March 6, 2013 / 3:01 PM / 5 years ago

Hyundai Europe doubles ad budget to fight image problem

GENEVA (Reuters) - South Korean carmaker Hyundai (005380.KS) plans to double its advertising spending in Europe in a bid to build on market share gains at a time when struggling rivals are becoming more aggressive in cutting prices.

An employee cleans around cars for sale on display in the Hyundai showroom in St.Petersburg January 15, 2013. REUTERS/Alexander Demianchuk

Ailing European brands like Opel (GM.N) and Peugeot (PEUP.PA) may find it hard to believe, but Hyundai thinks it has an image problem.

Its own research shows that even more consumers would flock to buy popular models like the Hyundai i30 hatchback if only it were made by a different carmaker.

“It’s not a luxury, it’s an absolute necessity,” Mark Hall, Hyundai Europe’s marketing director, said in an interview of the planned increase in the company’s advertising budget to an estimated 630 million euros (544 million pounds)).

Hyundai has transformed itself from a sports utility vehicle-focused (SUV) manufacturer with perceived quality issues to one of the hottest selling carmakers thanks to European designed, engineered and built models like the i30.

Sales growth has averaged nearly 10 percent in the past two years in a struggling European Union economy, lifting its share of the market to 3.4 percent last year from 2.6 percent in 2010.

However, Hyundai is currently at a point where many of its first time buyers, lured by affordable prices, are poised to shop around again for a new car, and customer loyalty statistics show it would lose half of them today to rivals willing to undercut them with an even better offer.

“About 70 percent of our vehicle parc in Europe is less than five years old,” Hyundai Europe Chief Operating Officer Allan Rushforth told Reuters.

To retain its customers, and attract new ones, Rushforth and Hall realise they need to supply consumers with an emotional reason to buy as well as rational ones like value for money.

That is easier said than done, according to Bernd Buechner of Millward Brown, which has developed performance benchmarks to measure the effectiveness of ad campaigns.

“It’s long been a problem of Hyundai that customers have been mainly attracted by the price, but simply doubling or even tripling your advertising spending alone won’t necessarily solve the problem,” he said.

“When it launched the Auris in Germany, Toyota rented all the outdoor advertising surfaces they could get for three weeks, but it still didn’t motivate the customers to go and buy the car. Good campaigns have to have a relevant fit, and not just tell any sort of fun-to-drive story.”


Hyundai’s own research shows the challenge it faces.

Like Folgers, the maker of instant coffee which substituted its cheap brew in restaurants to find out if unsuspecting patrons noticed, Hyundai wanted to learn what people thought about its cars when brand bias didn’t play a role.

Product clinics conducted with target buyers revealed that an unbadged i30 ranked best in design among the car’s key competitors - until people discovered it was a Hyundai.

“At the end of the process when you tell them it’s a Hyundai, their preference for the car suddenly drops. It doesn’t go from first to last, but it drops,” Hall said.

People couldn’t even articulate what caused their abrupt fall in interest since they knew too little about the brand in the first place, he added. “They have this subconscious feeling that it’s probably not good, they just can’t explain why.”

Less than 15 percent of consumers can spontaneously name Hyundai as an automotive brand compared to the 35 percent for the average automaker - a key determinant when it eventually comes time for a car buyer to draw up a shopping list of models.

Part of the problem that Hyundai has to overcome, Hall believes, is its very origin.

“There is an emotional detachment from the brand and I think that is driven a lot by Korea’s geography as an Asian country thousands of miles away. Very few people choose to go to Korea for holidays, for example,” said Hall.

He wants to emulate the success of Samsung (005930.KS) and LG (066570.KS), two South Korean brands that emerged from behind the shadows of Japanese giants Sony (6758.T) and Panasonic (6752.T) to shake up the consumer electronics market.

So as not to dilute the message, Hyundai will invest over two-thirds of its budget around television and digital campaigns focused on the i30 compact and its ix35 SUV cousin.

“Whereas our share of Europe’s auto industry advertising traditionally was in line with our share of the European car market - in other words currently around 3.5 percent - we now want to bump that up to as much as 7 percent,” Rushforth said.

With Europe’s carmakers spending about 8.96 billion euros for ads last year, according to data from market researcher Nielsen (NLSN.N), this would translates to a total ad budget of close to 630 million euros.

Additional reporting by Henry Foy; Editing by Mark Potter

Our Standards:The Thomson Reuters Trust Principles.
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