, Haval’s independence marked the beginning of Great Wall Motor’s multi-brand strategy, as well as a necessary step towards seeking higher profits and sales.
From the first to the seventh brand, Great Wall did not hold a grand press conference to announce its multi-brand strategy, but quietly completed its technological, product, and channel self-iteration. Wei Jianjun is well aware that brand independence is not simply changing logos or building channels, but requires a substantial investment of capital and the establishment of excellent marketing capabilities, as well as efforts to form a virtuous cycle. The seven brands, whether they are mules or horses, can only be tested by the market, as it is the only criterion for brand evaluation.
This article is a translation by ChatGPT of a Chinese report from 42HOW. If you have any questions about it, please email bd@42how.com.