After spending 1.6 billion on advertising, why is Nezha Auto not remembered by people?

This article mainly discusses the phenomenon that Nezha Auto spent a lot of money on advertising but failed to increase brand awareness, and analyzes the reasons behind it.

On June 26, Nezha Auto submitted its prospectus to the Hong Kong Stock Exchange. The same day also marked the opening of Nezha's first store in Africa, but the company's CEO Zhang Yong's Weibo account with 337,000 followers did not mention this at all.

The silence is understandable. After all, submitting an application does not mean a successful listing. In 2020, WM Motor also submitted a prospectus to the Hong Kong Stock Exchange.

Moreover, from the moment the listing application was submitted, it was almost destined to be a “bloody IPO.” Of the five new forces that have successfully completed independent IPOs, except for Ideal, which has already made a profit, the stock prices of the other four have all “fallen below the IPO price.”

Of course, capital market performance is only one dimension to observe a company. Daofa is most concerned about an indicator in the prospectus - sales and distribution expenses.

From 2021 to 2023, Nezha Automobile's sales and distribution expenses were 695 million yuan, 1.042 billion yuan, and 1.923 billion yuan, respectively, of which advertising and publicity expenses were 333 million yuan, 333 million yuan, and 916 million yuan, respectively, corresponding to automobile sales of 69,700, 152,100, and 127,500 vehicles, respectively. In other words, Nezha's pure marketing expenses increased by nearly 200% year-on-year in 2023, while sales declined.

Nezha's "stalling" is due to obvious problems on the product side, and the marketing side is also to blame. In a live broadcast in March this year, Zhou Hongyi, an investor in Nezha Auto, criticized Zhang Yong's mistakes: "How to make consumers forget it? From product planning to marketing, it's all self-entertainment."

By combing through Nezha's series of products and marketing actions, Daofa believes that self-entertainment marketing is the result, and the root of the problem lies in the loss of focus of the crowd strategy.

1. New power brand with the highest marketing cost ratio and the lowest presence

If you want to know where the problem with Nezha’s marketing lies, it is better to first look at the performance of its peers.

In 2023, Nezha's sales-to-expense ratio reached 29.72%, 6% higher than Xpeng, which is generally recognized by the industry to have problems with product planning and pricing, and nearly 4% higher than NIO, which has the highest expense ratio among the top new forces.

(Note: Each company has different accounting items, and sales expenses are calculated as "selling, general and administrative expenses")

However, NIO has invested a considerable amount of money in services, and this part of investment accounts for a slightly higher proportion of revenue than other car companies. If it is combined with the revenue from car sales, NIO's sales/revenue ratio drops to 23.17%, which is roughly the same as Xpeng.

It may be unfair to compare Nezha with "Wei, Xiao, Li, and Li Auto", especially with the profitable top students like Ideal. Leapmotor, which has a similar scale and positioning, may be compared with it. In 2023, Leapmotor's sales/operating income ratio will be about half of Nezha's.

In the financial reports/prospectuses, both Leapmotor and Nezha listed sales expense items separately.

It seems that the gap between the two is not big, but the recent situation is very different. Leapmotor's sales exceeded 20,000 for the first time in June this year, a year-on-year increase of 52.3%; while Nezha's delivery volume was 10,206 vehicles, a year-on-year decline for 5 consecutive months, and this was based on the year-on-year decline in sales in 2023.

The industry's highest marketing expense ratio neither brought about an increase in sales nor established Nezha's brand image.

In the minds of C-end consumers, compared with Wei, Xiaoli, and Zeekr, Nezha has neither a clear technology label nor the mentality of a family dad car. When talking about Nezha, it seems that the only thing that everyone can think of is "cost-effectiveness", but in this field, BYD has almost absolute say.

2. Product Planning: Understand the Market, Not the People

"I know that half of my advertising budget is wasted, but I don't know which half is wasted." This was the problem faced by the marketing genius Wanamaker in the 19th century. But for Nezha in the 21st century, the answer is not complicated: the marketing budget flows to the market, but is not directed to the people.

Nezha’s success was due to its precise positioning in the low-end blue ocean market of new energy vehicles.

According to the data of the "China Population Census Yearbook 2020", in 2020, 81% of Chinese family cars were priced below 200,000 yuan, of which 100,000-200,000 yuan accounted for 42.64%. In 2022, Nezha Auto surpassed Wei, Xiaoli and Li Auto to win the "sales champion" of new forces. Nezha V, priced below 100,000 yuan, accounted for 65% of the annual delivery volume of 152,000 vehicles in the whole series in 2022, reaching 98,847 vehicles, with a sales growth rate of 99%.

But by 2023, the rise of BYD and Ideal has reshaped the new energy market.

After the rise of BYD, there is no longer room for competition based solely on “price-performance ratio” in the market below RMB 200,000, which means that simply understanding the market is no longer effective; ideal growth proves the value of understanding the crowd.

Throughout 2023, Nezha "failed to notice" the crowd, and this failure was first reflected in product planning.

From the naming of Nezha to the market positioning of "building cars for the people", we can roughly infer the brand's target population and scenario needs: second- and third-tier cities, young groups, and just-needed family cars.

However, in the past year or so, in order to "reach higher" and improve gross profit margin, Nezha has promoted two new products, Nezha S and Nezha GT, one is a coupe and the other is a two-door GT sports car. Both are out of the category of just-in-time family cars and are very different from their original positioning.

Correspondingly, when the two cars were launched, the official posters looked like this:

Leapmotor, also a mid-tier new force, launched its first extended-range model, the C11 extended-range version, in March 2023, with a starting price of 149,800 yuan. Its sales exceeded 6,000 units in the first month of its launch, making it the hero of the brand's "comeback."

The secret of Leapmotor's comeback lies in the two key words of the C11 product - "149,800" and "extended range". The price range of 149,800 is obviously lower than that of the leading new forces of family cars such as Ideal and Weilai, while the large five-seater and extended range meet the travel needs of families.

This is very similar to the mobile phone market in the past two years: users cheered for small screens, but paid for large screens; in the car circle, home users cheered for sports cars, but paid for refrigerators, color TVs and large sofas.

At the financial report meeting in February this year, Ideal's management revealed that it did not plan to enter the market below 200,000 within five years, which left a huge market gap for new mid-level forces. More than a year after the launch of the extended-range version of the Leapmotor C11, Nezha, which was late to the game, finally launched the Nezha L in April this year, and currently has over 40,000 orders.

3. Product learning has been done, but marketing has not caught up

Judging from the appearance and interior of Leapmotor's two latest products, C10 and C16, as well as Nezha L, the car company's "tribute to Ideal" has matured on the product side. But for Nezha, the marketing side still needs to be improved, especially when brands such as Changan have launched Ideal-like models.

After the success of the extended-range version of C11, Leapmotor was labeled as "Little Ideal". In subsequent product promotions, Leapmotor simply pinned the hat of "Ideal alternative" on its forehead.

Daofa once emphasized that the key to brand competition under the new marketing lies in matching content with products, scenarios, and people, so as to stimulate consumer demand and initiative.

Leapmotor has already found the way. Thanks to Ideal's years of insight into the needs of different groups, Leapmotor only needs to show its "refrigerator, color TV, and large sofa" and add a phrase "a more ideal home for young people" and a price far below the ideal to quickly stimulate user interest.

But judging from the launch poster of Nezha L, keywords such as "urgent need" and "family" are still market differentiation in the era of fuel vehicles, rather than crowd insights.

It is worth noting that the best-selling version of Nezha L is the 310 flash charging red version. In addition to the competitiveness of the price configuration itself, Zhou Hongyi's business card also played a certain role. Nezha has noticed the new trend of automobile marketing and has gradually begun to try new ways of playing, but it is still a step behind in user thinking.

In March this year, Lei Jun did a live broadcast at the Xiaomi factory to show users the advanced technologies of Xiaomi SU7. Zhou Hongyi, who had a keen sense of smell, pulled Zhang Yong to show Nezha's factory, but Zhang Yong took him to the construction site of the factory expansion.

Zhang Yong's original intention was to use this to counter the rumor that Nezha was discontinued, but Zhou Hongyi thought that the rumor was not important, what was important was what users wanted to see. "Lei Jun picked the highlights of the factory, why don't you do some research?" Afterwards, Zhang Yong posted on Weibo, "I accept Lao Zhou's criticism, and I will learn marketing from Lei Jun."

After Nezha L was launched on the market, sales of the top-of-the-line red version far exceeded expectations, causing the supply of zero-gravity seats, large screens, and Michelin tires to fail to keep up with the sales rhythm. Nezha’s management once again misjudged user demand.

4. Analyst Comments

After Zero Run, "Paying Tribute to Ideals" has become an open-book exam. But the top scorer in this exam may not be the one who has learned the ideals the most.

Weilai's sub-brand Ledao will soon be launched and delivered, and the starting price of the electricity leasing plan is likely to be less than 200,000 yuan. Xiaopeng MONA M03 is expected to be launched and delivered in the third quarter. It is not ruled out that Ideal will also enter this price range at some point in the future. Xueyou Business can manage for a while, but not for a lifetime.

Nezha’s top priority is to regain momentum with Nezha L and increase brand awareness. In the long run, Nezha should learn not the products and marketing methods of its competitors, but the insights into people’s needs and user scenarios, and find its own brand positioning and value through interaction with users.

Author: Xing Zhi, Editor: Li Zi

Source: WeChat official account: "Knife Skills Research Institute (ID: DigipontClub)"