Hyundai Europe doubles ad budget

South Korean carmaker Hyundai plans to double its advertising spending in Europe in a bid to build on market share gains at a time when struggling rivals are becoming more aggressive in cutting prices.

Ailing European brands like Opel and Peugeot may find it hard to believe, but Hyundai thinks it has an image problem.

Its own research shows that even more consumers would flock to buy popular models like the Hyundai i30 hatchback if only it were made by a different carmaker.

"It's not a luxury, it's an absolute necessity," Mark Hall, Hyundai Europe's marketing director, said in an interview of the planned increase in the company's advertising budget to an estimated 630 million euros ($821 million).

Hyundai has transformed itself from a sports utility vehicle-focused manufacturer with perceived quality issues to one of the hottest selling carmakers thanks to European designed, engineered and built models like the i30.

Sales growth has averaged nearly 10 percent in the past two years in a struggling European Union economy, lifting its share of the market to 3.4 percent last year from 2.6 percent in 2010.

However, Hyundai is currently at a point where many of its first time buyers, lured by affordable prices, are poised to shop around again for a new car, and customer loyalty statistics show it would lose half of them today to rivals willing to undercut them with an even better offer.

"About 70 percent of our vehicle parc in Europe is less than five years old," Hyundai Europe Chief Operating Officer Allan Rushforth told Reuters.

To retain its customers, and attract new ones, Rushforth and Hall realize they need to supply consumers with an emotional reason to buy as well as rational ones like value for money.

That is easier said than done, according to Bernd Buechner of Millward Brown, which has developed performance benchmarks to measure the effectiveness of ad campaigns.

"It's long been a problem of Hyundai that customers have been mainly attracted by the price, but simply doubling or even tripling your advertising spending alone won't necessarily solve the problem," he said.

"When it launched the Auris in Germany, Toyota rented all the outdoor advertising surfaces they could get for three weeks, but it still didn't motivate the customers to go and buy the car. Good campaigns have to have a relevant fit, and not just tell any sort of fun-to-drive story."

Image problem

Hyundai's own research shows the challenge it faces.

Like Folgers, the maker of instant coffee which substituted its cheap brew in restaurants to find out if unsuspecting patrons noticed, Hyundai wanted to learn what people thought about its cars when brand bias didn't play a role.

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