Minicars and subcompact car models are losing their tag of ‘favourites’ in the South Korean passenger vehicle market. The increasing wealth of Koreans has shifted the tastes of consumers towards larger and multi purpose vehicles.

New analysis by Frost & Sullivan shows that the entry of foreign cars and a liberalised market have seen a remarkable rise in demand for the more expensive sedans and sports utility vehicles changing the market dynamics.

“Domestic carmakers may still have a stranglehold over the passenger car segment but the lowering of ban on Japanese vehicles and rise in disposable income have made foreign vehicles more accessible,” said Frost & Sullivan researcher Steven Chon.

The bankruptcy of Daewoo Motors and Samsung Motors helped global automotive majors, such as Renault and General Motors, enter the market and revive the domestic companies. This technological transfer and capital injection influenced development of newer domestic models and increased the speed at which they roll out.

Existing foreign carmakers expect to continue investing in the domestic market and their position could consolidate further with the entry of Peugeot, Honda and Nissan.

“The popularity of multi-purpose vehicles is compelling carmakers to rethink their product development investments and promotional strategies to suit the shifting target audience,” said Chon.

The brand promotion strategies of domestic and foreign carmakers in the South Korean passenger vehicle market are different. While South Korean carmakers aim to attract a wider audience, foreign carmakers compete in niche markets.

If domestic carmakers do not close the brand image gap with foreign carmakers, they could lose market share when the cost of foreign vehicles decreases in future.

Domestic production promotions are diverse, model-specific and numerous, whereas foreign car advertisements are confined to a specific end-user segment. Global companies’ promotions focus on rebates, low interest payments and tax incentives.

Since foreign companies target the upwardly mobile, their promotional materials tend to be innovative. With foreign carmakers’ share in the high-end segment, domestic competitors have to select appropriate marketing strategies to improve their shares in the subcompact and compact segments.

Apart from promotion strategies, both domestic and foreign carmakers also compete on distribution and product portfolio to protect or boost their share. Domestic competitors have to meet or even raise the bar set by foreign carmakers by developing new models with diverse product lines or giving face-lifts to existing models.

“The expanding model range drives the need for accurate market positioning and differentiation to avoid product overlap,” said Chon.

With the high costs of marketing promotions, regular face-lifts and development of new models expected to cut into profit margins, it is vital that domestic carmakers be more precise in their product positioning.