Is Dacia going upmarket, a threat to Renault’s products?€¦ · In 2011, the Dacia brand no longer has to prove itself. Indeed, after more than 10 years in the Renault group, the

Areski Dehloum Working Paper MBA Institute

Is Dacia going upmarket, a threat

to Renault’s products?

Summary

ABSTRACT ............................................................................................................... 2

I. RENAULT & DACIA: TWO DISTINCT BRANDS ....................................................... 3

A. RENAULT’S RANGE ............................................................................................. 3

1. Several segments ......................................................................................................... 3

2. Differentiating .............................................................................................................. 4

B. DACIA’S RANGE ................................................................................................. 5

1. The original range ........................................................................................................ 5

2. The expansion .............................................................................................................. 6

II. DACIA A STRONG IDENTITY ................................................................................ 8

A. DACIA RISES FROM THE ASHES ............................................................................... 8

B. DACIA GATHERS PEOPLE AROUND ITS BRAND ........................................................... 11

III. HOW LOW-COST BECAME A VIABLE BUSINESS MODEL ..................................... 13

A. THE APPEARANCE OF LOW COST IN THE AIRLINE INDUSTRY ........................................... 13

1. A growing need .......................................................................................................... 13

2. A sustainable model .................................................................................................. 14

3. Mentalities evolve ..................................................................................................... 15

B. LOW-COST, A THREAT TO THE SECOND-HAND CAR MARKET .......................................... 16

1. Dacia changes sides? ................................................................................................. 16

2. A proven threat .......................................................................................................... 18

IV. PERCEPTION OF LOW-COST AUTOMOBILES ...................................................... 20

A. AFFORDABILITY ............................................................................................... 20

1. Perception du low-cost .............................................................................................. 20

2. The image of low-cost ............................................................................................... 23

B. CONSEQUENCES ON THE PURCHASE BEHAVIOUR ....................................................... 24

1. Consumers feel like low-cost cars do not mean a loss in quality .............................. 24

2. Dacia’s brand image .................................................................................................. 26

V. CONCLUSION ................................................................................................... 29

BIBLIOGRAPHY ...................................................................................................... 33

NETOGRAPHY ....................................................................................................... 33

ABSTRACT

Is Dacia going upmarket, a

threat to Renault’s products?

At a time of economic crisis, the basic consumer needs change. One returns to a price-

driven consumption. Indeed, consumers are much more careful about what they buy

and especially how much it costs. Many companies in different areas surfed on this

consumer trend and proposed low-cost products. This is the case with Renault's Dacia

brand in the automotive sector, which entered the market in 2005 with the Logan. The

brand has managed to demonstrate that low-price does not mean low-quality and

sales took off. As a result, the range of Dacia vehicles has grown; there are now six cars

to reach a maximum of clients. Dacia happens even today to recover market shares of

leaders of the automotive industry. Should the Renault group he see this as a threat to

its bottom-of-the-range products, or should it consider Dacia as a valuable asset to the

group?

Keywords :

- Automotive market

- Low-cost

- Renault Group

- Basic needs

- Cost-cutting

- Dacia

- Brandd image

- Community

- Cannibalization

- Threat

- Asset

Areski Dehloum Working Paper MBA Institute

I. Renault & Dacia: two distinct brands

A. Renault’s range

1. Several segments

Renault has existed for over 110

years, its fame is worldwide and

some products have become

"timeless" or models of the French

automotive industry.

In 2011 the Renault range has

continued to modernize and

change. The range is very

comprehensive and can reach a large segment of the population: from the people who want

a practical and functional car, to professionals with very specific needs.

The classification of the Renault range is done by segments. Indeed, there are five segments:

- I (Twingo, Clio, Wind, Modus / Grand Modus)

- M1 (range Megane Scenic / Grand Scenic)

- M2 / S and Electric Vehicles (Range Laguna, Espace / Grand Espace, Latitude, Koleos,

Fluence)

- Motor Vehicle (CMV) (Kangoo, Master, Traffic)

- And RST (Renault Sport Technology Series: Clio Megane Twingo)

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The cars are thus classified according to their size / budget / engine. It is easier to make a

classification by segment also to make sales forecasts. For example, a strong demand for the

segment I is predictable because of the economic crisis. Conversely, a rise in demand of the

segment CMV may occur if the social climate of the country is conducive to

entrepreneurship. Favorable economic conditions may also promote a decrease in sales of

minivans segments M1 and S in favor of SUVs and Cross-Over.

2. Differentiating

Every year, even several times a year, Renault launches limited edition vehicles. These

editions can be achieved in partnership with brands, in honor of the great names of the car,

or provide equipment unpublished. This year many limited editions came out of the Renault

factory:

- Miss Sixty Twingo: feminine car design (pink), crafted

exclusively for women. The car also bears the logo "Miss

Sixty" on one of the doors while the interior design

(materials, fabrics, colors) was created by the designers

of the Italian brand.

- Gordini Range: created in tribute to the "Sorcier"

Amédé Gordini: mechanic, driver and trainer of genius

and finally automaker racing with Simca, Renault and


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finally Gordini. This range (Twingo, Clio, Wind) is the color of the man: blue Gordini with

white stripes.

- Range Bose: the international leader in the audio equipment is available for vehicles of the

Renault range (Scenic, Megane, Koleos, Laguna, Espace)

B. Dacia’s range

1. The original range

Between 1999 and 2004, Renault invested nearly 500 million euros to modernize Dacia and

its plant of Pitesti, and launch new models: Supernova in 2000, transformed into Solenza in

2003, itself replaced by Logan in 2004. The site is then devoted to the production of cars

developed by Renault.

In 2009, Dacia sold 311,332 vehicles, including 269,470 for export - to over 50 countries

worldwide. Its market share in Romania was 29%.

The Dacia range is expanding (See figure underneath)

- Logan: since its launch in 2004, Logan

became the iconic model of the brand, with

its family car identity, cheap and of quality.

The enthusiasms generated by the launch of

the car lead Renault Logan to expand its


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market beyond the emerging markets, for which it was originally scheduled. In 2008, it was

deeply revisited, while its range is expanding, the Logan MCV (VP), the van Logan Van and

Logan Pick-up (CMV).

- Sandero: in 2007, Dacia took another step in its growth with the launch of this compact

sedan, combining attractive design and low price. There are also Stepway versions of the

vehicle, with and adventurer design. Sandero is produced and marketed primarily to

Mercosur under the Renault brand, and came into production in Pitesti in 2008 for the

European and North-African markets.

- Duster: in 2009, the plant houses the all-terrain-oriented world. With this vehicle, Dacia

creates a Crossover accessible and equipped with true off-road capability. It is marketed in

2010 in 4x2 and 4x4 versions.

2. The expansion

Dacia eco ², the signature based on the protection of the environment, was launched in

2008.

The Dacia range is marketed in France since 2005. Initially the brand was aimed at emerging

markets for people who cannot afford a car. This brand offers low-cost cars at reduced

prices, aiming to return to the basics of the car, that is to say a vehicle that does not include

the design and multiple options. After successful trials in emerging countries, Renault (which

owns the brand since 1999) decided to launch the Logan in French territory.


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After more than six years of commercialization of the Dacia brand in France, the teams are

trying to expand the product range to offer a real range of low-cost vehicles to the French

population and the world. Dacia became the main asset of Renault by selling vehicles to a

category of people who had been set aside so far. With Dacia, Renault opens itself to low

cost while a new segment is created to classify Dacia products:

- ENTRY (full range Dacia: Logan, Logan MCV, Logan Pick-up Van Logan, Sandero

Sandero Stepway, and Duster)

With all these products, Dacia has a complete range of vehicles, which may correspond to

many needs, from Logan: very basic car with few options and electronics, to Duster the last

born of the range that changes completely the whole brand image with this low-cost cross-

over concept. The brand is more dynamic and younger.

The main advantage of the Dacia range is obviously the price (78% purchase intent of

customers) which is the main strength of the brand. At Dacia everything is based on a price

well below the competition. The cars do not lose their reliability and security, because for

some time, the brand has been in the top rankings in terms of quality vehicles, sometimes

even exceeding the German brands. In the annual survey of the French magazine Que

Choisir, published in January 2010, the Dacia brand accessed for the first time the third rank

of the most reliable cars among 34 brands on the European automotive market. The survey,

identifying the views of 26,277 European drivers, particularly highlights the remarkable

reliability of Dacia Logan MCV. (Appendix 9)


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Dacia also gets the title of the cheapest brand for its maintenance and repair costs. More

and more rave reviews have appeared in highly specialized car magazines:

"When it was released in spring 2005, our testers had found the Logan spacious,

convenient, safe and fun to drive. Today, our reliability-quality results underscore its

strength, seriousness of manufacture, mechanical and electronic reliability and

limited maintenance costs. " - Automobile Magazine.

Dacia focuses on the basic strengths of the car: the low cost and safety. And this approach is

now paying for the brand sales are soaring.

II. Dacia a strong identity

A. Dacia rises from the ashes

In 2011, the Dacia brand no longer has to prove itself. Indeed, after more than 10 years in

the Renault group, the brand has managed to create its own identity while enjoying the

reputation of Renault. Dacia is a separate entity in the Renault group and working Dacia

does not mean working for Renault and vice versa.

Dacia has managed to create its own identity and for a brand, nothing is more important.

The brand has managed to get out of the low-cost compartment and found its way out of

the influence of Renault.


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While it enjoys the expertise of the “marque au losange” (how Renault is called in France),

its plants, some of the same car parts and the reputation of the brand for its launch, Dacia

now has its own factories, its own sales force, its own range and its own communication

quite different from that of Renault. Indeed, the communication budget is less than

Renault’s, the brand wants to give a different image than of a multinational company, it is

more sober in its advertising campaigns and its only goal is to defend its attractive prices. For

Dacia communication is by word of mouth. A satisfied customer will speak more easily of the

brand. Moreover, the following table shows that clients get in a Dacia showroom mainly

after consulting the website. Dacia knows how to play with its fame and with young Medias:

television remains important but today, updating a website and communicating with the

web surfers themselves did most of the work.

Source of information Market Renault Dacia

Print advertising 12.0 9.8 16.2

TV advertising 17.1 15.2 28.9

Automobile magazines 33.4 33.5 32.5

Dealership visit 58.0 57.4 50.9

Blogs/Internet forums 5.1 4.3 9.4

Already knew the product 17.6 24.1 3.2

Word of mouth 14.6 12.4 26.7

Seen the vehicle in the street 20.4 17.4 26.5

TV report 7.9 6.6 18.9

Newspaper report 19.2 17.9 24.7

Automaker’s website 42.8 41.9 52.9

Internet report 11.2 9.6 16.7 (Source: Internal note of Renault, 2010)

In addition, in showrooms one can now see a real Dacia universe. A dedicated space for the

brand is now implemented in each sales-facility. The color code (blue and white) is observed


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and the universe is much more refined, natural than the Renault universe. Dacia has now its

own retail space, vendors are dedicated to this space, and they do not have the same

training, the same objectives as Renault vendor, simply because cannot be sold the same

way a Renault is sold. These are two distinct and different products that address to two

different targets.

Dacia has created its own universe, its own followers; in fact it is hard to say that Renault

buyers like Dacia. It is not made the same customers. But today one can say that people

come in retail shops only for Dacia and not by mistake while walking around the Renault

dealership. Dacia also creates its own events: indeed every 2 months Renault does what is

called the Open Days: days dedicated to the automobile where people come to learn in

dealerships. These operations often brightened with small animations are an opportunity for

the brand to create a link between sellers and customers and to communicate about new

products and current discounts. Recently one has seen the Dacia Open Days, special days for

the brand and the range to meet fans and people seeking information about this brand that

still intrigues. In addition to these dedicated days, Dacia picnics have appeared. The

opportunity to bring together owners of Dacia in France, all gathered for one day around a

common passion. During this event, participants talk about their cars, strengths and

weaknesses of vehicles. This day is a symbol that there is now a Dacia community in France:

people that love this brand and that want to convey their passion.


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But even if Dacia has a growing desire to stand out from Renault, the links are yet very

tenuous. Indeed the brand would probably not have developed as much and as well without

the auto giant. Renault teams are still working on new joint projects with Dacia. Renault

factories are sometimes used for low-cost products, but especially Renault knows how to

profit from mistakes of the past not to reproduce them with this new brand. Dacia therefore

benefits of seniority, experience and expertise of Renault while having its own identity. In

addition the brand has found an independent position on the French and European markets.

But if we take the example of Argentina, the Logan is sold very well too, but under the

Renault brand. Indeed it was difficult to insert a new automotive brand on the South

American market, yet the potential buyers for the Logan were there, it seemed logical to

market the Dacia Logan under the Renault brand.

These two brands are closely intertwined and especially complementary. Dacia and Renault

would not exist and without the current crisis it seems difficult for Renault to give up the

Romanian brand, as it currently generates excellent sales and seems to be a real alternative

to the crisis for the brand.

B. Dacia gathers people around its brand

With Dacia pioneering, many major European carmakers evaluate the potential of producing

a “low-cost” car, while measuring the impact of such an operation on their brand image. The

crisis has set up a new way to produce and buy, to the delight of the smallest budgets which,

so far, found no offers on the automotive market to match their expectations.


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Originally created for emerging countries requiring new cars affordable for the rising middle

class, low-cost vehicles have met an unexpected enthusiasm in Western markets. Sleek

design, quality finishes basic but accurate, robust and equipment reduced to its pure

essence, the recipe for low-cost is not for everyone. While no one would bet on the success

of Dacia during the introduction of its Logan on the French market in 2004, the crisis has

been through it and changed attitudes unexpectedly. Driven by the network of production

and distribution of Renault (Dacia models were introduced at Renault dealerships), sales

continued to grow phenomenally. For example, Dacia recorded for the year 2009 an increase

of 39.5% in a jaded automotive market whose growth does not exceed 11% (helped by the

scrapping [prime à la casse: a policy instituted by the French government to help the

automotive industry]).

2008

2007

2006

2005

2004

84 290

80 042

28 620

20 511

2 080

Evolution of sales volume of the Dacia Logan in

Europe since 2004

Source: L'Observatoire Cetelem/BIPE dafter automakers data


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In 2010, taking advantage of favorable market conditions, Dacia has even demonstrated the

ability to take market shares from manufacturers such as Volkswagen and Fiat. Dacia's

commercial strategy to reduce development costs by simplifying the vehicles and options

available has paid off: the new models for Dacia Sandero (± € 8000) and Duster (12 ± € 000)

are by half less expensive than similar models of its competitors in terms of capacity and

power. In addition to the purchase price defying any competition, the vehicles in the Dacia

range also benefit from a minimum maintenance cost, a network of repairers incomparable

(Dacia vehicles can be repaired in any garage approved by Renault), a reduced fuel

consumption and a proven reliability.

III. How low-cost became a viable business model

A. The appearance of low cost in the airline industry

1. A growing need

While many products and services were created to meet the growing needs of consumers of

all social and economic category, the market of low cost appeared relatively late, while a

growing need was felt on the part of a neglected segment of society so far.

In the 70s, a pattern emerged in the air-travel sector: flying at low cost at the expense of

services now considered redundant because of changing attitudes, but considered necessary

before. While some companies had tried to implement such a model before, they had

received a lukewarm reception from consumers because at that time then a low price was

synonymous with poor quality. In a society where longevity was the watchword of a

purchase, the low cost could not make its appearance yet.


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While society produces, sells, improves the production processes, reduces costs and creates

short-lived trends, we are witnessing the emergence of a change in mentality, giving less

importance to the durable, while a culture of instantaneity appears and the proliferation of

experience at the expense of other things takes a prominent place. The low cost may make

its appearance in an environment ready to welcome it.

2. A sustainable model

While players of different markets did not predict a great future to low cost, which they

believed was the answer to a temporary problem resulting from the various economic crises,

this business model has managed to work its way up to carve out the lion's share in markets

sometimes half-mast. The major players in the airline market have had to go to the obvious:

the low cost is not a trend but a business model, and moreover, it is a business model very

capable to compete with the way they work and thus their profits were directly threatened.

But this business model was quickly out of his shackles in the airline industry to settle

gradually in all sectors with varying degrees of success.

While thousands of solutions had emerged to cut costs, consumer mentalities and behavior

had changed too.

Today, low-cost model is a democratized model which can be found in the goods industry

but also in the services one. The low cost has lost that image of poor quality to fit into that of

an average quality, if not equal to the so-called traditional products. The example is IKEA,

which has built its business model on this principle. Although the birth of IKEA and its


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development has been prior to that wave of low-cost airlines, Inkvar Kamprad was a pioneer

of this way of consuming and implemented the model in mentalities as a viable alternative

and not only as a last resort option. IKEA, because of its flat packaging that consumers

consult in stores/displays and carry themselves to their homes, is now a preferred

alternative by the people while other brands like Roche Bobois, saw traffic to its stores

decrease dramatically. Consumers now prefer to spend less in an interior made "to live"

since the furniture will age one day anyway, exposed to the elements of life. In addition, an

interior, like a car, goes out of style and cannot be the work of a lifetime as it was before.

Interior lives and therefore must be renewed from time to time, all should not prevent the

owner to live but to allow him to feel good at home while allowing him to have the financial

means to get out to enjoy leisure and holiday trips, without making $150k a month.

3. Mentalities evolve

While this model is sustaining, different industries have adopted it in times of crisis or even

to meet a growing demand from middle-class wanting to offer "a little bit of affordable

luxury." The best example of our society and that has become a standard for low-cost is the

Swedish giant Hennes and Mauritz, better known as H&M. Whereas before the seasonal

mode was reserved to luxury, given the high price that represents the act of changing

clothes every three months, H&M has succeeded in imposing as a standard, clothes of

average quality, which can be machine washed, but do not persist over time due to their low

resistance, due to their lower cost of production and therefore lower sales price. Others

have obviously taken the course by adapting their ways to vacancies remaining on the


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market. Zara has therefore placed itself on a segment slightly higher-end (although still

affordable ready-to-wear) while in the UK, Primark is the reference low-cost store, but the

products will not last long either because of their extremely low prices and therefore the

quality that results from it.

Some services offer low-cost and break all the codes pre-set by the companies: we have for

example seen a hair salon offering €10 haircuts in 10min. This type of services required, as it

was for Ryanair in its infancy, some adjustments to make the best payback. For example, in

this case the shampoo is the responsibility of the client, since he is asked to come for haircut

with clean hair. Does this model have limits? Is Dacia a precursor surfing on a temporary

wave, a new alternative model or a reference which will ultimately dethrone the existing

models?

B. Low-cost, a threat to the second-hand car market

1. Dacia changes sides?

After analyzing the fact that Dacia has become a real asset for the Renault group, we can

deduce this that allows it to position itself as market leader on the European low-cost

market or even be in a monopolistic situation. Dacia is not just a segment of Renault; it is

strength of the group. Two opposing theories may, however, say that Dacia as seen above

does not take market share from Renault, as the two brands do not play in the same court.

But this theory only takes into account the market of NV (New Vehicles). Indeed, it is unlikely

that any future buyer of a Renault car finally picks a Logan or a Duster. Indeed, Renault

customers are not looking for the same vehicle than a Dacia potential buyer. When one


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comes to a “Dacia Box” (this is how Dacia areas are called in Renault dealerships), on is

looking for an advantageous price; whereas when one goes to a Renault dealership, one is

looking for prestige, options and comfort. If one thinks only of the main asset of the Dacia

brand, which is its price, cars that can compete with the brand are not the NV but the VO

(second-hand vehicles). Indeed, these cars have certainly suffered from a few thousand

kilometers they have traveled, but what draws the customer is the price.

The second-hand-cars market is not confined to cars aged over 10 years and obsolete parts.

But it is a market where vehicles can still be used for a long time at a price defying any

competition. The second-hand market and especially the vehicles present in the Renault

dealerships, for most of them, are cars that left the factory a few years ago. The sellers are

looking for used Renault cars, with different options, and engines in order to offer customers

a wide choice. The second hand market is not strictly the same as new but with a wider

choice than most other brands, Renault is trying to compete. Customers once again are not

the same as the new-cars market. These clients wish to have the opportunity to buy at a

lower cost or those that regularly change cars and have no specific requirements for the

vehicle. In this market, the demand is like for Dacia, a simple request. Customers are less

demanding because they know they have less room to maneuver. Indeed, they have the

choice of model, but the color, options, interior and exterior and the engine may not match

their expectations. A second-hand-car client will necessarily be less demanding and will

revise his expectations downward. He knows that his vehicle may have some defects due to

the fact it has already been used before.


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So there is always competition between second-hand vehicles that Renault offers and the

Dacia vehicles. Indeed, customers of the two markets are driven by the same demand, the

price. The purchase will depend on the motivation of the client. The client may be wanting

multiple options to his car and select the occasion, and then look for a new car with a

guarantee and will pick Dacia. The temptation for people who always bought used vehicles

to purchase for the first time a new vehicle is very strong. Customers find it very rewarding

to finally be able to finance a new car with a budget that previously only allowed them to get

second-hand cars. It is very interesting to note that psychologically, people will be more

pleased to have purchased a new car, even if it is less beautiful or prestigious, than a secon-

hand car. There is the feeling to finally have one’s own vehicle, which "resembles" the

owner, the satisfaction of being the first to drive the car and of having chosen some options

or the color and not being the passive victim of the choice of the first person to have owned

the car.

2. A proven threat

The fact that the Dacia products cannibalize the second hand market is proven. There is now

consumer surveys that highlight the fact that 36% of customers were hesitating to buy a

second-hand vehicle before opting for a vehicle of the Dacia range. While only 25% of

customers have hesitating with a second-hand car. The data are from the questionnaire

NCBS France-January 2011. (See table beneath)


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Hesitation with a second-

hand car

Renault Dacia Logan

Berlina

Sandero Duster

Yes 25.3 36.0 44.9 36.9 24.5

No 73.3 61.6 54.2 62.5 56.1 (Source: Internal note of Renault, 2010)

It becomes clear that the price argument is the argument that predominates in the act of

purchase for these two types of vehicles. While the Dacia products have cannibalized used

vehicles for a few years, the difference will be made by the intentions of the client and the

speech of the seller. Second-hand vehicles vendors will not hesitate to downgrade a Dacia

car playing on the low-end appearance of low-cost, unlike the seller dedicated Dacia will

make the client understand that a second-hand is not the answer and having one’s own car

is very rewarding, and especially that the Dacia products are very reliable and getting better

each year.

Let’s take the example of Logan, the first car in the Dacia range to be out on the French

market. The Logan is the emblem of Dacia, its trademark, the epitome of low-cost car that

triumphs. It is a car with an unenviable design but convenient, reliable and cheap. Logan

now stands in the face of used cars such as Peugeot 307, the Renault Megane, Citroen C4,

Opel Astra and Ford Focus. Indeed on the market, when a client is hesitating between Dacia

and another brand, these are frequently Citroen and Renault. But only if the two models

(second-hand/Dacia) are equivalent. Certainly, a Citroen or Renault will have a level of

equipment much more generous, more pleasant design, but it will also be an older car with

an engine that will probably have suffered from a few thousand miles already traveled with

the previous owner, and above all that is out of warranty. While a Dacia will guarantee 3


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years or 100,000 kilometers and a reliability (Dacia occupied in recent years the leadership in

terms of reliability in all categories) recognized in the whole automotive world.

With another example, the Logan MCV, the station-wagon of the range up to seven seats,

which is Dacia’s family car. It faces competition on the station-wagon car market such as:

Peugeot 307 SW 7 seater, Renault Megane Estate ... but also MPVs: Renault Scenic, Citroen

Picasso, Ford C-Max, Opel Zafira 7 seater, Volkswagen Touran 7 seater ... But this time the

price argument will have its importance! Indeed, it is now difficult for €10,000, to have a

model aged of five or less, especially with a diesel engine.

The dilemma is entire, an opportunity between a second-hand car with a level of equipment

superior to a low-cost model but that has been driven for thousands of kilometers, and a

new car of which the customer will be the first owner. The choice is therefore the clients’

and will be taken in accordance with his desire to buy his own car.

IV. Perception of low-cost automobiles

A. Affordability

1. Perception du low-cost

According to the study by Cetelem, 29% of consumers surveyed say they are ready to move

on and purchase a low-cost car.


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This attitude can be explained by a misunderstanding on the part of consumers for higher

prices. Indeed, to the question “The car prices increase is mainly due to...”, consumers

respond to the first position with “the price of raw material”, but the second answer is

“there is no reason to have prices still increasing” They are not willing to pay more for a

product for which they do not understand the high cost.

The mains reasons for the automobile price increase (in %)

France Germany UK Italy Spain Portugal Average

Increase in price of

raw materials and oil 46 49 46 40 39 51 44

There is no reasons

for prices to rocket 24 29 31 31 33 23 29

To depollution efforts 29 32 31 20 21 34 28

(Source: L’Observatoire Cetelem)

Buying a car has become a purchase of reason more than a purchase of passion, as only 20%

of respondents are prepared to act illogically while buying a car. In addition, 79% of

Average

Portugal

Spain

Italy

United-…

Germany

France

29%

40%

36%

24%

39%

15%

18%

Could you consider buying a low-cost

vehicle?

In % of Total

Source: L'Observatoire Cetelem 2010


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respondents see the automobile as a constraint and not as a pleasure. The success of Dacia

is the best example to confirm the success of low-cost.

Logan and Sandero were big successes, proving that consumers are ready for this kind of

offers. Moreover, even if Dacia is virtually alone on the low-cost market now, one out of two

consumers do not think the low-cost car will be reserved to one specific brand. Minds are

still open and the brand will not be an obstacle nor a determining factor in the development

of low-cost cars.

France

Germa…

UK

Italy

Spain

Portugal

Average

68%

63%

56%

65%

57%

73%

64%

Perception of the increase in the price

of autos in Europe

Answer to the question : "These last years, the retail price of automobiles has

increased faster than the one of goods and services"

Percentage of reponses "Totally agree" and "Agree"


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2. The image of low-cost

“A vehicle built and sold at low-cost must be less efficient in terms of…”


Image 41 37 50 40 35 35 40

Elegance 45 32 40 41 36 34 38

Interior comfort 47 39 34 37 26 34 36

Modernity 32 15 25 28 24 26 34

Life-length 18 26 20 24 26 30 24

Reliability 14 21 18 22 19 22 19


Consumers do not consider low-cost as a byproduct. Thus, of the six countries interrogated,

56% of the respondents did not think low-cost is an offer for the poorest households and

65% think that low-cost and environmental protection and are not inconsistent. For

consumers, the low-cost rather represents a decline in image, quality, elegance and design.

By cons, respondents do not expect the low-cost cars to provide inferior performance in

terms of consumption, environmental friendliness, durability and guarantees (only 20%

believe that the vehicle low-cost will be less efficient on these points). The low cost is a bid

that is meant to meet basic needs without superfluous elements. The consumer is willing to

give up superior equipment (56%), image (56%), services (42%) and design (36%) when

buying a low-cost car. The purchase can be described as smart, responsible for, but not

resigned.


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B. Consequences on the purchase behaviour

1. Consumers feel like low-cost cars do not mean a loss in quality

Source: L’Observatoire Cetelem

In terms of foreign vehicles, consumers do not seem reluctant to buy vehicles from

developing countries. For example, 57% of respondents say they are willing to buy Chinese

or Indian cars, even though countries where the automotive industry is still very important

(France and Germany) are more reluctant than others. Finally, regarding prices, the average

minimum psychological price of the 6 countries surveyed is €8,330, which means that

consumers are on average willing to buy with confidence a new car for €8,330. Portugal and

the UK are less reluctant to buy at low prices.

By cons, buying intentions are different: whereas 47% of Europeans are willing to buy a car

which is less than 8000 euros, only 30% intend to do so. This lower portion is probably due

to the poverty of the offer to less than € 8,000.

Average

Portugal

Spain

Italy

UK

Germany

France

57%

61%

67%

67%

58%

49%

41%

Would you be willing to buy a Chinese or

Indian car?

In % of responses "Probably" & "Sure"


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How much would you be willing to pay to buy in all confidence, a new car? (in % and in €):


Between €8,000 and

10,000 (%) 40 60 38 58 69 51 53


8,000 (%) 34 27 30 28 20 22 28


5,000 (%) 10 6 15 9 5 13 9

Less than €4,000 7 7 17 5 6 14 10

Average limit price in

€ 8,300 8,602 7,494 8,621 8,992 7,965 8330


Consumers think more and weigh their choices, and this, in order to save money. Thus, the

useful lives of vehicles tend to be elongated, and car travel is reduced. The low-cost seems

to be a good response to these current behaviors, offering consumers the bulk at reduced

prices.

“In order to benefit from a discount, on which criteria would you be ready to lower your

expectations in terms of service?” (in % of responses)


Navigation equipment (GPS,

sono, handfree set…) 55 52 57 51 53 69 56

Image, reputation 57 55 51 58 52 60 56

Services while buying

(welcoming, disponibility,

waiting time…)

46 33 52 44 37 40 42

Design, shape of the car 39 39 25 36 39 36 36

The choice of low cost is not a sign of resignation though, since the requirements in terms of

reliability and security are still present on vehicles at low prices. Consumers do not yet have

a priori about the low-cost and remain open to vehicles from different countries and


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different brands. It is therefore necessary for competitors to give a suitable offer,

particularly in terms of psychological price, while waiting for hybrid and electric cars that will

be the next growth possibilities.

2. Dacia’s brand image

Unlike Renault, Dacia cannot rely on seniority to sell. The brand is known in France since

2005 and over the past, Romanian cars and even Easter-European cars in general (ie: the

Russian Lada) have not given the best image. For some people, Dacia remains "the car for

poor people" and especially of poor quality. The challenge for Renault when allying with

Dacia was to make the Romanian brand enjoy their reputation or dynamism. The gamble

paid off; today Dacia has its own brand image and its own customer base.

In March 2008, Dacia asserted its brand identity and signed it: "Dacia. Think Big." This new

motto was revealed in Geneva in March 2008. Dacia has become a modern and competitive

belligerent on the international automotive competition, like the great success of Logan and

more recently those of Sandero and Duster show it.

The Dacia brand values are simplicity, modernity and robustness combined with a

price/performance ratio never seen before. Dacia is a generous brand: accessible, caring and

whose products are fit to live. It is also an ingenious brand with inventive spirit, which takes

the lead and is intuitive to listening people.


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Buying a Dacia is a bargain but should not be a rationalized choice by default. Tomorrow’s c

customers must believe that a huge

amount of money should not have

to be spent to buy a new car and

that Dacia cars are robust, reliable

and fit to live at an unbeatable price,

they are comfortable and nice and

there's no shame in owning Dacia!

Dacia must instead represent the

future of the automobile.

(Pyramid of needs established by Renault – Source: Atlas Renault 2009)

Dacia is a vector of development of the Renault group in Central and Eastern Europe.

If today Dacia has become a brand in its own right, it is of course thanks to its original

products, its dedicated vendors and the Dacia Box (parts of the showroom dedicated

exclusively to Dacia cars). But it is also thanks to its customer base which, after recognizing

itself in a car they bought, also recognized themselves as a true community. It is the Dacia

Style.

As an illustration of the customer community: the Dacia picnic. Launched just two years ago,

knows this event met an exponential success. Organized on a site with 4,000 people the first

year, two sites last year bringing together 7,500 people, this year the picnic was held on


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three sites. "Every year we improve our system to be closer to customers. The success of this

event shows that customers love to meet up, because beyond the car, Dacia is a way of

consumption that developed bonds" said Alain Lehmann. Other signs: when two Dacia cross

each other on the road, drivers call lighthouse in sign of recognition, as do the bikers. For the

members of this new community, the picnic is the perfect opportunity to meet up

extraordinarily. The parking areas filled with Dacia cars, customers come with their families

and organize activities, picnic ... all these factors of cohesion, which demonstrate, if

necessary, the pride of belonging to the brand.

The main publicity of the brand is not done like Renault on the traditional media means.

Besides the communication budget of Dacia is very limited. Dacia advertises much less than

Renault. The brand communication is mainly done by its own customers. Ones talk about

“Dacia attitude”, simply because satisfied customers talk easily of their car to their

surroundings. Word of mouth works very well for Dacia (as seen previously) and it is its

strength because it is a proof of the reliability of vehicles. Also in times of crisis within the

Renault group (accusation of spying in March), Dacia kept its own image intact. Indeed, the

fact that Dacia has from the beginning managed to get his own identity in its favor today.

The brand is not hidden in the shadow of Renault’s; on the contrary Dacia draws up the

company in times of crisis. Indeed, between the shortage of cars and the poor image of the

group, Renault’s sales fell largely in favor of those of Dacia. The Romanian brand has not

been affected by the tsunami just because its cars have no electronic parts. Seen as a failure


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for some, this lack of electronic components is now the strength of the brand that allows it

to sell more than some of its competitors.

In six years, Dacia has stood out of Renault, shown its capacity to evolve and modernize.

Today it brings together many followers who are its strength, its advertising and still allows it

to sell more vehicles.

V. Conclusion

Ten years ago nobody would have bet on Dacia. This Romanian brand crafted for low-

income people, vehicles with a little prepossessing design. Today the brand is marketed as a

benchmark for quality and customer loyalty. The brand impresses with its ability to evolve so

quickly and especially to attract a wider audience. It manages to forget its shameful history,

to gather customers from all horizons ready to return to a simpler vehicle for a lower price.

Renault can now be proud to have introduced this brand on the French market and thus to

have changed its mind. The brand enables the group to significantly increase sales and thus

to be the number one car retailer in France, and to have an even more international

dimension. The group can thus conquer countries previously reluctant to welcome Renault

on their soil. Dacia happens to get what Renault could not get before. The brand with its

own image, which today is much healthier than Renault’s, meets a real "Dacia community"

proudly claiming membership to the group and liking to say they drive a Dacia and get

together.


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The brand is also now more easily placed on the front of the stage especially in sports.

Indeed, the Dacia Duster is now the vehicle in which Alain Prost participated to the Andros

Trophy in 2011 which was held at the Stade de France on March 5th. Alain Prost, second on

the podium at the end of seven innings scheduled this winter, took revenge against Jean-

Philippe Dayraut (BMW), triple winner of the Trophy. During this event Dacia was put

forward and once again overshadowed its competitors, including Renault, which was not

even present at the event. In addition, the Dacia brand is once again associated with a

sporting event: the Rallye des Gazelles. For this 21th edition, four crews Women@Renault

committed with the Dacia Duster. And ultimately for the Crossover category, a team of

Duster finished second only 30km apart from the winning crew. Dacia lost some of its low-

cost style with the baby of the range: the Duster. It managed to overshadow Renault, yet a

brand largely associated with sporting events.

But a better brand image and market share gained on second-hand vehicles do not mean

that Dacia is cannibalizing Renault. In fact, Renault knows how to use Dacia as an asset and

not as an attack. It tries to mount a Dacia as a new range of Renault. Its strategy today is to

try to reach all segments of the automotive industry. It is even today working on the range

of concept cars with the recent arrival of DeZir and Capture: two vehicles with very futuristic

shapes and designs and that are part of Renault's strategy to foresee and be in constant

innovation.

Dacia is a very distinct part from the Renault range but especially what makes that Dacia

sales do not threaten Renault’s is simply the customer base. Indeed they do not


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communicate to the same targets. It is very rare that a person coming to buy a Renault ends

up buying a Dacia and vice-versa.

The Sandero that could cannibalize Renault’s flagship product: the Clio is not ready to

compete yet. Indeed, Dacia models have very few options and yet a very simplistic design.

Renault customers are ready to pay a higher price for a car simply because of the brand’s

reputation and especially all the different options attract them. Customers love the fact that

they can actually choose the car model and have a "unique" one. While Dacia customer with

a tight budget, will not have the same expectations. Customers will be for most customers

that buy a new vehicle for the first time and will be less demanding.

It is clear that when Dacia goes upmarket, it would reach a new target, the Clio was affected

but it was the price to pay to reach a fringe of customers that Renault could not reach

before. But Renault's core customers do not even consider today buying a Dacia; there are

still psychological barriers for the customers to overcome. The brand has nothing more to

prove to professionals but clients remain somewhat reluctant and sometimes question the

reliability of low-cost.

The effect of cannibalization is very low and is not felt within the group simply because it

was expected. The impact of Dacia on the market is certainly very strong and Renault did not

expect such a success. But if Dacia continues to broaden its range and provide ever more

varied and attractive product for customers, while Renault does not improve its image, it is


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possible that a few years from now, Renault’s loyal customers turn themselves towards

Dacia after years of weariness. In addition, the explosion of low-cost gives ideas to

competitors and it is very likely that within two years, Peugeot and Toyota release their own

low-cost brands or products, it will be necessary that Renault also competes with its

competitors and not just its subsidiary.


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BIBLIOGRAPHY

« Mes années Renault » - Louis Schweitzer

« L’observatoire Cetelem 2010 - Automobile : La low-cost attitude »

« L’Atlas Renault » – March 2011

« Synchro, le magazine du réseau Renault » - May –June 2011 n° 142

« Communiqué de presse – Dacia un succès mondial » - September 30th

« Renault’s Financial Annual Report » - April 2010

NETOGRAPHY

www.renault.fr

www .renaultparis.fr

www.daciaparis.fr

http://www.paruvendu.fr/auto-moto/I/Voitures-low-cost-ou-occasion

The Dacia Case :

http://www.casparcas.com/Cas%20gratuits/CAS_DACIA_2009.pdf

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