Strategy: Why Renault failed in China
The short answer? No Duster.
I wrote a first version of this article in French for the professional website Autoactu.com.
On April 14, Renault announced a strategic reorganisation of its Chinese operations that implies the future of the brand on this market would rest of the frail shoulders of the City K-ZE small electric hatch. This isn’t a sustainable position, even more so given Dongfeng, partner at 50% in the e-GT joint venture producing that car, is already marketing the same model in China under four different names and two separate brands. Venucia, its low-cost brand, sells it as the e30, while Dongfeng itself offers it through three of its subsidiaries as the Aeolus EX1, Forthing T1 and Glory E1. With four clones already in the starting blocks, it seems pointless to hope for the survival of the Renault variant, and therefore of the entire Renault brand in China.
Renault City K-ZE
Only 4 years after its launch as a local producer and although the Renault Group remains present in China with Jinbei LCVs, the Renault brand is headed towards complete withdrawal from the world’s largest auto market. How could a large international brand with more than 120 years experience fail so quickly in China? After the failure of its first Chinese joint venture, Sanjiang-Renault (1993-2003) which produced only 4.906 Trafic vans in a decade, Renault decided to try again in 2013 and reorganised the same joint-venture which became Dongfeng Renault, or DRAC. A factory with an annual capacity of 150.000 units was built in Wuhan in the Hubei province and Carlos Ghosn set the sales target at 500.000 annual units by 2022. Renault never even approached this figure.
Renault Kadjar at the Guangzhou Auto Show in November 2015.
From a rather satisfying start at 72.000 sales in 2017, the brand fell -31% in 2018, -64% in 2019 and -89% over the first quarter of 2020. The decision to no longer invest in this market therefore seems to be the right one, although it is taken at the exact time Renault’s lineup in China was finally expanding. After releasing both the Koleos and Kadjar in 2016, Renault did not launch a single new locally-produced nameplate over the following 3 years, waiting until Q4 2019 to kick start both the Captur 2 and City K-ZE, even though the latter is based on the Indian Kwid from 2015. In a Chinese market absorbing hundreds of new models each year, this was suicidal. And although the carmaker focused its initial efforts on the then-buoyant SUV segment, it was caught off guard when sales began to falter in mid-2018, having no sedan to fall back on.
The Renault Koleos I was popular in China as an imported vehicle.
Before 2016 and the start of local production which was supposed to unlock substantial Chinese volumes, the imported first generation Koleos, was the best-selling and sole truly successful Renault model in the country, with over 30.000 sales in 2014. But from that figure the brand’s imports then thawed to just a trickle: a mere 24 Renaults were imported in China over the first quarter of 2020, despite an aggressive marketing campaign in 2017-2018 supporting the Espace. This means the brand won’t be able to rely on a sustained flow of imports to survive in China.
Skoda reinvented itself as a semi-premium brand in China.
One of Renault’s main mistakes has been its Chinese positioning. A very difficult concept to grasp for the rest of the world is that the car is a very new consumer product in China. Barely 20 years ago, there were almost no private cars on the roads, even those of megacities such as Beijing, Shanghai or Guangzhou. This way, all car brands launching here start from a blank sheet, and can craft themselves an image devoid of any historical baggage. For example, Hyundai and Kia were able to sidestep the poor reliability shackle that has delayed their development in Europe and the US at the start of the 2000s. Skoda, which has spent the best part of the past 30 years trying to erase a dubious reputation, reinvented itself as a semi-premium offering in China, signing its local communication with a “Since 1895” worthy of the greatest watchmakers.
Fan Bing Bing was Renaut’s ambassador in China at launch in 2016.
This way, when Renault was orchestrating its grand entrance as a local producer in China five years ago, it had free rein to create a tailor-made identity to best woo the Chinese consumer. Using Formula 1 as a launching platform wasn’t necessarily a bad idea: it helped give credibility to the brand in India. But despite attempts at pushing an elusive Megane RS, the truth is this high-tech, sporty angle was not reflected in the Kadjar-Koleos original product offering. And the (expensive) decision of using a local ambassador, the ultra-famous actress Fan Bing Bing, positioned the brand in a completely different universe: this time Asian and feminine. At the Shanghai Auto Show in 2016 Renault used a different language again, boasting a “sensual and Latin design” that tends to be associated with Italian car brands instead.
Wanting to play on all fronts, Renault found itself marred with a series of desired positions without ultimately anchoring any. But in a market where more than 250 car brands including roughly 170 Chinese fight for recognition, making its way towards the very short car shopping list of the Chinese consumer requires marketing pioneering. Be impactful, unique and creative, avoid conventional messages, surprise with a different attitude and repeat what you have decided to say with confidence and consistency.
Renault has done none of this.
French luxury brands are extremely popular with Chinese buyers.
The brand could and should have banked on the clearly feminine image of French luxury that all Chinese women are obsessed with – a strategy that, by the way, could also lift DS from its Chinese abyss. Instead, the brand chose to follow a direction that rings right in the corporate corridors, but is in fact both passive and dangerous because overused: the seductive chant of the “sophisticated European brand” targeting eastern coastal cities whose purchasing power is similar to that of Europe. However this region is already saturated with private vehicles, having reached a sales plateau and hampered with licence plate restrictions at the time of Renault’s arrival. Besides, the Chinese market has already its lot of extremely successful sophisticated European brands, among them Volkswagen (3 million annual Chinese sales), Mercedes (735.000), BMW (725.000) and Audi (680.000), absolute behemoths compared to tiny Renault – in China at least.
The Duster was launched as a Renault in Brazil and Russia in 2011.
Granted, hindsight is 20/20. So what would have been a realistic and workable model for Renault in order to succeed in China? The avenue I’m suggesting requires a major partner that the Group completely bypassed in this market: Dacia. Vehicles sold under the Dacia brand in Europe but rebadged as Renaults for most of the rest of the world have enabled the brand to reach record market shares in India, Russia, Brazil, Mexico, Argentina and Colombia to name just a few. As a regular BSCB reader you will be very familiar with this decade-long success story. The Duster, Sandero and Logan account for the large majority of Renault sales in these countries, enabling the brand to blossom and avoiding the low-cost stigma thanks to vehicles better furnished than their Dacia counterparts, exclusive sporty versions such as the Mexican Sandero RS or SUV-style variants like the Russian Logan Stepway.
The justification provided by Renault for not producing the Duster in China, where an almost unfathomable 45 million SUVs were sold over the past 5 years (not a typo), was that the Wuhan factory could only produce the CMF platform. And also that in any case, the Duster did not fit the sophisticated image that Renault wanted to portray in China. This last argument is obsolete, as we have seen in Russia, India and Latin America where Renault’s brand image has not been damaged, on the opposite. Plus Renault did a complete backflip in China when it introduced the City K-ZE at the Shanghai Auto Show in April 2019, the shockingly low-cost interior a disturbing eyesore in a Formula 1 background.
In fact, Renault’s small size in China should have encouraged the carmaker to act as a niche player at least in its first few years of local production. An obvious launch target market would have been women living in the less urbanised regions of China, namely Tier 3 and 4 cities.
Ürümqi car buyers were very fond of the imported Koleos back in 2014.
The first generation Koleos, imported into China over the first half of the 2010s, was especially successful in the less developed central and western regions of the country. This despite being priced very high compared to its locally-produced competition, a typical trait of imported vehicles in China which can work both ways: discouraging buyers or screaming exclusivity and attractiveness. As an example, during a visit to the capital of the westernmost province of Xinjiang, Ürümqi, in April 2014, I spotted a dozen Koleos in just a few hours, by far the highest rate of any city I had visited in China so far. My comments at the time: “one very interesting observation that will please French fans: I was very surprised to see many Renault Koleos in town. Given they have to be imported at high cost, this is a very encouraging trend for the French manufacturer which will start production in China shortly.” Little did we know… Also, these less urbanised regions have been for the past 5 years one of the main Chinese engines of economic (and new car sales) growth, giving this strategy even more relevance.
Borgward BX7 in Bayanhot Inner Mongolia, April 2018.
In this context, why not build on existing success and brand recognition and focus on these regions to develop the brand? It would have been a much cheaper exercise than trying to establish it in the ultra-competitive eastern seabord markets. After all, it is also in the less urbanised parts of Europe that the Duster has carved itself a spectacular popularity – and borderline cult following – so preciously successful grassroots strategies could have been reused there, starting with a local version of the annual Dacia picnics. Another positive element: the Chinese populations of these regions are even more sensitive to both SUVs and to the lure of European brands. Foton revived the German marque Borgward in 2015 and its marketing in China has been solely focused on the brand origin even though not a single vehicle is currently produced in Germany. The result: I saw more Borgward SUVs in the remote town of Bayanhot, Inner Mongolia in 2018 than in Beijing and Shanghai combined (see above).
By building on the luxury associated with French products, all the while offering reliable, robust and good value vehicles. The Duster is a no-brainer for Chinese production and the Logan would have helped establish a safety net of sedan sales that can be relied upon if and when SUVs peter out somewhat. Discard the Sandero as hatches aren’t a favourite here, but the Arkana Coupe SUV would fall right into the recent craze Chinese manufacturers have developed for such silhouettes (Geely Xingyang, Dongfeng Glory ix5, Changan CS85 Coupe, Lynk & Co 05, Haval F7x…). A respected image combined with value-for-money vehicles is the blockbuster recipe behind the global, decade-long success of the Group’s Entry lineup under the Renault badge. And there are no valid reasons why this recipe should fail in China. As the 2011 French ad touted (above), the Duster is “shockingly accessible” and in China that means Renault can fight with such blockbusters as the Haval H6 and Geely Boyue with similar pricing. And that is precisely why it would have been a smash hit in China where the unabatted search for the best possible deal is a national sport and source of great pride. Given the choice between a European and a Chinese brand for the same price, a lot of Chinese buyers would still opt for the European one, especially in Tier 3 and 4 cities.
Chinese demand for the Renault Duster already exists.
And then what?
Once the brand has established, without breaking the bank, a reputation of sturdiness in the harsh environments of these less urbanised regions of China (think Duster in the French Alps), this marketing model could then feed itself. Robustness as both a reputation and a car design language in turn becomes very sexy in the coveted big cities of the Chinese East, especially with young and trendy women already converted to French luxury. The loop is looped. In fact, local buyers are craving the Duster 4WD so much that it is now available in China as a parallel import (read non-official) from Romania, but 16% dearer: from 149.600 to 169.900 yuan (19.600-22.000€), making it way more expensive than the segment’s all-time local bestseller, the Haval H6. Producing it locally would however make the Duster an aggressive competitor.
Come on Renault, let’s try China again?
Hey Matt! I would say it is a very well researched article and I couldn’t agree more. I am from India so that is what I can talk about.
I remember when Renault launched Duster in India, there was no competition for it, Renault pratically created a segment and the car became a huge hit with people. Today it is one of the hottest segment of Indian car market and a very profitable one for automakers. Although now, Hyundai and Kia rule the segment but Renault Duster still enjoyes a huge following in India but Renault messed it up by not bringing the new Duster and instead launching Captur as a more premium offering with European styling and buyers instantly hated it as it did not have the ruggedness and value for money factor of a duster.
This is the classic case of what you rightly pointed out above that people associated renault as a decent brand which is not cheap but offers value for money. Renault instead messed this up in India by going more premium and European with Captur ( the same strategy they tried in China) but they were quick to correct it with price corrections and newer products like Triber which again became a huge hit as it gave buyers value for money ( very important in India ) but not a cheap imagine unlike what Datsun tried and failed.
Even when renault launched Kwid, it did not shatter its brand imagine, infact people liked the offering a lot. Same goes for Triber.
Renault almost never pitched itself as a premium European brand in India. When it comes to buying a European mass market car in India, Volkswagen and Skoda are the go to brands for almost everyone and Renault probably knew this already and that is why it launched products like Kwid and Triber and is developing a Hyundai Venue competetior and a Maruti Dzire Competetior and not playing against Octavia or a Kodiaq. This is why it does not sell Tailsman or new Koleos in India and it has worked great for them. It surprised me how they failed to do same in China.
One more thing that I observed which I am not sure if you can agree on is that Renault has always been sucessful in markets similar to its home market Europe. India, Brazil,Russia and South Africa for example are more like less matured versions of European market or atleast very similar in key things as just like Europe :-
1.They prefer smaller cars,
2.They prefer hatchbacks ( Kwid, Sandero or Clio) and compact crossover ( like Duster or Captur )
and small sedans like Logan and
3. Have demand for small diesels ( atleast in India)
whereas Renault does not sell in US as it does not have apetite for hatchback and smaller ars and renault does not have huge cars with big V6 or V8. Similarly, Hatchback is a huge strength of renault and a huge contributor of its sales but China hates them. What do you think ?
– On BSCB ‘Renault / India’ has been source for debate in the past, and no matter how hard they try, foreign brands – including Renault, less so Honda and currently the Korean brand – face the immense popularity of mighty Maruti, with its 50% market share. What surprises is your remark “VW and Skoda are the ‘go-to’ brands for almost everyone”. Even combined, these two have a very limited exposure in the Indian market – yet. Might even Renault outsells them.
– Certainly agree on yr explanation how Renault India failed miserably with its communication relating to the (Russian Duster based) Captur.
– Any idea why the well received Lodgy tanked??
I am sorry I am replying almost after a month, I did not check my email. I meant VW and skoda are ‘go to’ brands when somebody specifically wants a European car not ‘a car’ in general. Renault is also European brand and so are peugeot and MG ( at least by heritage ) but nobody considers them when wanting to buy a European car and directly go for Skoda or VW.
As far as Maruti is concerned, yes they have a massive share due to first mover advantage ( huge in India ) and great fuel efficiency ( again very important for most buyers ) but since last decade major growth for Maruti camw from rural regions, Urban Indian car landscape is much more diverse than what statistics show. Maruti alto has been Indian bestseller ( except last year ) but you will be hard pressed to see a newly registered Alto in most major cities while smaller towns are filled with them being used as both private cars and even taxi. Infact, newer entry level cars do not form much part of car landscape in urban areas, older ones remain in use but most new cars belong to higher price range.You can easily spot equal number of Hyundais in cities as Marutis and good amounts of fords,Hondas or VWs but in villages or smaller towns maruti makes a huge comeback along with Mahindra UVs.
As far as lodgy is concerned, it was doomed to fail as people blindly buy Toyota Innova when it comes to MPVs, it has got space, comfort, features and toyota reliability. Even Maruti would not suceed in that sgement. Maruti sells Ertiga small MPV which is again difficult to beat so Lodgy was left as nobody’s choice. Triber though became sucessful as nobody ever saw such a cheap and small MPV before and also becase most owners use it as 5 seater with big boot and not as 7 seater.
Great insights thank you Harshit!
One thing you should consider also is that Renault isn’t something new in Colombia, Brazil, South Africa. They had brand recognition and image, in Colombia Escobar raced Renault 4 when he was young. India is more similar to China in that regard but there is one thing, when Renault entered China market was full already, in India there is way more space for new players and to differentiate from others. And another thing is Renault has always been good in providing “cars for the people”. Reasonable price, decent quality, just fair cars. That’s what they did with Duster in India and what they are doing with Kwid and Triber now. On the other hand in China they were going premium with 2, to be hones, mediocre products.
Also what is with VW and Škoda in India? They are considered premium?
Hey! Sorry for a very late reply. I think China was full because of large number of domestic brands and while India back then seemed to have space but majority of market was and is still controlled by just 2 brands. Today Maruti and Hyundai alone have 70% market share with Kia, Mahindra, Tata, Toyota, Honda having around 5% each ( give or take some) and you are looking at a market with only 7 brands have 95% share which makes it very difficult for a new player, still renault played very well as you pointed out on its strength of providing fair cars for a good price. As far as VW and skoda are conerned, they are not considered exactly premium but yes they fall into more superior end of mass market automakers because of their very distinct ‘german car feel’.
Thank you very much Harshit these are great insights.
Great analysis Matt. When is your meeting with the Renault board?
PS: I have quite a substantial daily automotive news feed (among which banks), but not one article even comes close to Dr Gasnier’s “Renault vs China” write up. Excellent job! Hope Renault’s business intelligence takes note.
Thank you very much Rick for these very appreciated compliments.
A Renault engineer friend of mine told me last weekend that the French version of this article was being shared and reshared internally at Renault…
Hopefully it will land on Mr De Meo’s desk!
I’m available! 🙂
Coincidence: I happen to have De Meo’s provisional itinerary, There’s a slot in 3rd week of August. George V Paris okee? I’ll have ‘m book the presidential suite. Corporate Renault jet will pick you up wherever you wish (Ghosn paraphernalia still on board). We’ll discuss 😉
Very interesting article. I was sceptical about Duster in China but now you have presented facts It might actually work. Arkana was definitely missing and problem was, that the one based on Captur just started its career now in Korea as XM3. If the did actually brought Duster to be locally produced in China they could have built the low cost Arkana based on Duster what, about 1 year earlier. And then again nothing stops them from importing Koleos and Talisman from Korea like they did before if there was demand for something more upmarket.
It is incredible how no French brand has managed to make it work in China in last years.
And 100% agree with you, bringing the new Duster in China in late 2017 for example would have enabled:
1. A much needed Duster L 7-seater variant
2. A derived Arakana-like Coupe SUV
Nice article, lots of great elements there, thank you. One thing I’d like to mention is related to your suggestion to import Duster on this market. I agree it could have been helpful to launch the brand, and your analysis of mid-tier cities is very interesting. However, I believe doing so can also be risky for a brand’s image. For example, if we look at the situation Citroen is in at the moment, we can clearly see how selling cheaper cars for a long time has negatively impacted the brand’s image in China, despite being implanted there for decades. This could have been a temporary fix, but given how individual cars play a role in social status in China, I am not entirely convinced that importing the Duster would have reverted the fate of the brand in the long run.
As you mentioned earlier in your article however, I wholehearted agree that in such a crowded and competitive market, if you have good products but poor results like all French brands do, then it must be a market analysis problem.
My follow-up questions are: Have these brands been shortsighted on advertising budgets? How much has brand visibility impacted their results in this market?
Hi JP – thanks for your note. I am not suggesting to import the Duster to China but to produce it locally. What was risky for Renault’s brand image was to try and pretend to be a sophisticated brand whereas it really isn’t. Again Renault’s positioning in emerging markets hasn’t damaged its image at all, what killed Renault in China was not taking enough risks. I’m also not suggesting it should sell “cheaper” cars. You can’t sell cheaper than the Chinese in China, and with a starting price of around 110,000 yuan (14,000€), the Duster would be aimed at the all-time best-sellers in the SUV segment such as the Haval H6 which isn’t considered low-cost at all.
So with the Duster, Renault wouldn’t be pursuing a low-cost strategy, but would place a European brand at similar rates and when faced with a local and a foreign brand at the same price, a majority of Chinese buyers would still opt for the foreign brand.
I do believe that in a market that bought 45 million SUVs in just 5 years there is room for one of the global best-sellers in the segment, the Duster. It’s a no brainer.
Good feedback JP. Guess Renault’s mindmap when they worked on the brand’s (re-)start in China wasn’t complete. For a part understandable – at least half a dozen key factors have to be aligned: the company’s vision (overly ambitious and hard-headed Charlos Ghosn vs down to earth / slightly naive board members), the financial backbone, the ultimate brand message, available resources, workable risk-matrix, envisioned footprint / growth path in new market, points of sale.
Bear in mind the EU and US brands successful in China have much deeper pockets than the French brands. With more financial firepower, building an efficient dealer network in a huge nation is easier to accomplish, even if one limits market entry to the urban areas / mega cities.
For Renault, orchestrating a feasible China strategy led to Matt’s well phrased conclusion: ‘Wanting to play on all fronts, Renault found itself marred with a series of desired positions WITHOUT ultimately anchoring any”. Spot on.
China buys sedans ,the top selling car there is the Toyota Corolla / Levin twins.
Maybe lack of sedans hindered Renault’s success .
Hi Anthony, I believe the lack of sedans was not a Renault décision but linked to the authorization they received from the Chinese gouvernement: only SUVs and electric vehicles…
Not a VW sedan or the Nissan Sylphy??