The Sales And Competitive Effects Of Advertising Practices In China Domestic Car Market

Though China's advertising industry has been developed by leaps and bounds, the relevant theoretical work has lagged behind. The automobile industry, as a pillar industry of national economy, is a direct reflection of comprehensive economic strength as well as scientific and technological innovation strength of a nation or a region. The advertising volume in automobile industry are ranked in the top ten, while the advertising volume of sedan market in the automotive industry accounted for most of the total amount. Therefore, the theoretical and empirical studies on China's domestic sedan industry have some theoretical and practical significance.This paper is going to study the sales and competitive effects of advertising share of sedan manufacturer, while taking account of the quality and price characteristics of each brand of the manufacturers. The author holds that China's domestic sedan market has the following important features: (1)Advertisement may send some kind of product information, which thus reduces consumer's searching costs; (2)Consumer heterogeneity; (3)Consumers are seeking to maximize their profit, and performance-price ratio is their prior concern;(4)The products that manufactures provided are also with heterogeneity, while some are telling the fact in their advertisement, others may exaggerate in theirs;(5)Manufacturers need to adjust their (price-advertising) marketing mix to achieve their profit maximization.Taking account of the above considerations, this paper is going to build a quality based advertising-price signal model, investigate empirically the China's sedan market, and answer the following questions: (1) How does advertising send quality signal to influence consumers, and thereby influence the demand and market share? (2) How should manufacturers with different product features make price-advertising decision in order to achieve profit maximization? (3) How is status-quo in China's domestic sedan market? The conclusions are as follows. First of all, there are high-quality and low-quality manufacturers in the domestic sedan market, and the manufacturers may advertise to change the utility function of consumers and therefore influence the market demand; however, the advertising may be true or exaggerated. When a manufactures increases its advertising input, more consumers will be more inclined to classify it as high-quality sedan manufacturer, as a result, a rise in advertising will bring an increase in sales. Secondly, in order to distinguish from low-quality sedan manufacturers, high-quality sedan manufacturers may lower prices and increase its investment in advertising as long as don't get lose , which thereby will establish a higher reputation and make the imitation much harder. Finally, from the empirical results, we may find that, China's domestic sedan market is seriously polarized and its market competition degree is comparatively lower than that of Britain and the United States; however, from long-term perspective, China's market competition degree is gradually catching up with the later two.