Growth of Kia – Strategic Brand Moves

By webadmin on 10:11 pm Jun 06, 2012
Category Archive

Martin Roll

Two countries have come to epitomize the miracle of the modern industrial revolution, especially the wonders of modern capitalism, the United States representing the Western world, and Japan representing the Eastern world. Indeed, given the economic marvel of Japan following the World War, Japan has rightfully come to capture the world’s imagination. So much so, that even amidst its challenging economic conditions, Japanese brands dominate all of Asia in many of the world’s best brand rankings.

Among all the Asian economies, Japan has long lead the way in innovation. Aided by its rapid industrialization, world class companies came into being that have offered user friendly, high quality and innovative products to customers both within Japan and around the world. Despite Japan’s model of investing in world class quality and innovation, other Asian countries have not necessarily followed in Japan’s path.

Indeed, the Asian landscape is quite diverse ranging from highly developed and affluent countries such as Japan, Singapore and South Korea to relatively poor, developing countries such as Philippines, Indonesia and Vietnam. These countries differ significantly in their level of intellectual, financial and business infrastructure, their perspective on value creation, their internal priorities given the local and regional contingencies, and the strength of their internal markets and institutions.

However, as the global business has gradually shifted from the erstwhile centers of Western Europe and the US to Asian countries, Asian companies have been increasingly choosing the branding path to create and capture value. Not only are Asian brands limited to Japan as it has been for more than four decades, but even South Korea, Taiwan, Singapore, Thailand, China and India have begun to realize the value inherent in building brands, and in targeting customers outside their local and regional markets.

Of all the Asian countries, the one that has come the closest to adapting Japan’s vision of investing in innovation, high technology and branding is South Korea. Indeed, following the Asian financial crisis of the 1990s, the South Korean government intervened in downsizing and disciplining the chaebols, or the Korean business groups in order to rein in rampant diversification, enforce focus and implement financial austerity measures.

As a result, two of the leading Korean businesses, Samsung and LG, have emerged from the crisis stronger and competitive in the global business landscape.

In two key industries – consumer electronics and automobiles – South Korean brands are doing extremely well in emulating and at times even overtaking their Japanese veterans. The global consumer electronics has long been ruled by the mighty Sony with incredible brand equity, loyal base of customers both within and outside of Japan, and a string of global blockbuster products that have defined entire product categories for decades. However, Sony has lost its way recently with frequent management changes, lack of any blockbuster products, rampant hierarchical structure that stifles innovation and its inability to preempt disruptive innovation and be in tune with the cutting edge of technological advances.

The toast of the electronics world, after Apple, is Samsung. Samsung has come a long way since its diversified, conglomerate ways before the financial crisis of the 1990s. With its focused investment on innovation, customer centricity, and offering a compelling combination of value and price, Samsung has very easily overtaken Sony and is widely considered second only to Apple in terms of market power, brand loyalty and brand equity in the consumer electronics world.  

Another industry that has long been dominated by iconic Japanese brands is automobiles. Despite the strangle hold on the American automobile market by Ford, General Motors and Chrysler, the Big Three, for decades, Japanese car brands, especially Honda and Toyota, have made significant strides and are the largest domestic car brands in recent years. With their focus on user friendly features, affordable price points and variety of models for different customer segments, Honda and Toyota have established a new dominance on mass market cars.

However, in recent years, one car brand is gaining all the right coverage, all the coveted certifications and all the much needed customer approval than any other brand in the mass market car segment. That brand is Kia, from South Korea. Kia has been gradually growing its brand especially in the highly competitive US market by investing heavily in quality, design and dealer networks. While still not on par with either the Japanese bigwigs such as Honda and Toyota or the South Korea’s Hyundai, Kia has made impressive strides across the world. Especially in the US, the world’s largest car market, the rise of Kia is an inspirational brand story.

As is evident from scores of examples of global brands, there is no one best way to build a brand that can resonate with customers and stakeholders alike. Despite the inherent variance in strategies adapted by brands, three factors remain central and important. These become even more important in highly competitive US market especially for brands like Kia that has to overcome their liability of origin and compete in an industry with a very high level of competitive rivalry.

Embed the brand in the local environment: One of the most important elements of building a successful brand that most global brands ignore is the need to embed the brand in the local environment. In a highly competitive industry characterized by the presence of a number of global and national brands, one of the key differentiating factors becomes the extent to which the brand can demonstrate its commitment to the local community, be responsive to the local priorities and necessities, and show its commitment to the needs of the local customers. This becomes even more important in the case of brands that are striving to overcome their inherent liabilities of origin, which usually tends to happen when Asian brands enters Western markets.

When most Western brands enter Asian markets, they operate on the assumption that the customers aspire to own the brand and as such fail to take the extra steps to embed the brands. However, Kia was very strategic on this front. Responding to the growing sentiment among American customers to buy what was “Made in America”, Kia invested in constructing a massive manufacturing and assembly plant in the state of Georgia in southern US. Not only did this move enable Kia to employ American workers, create a thriving business community in the local region, it also allowed the brand to aggressively communicate the “Made in the USA” message to appeal to a wider set of customers.

Offer an irresistible value proposition: Breaking into a market characterized by clear industry leaders is always incredibly challenging for emerging brands. Such brands would have to fundamentally alter the cost-value equation to overcome the hold of the incumbent brands on customers’ loyalty. The car industry has a very clear segmentation in terms of customers and it is clearly reflected in the brand hierarchy of the car brands. Most car brands offer a series of products in the low cost/mass market brand category, while some offer that and also high end cars for relatively affluent customers. Certain other brands primarily deal with the very high end customer segments and offer luxury cars.

This brand hierarchy has been fairly stable in the car industry. Thus, the mass market cars include such products as Toyota’s Corolla and Camry, Honda’s Civic and Accord, Nissan’s Versa, Sentra and Altima on the one hand, whereas the affluent segment is served by cars such as Lexus, Audi, Accura, Infinity and the luxury segment is targeted by the likes of Mercedes, Rolls Royce, Bentley, and Ferrari among others.

Kia very cleverly changed this well established cost-value equation by offering high end features on its models at prices that beat those by the mass market brands. In so doing, it created an irresistible value proposition that not only attracted customers away from the mass market brands but also lured away customers away from the affluent segment who could now get comparable features at unbeatable prices.

Invest in appealing visual elements of the brand: Finally, Kia heavily invested in launching very contemporary design for its cars, updated the interior electronic options, seating and color schemes, and a very wide selection of accessories, all at a highly competitive price point. These visual enhancements backed by top notch certifications for safety, quality, and warranty, Kia became highly successfully in establishing the brand appeal.

This is an important aspect for brands. With so many options for customers and such a thriving used car market, customers can easily move from one brand to another. More importantly, given the exposure to the latest technological advancements being introduced into cars, customers are more demanding of an appealing overall package. As such, it greatly helped Kia that it invested in the underlying quality of the products while at the same time very aggressively communicating its value proposition through visual elements, third party certifications and high prestige affiliations with accessory providers.