Author: Zhang Yi

It seems like a strange closed loop between people and society, and it is extremely difficult to distinguish who is leading who by the nose in this era of uncertainty and change. In this era where constants and variables are both more elusive, the trend of society and people’s focus often changes like a revolving lantern. It has become increasingly difficult for brands to achieve long-lasting user loyalty that truly resonates with people’s hearts.

In order to be seen by more people and chosen by more people, most brands have pointed the answer to the same goal – to move towards the high-end market. One of them, without a doubt, is NIO.

However, water always flows down, and it is hard for people to move up. For a young brand like NIO, whose initial positioning was low-end and has only been around for 4 years, it is not an easy task to become a high-end brand with a certain amount of influence in a short time.

It is worth noting that in the gasoline car market, Geely has been around for 36 years, while Great Wall has been around for 38 years, and they have not yet shaped their high-end image. They can only rely on the establishment of high-end sub-brands to explore the high-end market.

Although NIO does not yet have a high-end sub-brand, it already has a mid- to high-end car model named the NIO S in the price range of 1.998 to 3.388 million yuan.

With the NIO S officially starting deliveries on November 30, how to meet the needs of high-end users in the later stage, increase NIO S’ sales and explore the high-end market is a difficult problem for NIO.

To solve this problem, NIO has proposed a dual-channel sales model. Specifically, the marketing and service channels of NIO S are separated and an independent sales and service network has been established, which NIO calls “Shanhai Net”. So far, NIO is the first new force brand in the new energy market to plan to adopt a dual-channel sales model.

In fact, not only NIO, but also recently, GAC Aion HiPhi decided to separate its sales channels in order to seek upward brand mobility.

In the era of intelligent electric cars, how effective is the dual-channel strategy? Next, let’s take NIO as an example to discuss and analyze it.

Profit is always the ultimate goal

Slow revenue growth and limited funding are the two major problems NIO currently faces.

The slow revenue growth of NIO is mainly due to the fact that the sales of NETA V, which is currently the mainstay of NETA Car’s sales, are priced low, leading to thin profit margins. Although it has a monthly sales volume of over 10,000, to help NETA Car improve its profitability, the sales of NETA V still need to be further increased. Therefore, as it stands now, NETA Car needs NETA S, which is priced higher and has higher profits, to generate revenue for itself.

In addition, the lack of funds is also a problem. NETA Car CEO Zhang Yong once said, “Enterprise development requires a lot of money. It’s not true to say that we don’t need money…The more money an enterprise has, the better it is.”

As of the end of 2021, NETA Car’s total assets were CNY 13.7 billion, while its accumulated losses in 2020 and 2021 reached CNY 4.229 billion. Moreover, despite having achieved record-breaking sales this year, NETA Car is still plagued by financial problems, and needs a new model to promote the sales of its high-end models in order to increase profits, attract funds and revitalize the whole situation.

Specifically, the establishment of a dual-channel direct sale model for NETA Car could benefit it in the following ways:

(1) Increase in product sales

Currently, NETA Car has a total of three models on sale, including NETA V priced between CNY 79,900 and 87,900, NETA U-II priced between CNY 129,800 and 147,800, and NETA S priced between CNY 199,800 and 338,800. Among them, NETA S is positioned as a medium-to-high-end intelligent coupe, while NETA V and NETA U are SUVs targeting the low-end market.

Because of the disparity in positioning and prices, the customer demands for S, V and U are different. Adopting a dual-channel sales model means that NETA Car can provide more accurate and focused services to customers of these models through two channels.

This way, while further promoting the market shares of U and V, the sales of S will be maximized.

(2) Amortization of Operating Costs

NIO currently adopts a direct sales and agency sales model, with most supermarkets directly operated by NIO’s parent company. With the continuous expansion and development of the brand, NIO plans to increase the number of direct-operated stores to 150 by the end of this year, to 300 by 2023, and to 1,000 by 2025.

The increase in directly operated stores means an overall increase in operating costs, with the rapidly rising rent of supermarkets being of utmost importance.

Due to the influx of a large number of new energy brands into the business circle, the rent of supermarkets has risen sharply. According to relevant data, from the end of 2020 to the end of 2022, the rent per square meter per day for a new energy store in a certain first-tier city’s shopping mall has risen from 16 yuan to 34 yuan.

Therefore, NIO needs to improve the input-output ratio of supermarkets and maximize profits by only allowing higher-end NIO S to enter supermarkets and addressing the problem of cost surge by converting high-end users.

At the same time, because NIO supermarkets themselves are often small in size, with the enrichment of product matrix, supermarkets will inevitably face the problem of not being able to accommodate products. Instead of increasing operating costs by opening more stores, it is better to take advantage of the situation and distribute through multiple channels, focusing on seizing the high-end market.

(3) Paving the Way for Sales of Sports Cars

Zhang Yong said in a recent interview, “We will not pursue any car models above 300,000 yuan in the short term and will continue to consolidate the market around 200,000 yuan,” and continued to state, “There will be two new models introduced next year.”

On December 16th, NIO CEO Zhang Yong also posted on a social platform that NIO will mass produce and deliver a sports car, the NIO E, in the first half of next year.

It looks like one of these two new cars will be NETA E, with a price that is likely to be similar to NETA S, between 200,000 and 300,000 yuan. Undoubtedly, NETA E will be another heavyweight weapon for NETA Auto to rise after NETA S.

However, if E, S, U, and V are mixed together for unified sales in the future, it will not only be unfavorable for cost reduction and efficiency enhancement in operation, but also lose the attractiveness to high-end users.

Therefore, the significance of the dual-channel model is to pave the way for the sales of sports cars in advance, enabling NETA E to accurately reach the user group and quickly open sales.

Overall, the biggest significance of the dual-channel model lies in its contribution to the profitability of NETA Auto, while the biggest shortcoming lies in the difficulty of controlling the unified branding image.

Balancing Service Differences is a Challenge

In response to different user needs, NETA Auto has made cuts in service channels and marketing channels. However, since both channels ultimately belong to NETA Auto, the quality of service and marketing cannot be separated, right?

In other words, even though NETA E and NETA S face different user groups with different needs to be solved, this does not mean that users should be treated differently because of their different levels of wealth.

However, Zhang Yong said, “We hope to focus more on the needs of this part of the user group (middle and high-end users), which are still different from those of NETA U and NETA V.”

If NETA Auto has different service levels and attitudes for different user groups, then the dual-channel model may pose certain hidden dangers to its unified brand management.

For NETA Auto, balancing the service and quality differences between different user groups and not giving the media any excuses will be a big challenge.

At the same time, this also makes very high demands on NETA Auto’s management of first-line service personnel. On the one hand, it requires the unified indoctrination and training of brand culture. On the other hand, it also requires constant adjustment and optimization of the system to improve the enthusiasm and reliability of service personnel, and ultimately improve the operating efficiency of the organization.

However, according to the actual experience and observation of the journalists from “Electric Momentum”, the efficiency loopholes of NETA Auto may have already begun to emerge.

“Electric Momentum” invited a test drive at NETA Auto’s Shanghai store, but was unable to go due to other issues. Unexpectedly, on the same day, the journalist received a complete test drive report with the time, place, and test drive route, and was asked to fill out a survey.

How can the “black box operation” that deals with KPI truly promote the efficiency of NETA Auto’s dual channels?

Effectively avoiding personnel management mistakes through a sound system will be a major challenge for NETA Auto to achieve more effective implementation of its dual channels.

The Power of Electric Vehicles

Successful channel construction is the process of successfully conveying core brand values, converting potential users into profit-earning users through the transmission of core values. Good marketing channels often have the four characteristics of having a short link chain, wide coverage, short circulation cycle, and a unified image.

Currently, it seems that NETA Auto’s dual-channel model already has the first three characteristics, but it still needs to accurately grasp the last aspect of a unified image. If this is not done well, NETA Auto may face limitations throughout its operations.

In addition to ANTA’s strategy of launching a new high-end brand, Hao Bo, in order to enter the high-end market, the dual-channel model has a unique advantage in cost savings, which is more suitable for NETA Auto, a brand with a smaller volume. Being nimble and flexible is the way to go.

As we enter the era of intelligent electric vehicles, we eagerly await to see how much energy the dual channels can actually unleash.

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.