When it comes to the increasingly fierce price war in the construction machinery industry in recent years, which is dominated by excavators, all the insiders hate it. This price war, initiated by some domestic brands on their own initiative, did indeed have the effect of attacking cities and removing villages in the early stage. The decreasing sales price year by year has attracted a large number of new customers to buy. The sales volume in the domestic market has risen rapidly, and the market share of domestic brands has also increased significantly. The whole industry is enjoying a feast.
As the price war has no bottom line, this "double-edged sword" gradually begins to bite itself back. Now, for most host brands and agents, while suffering from it, they are addicted to it and are in an awkward dilemma. As both a participant and a victim, it seems a bit tragic to kill yourself with a knife.
If we say that before 2020, thanks to the rapid growth of the market, despite the constant price war, the sales volume and market share of the head brands have gone up all the way, we can also say that it is painful and happy. However, after 2020, with the escalation of the price war and its rapid spread to the middle and large, the loss of agents has expanded, and the increase in the share brought by the price war is no longer enough to offset the real profit loss. The voice of the industry to stop the price war is getting higher and higher.
Unfortunately, so far, this war without gunpowder is still in progress. Why is there a price war? What impact does the price war have on the industry ecology? When will this round of price war end? yesterday is not ours to recover, but tomorrow is ours to win or lose. At the end of the year and the beginning of the year, this paper tries to do some review and analysis.
What is price war
Price war is a kind of competitive means that one side of the market gains market advantage through price strategy. For the construction machinery industry, especially the mining machine sub industry, the purpose is nothing more than to suppress competitors, expand their market share, form economies of scale, and improve their strategic position in the industry. In turn, it will enhance its ability to obtain high-quality upstream and downstream resources and create competitive advantages for the sustainable development of the enterprise.
The price war in the excavator industry is dominated by the host brand and implemented by agents (distributors). The prominent feature is to directly reduce the sales price. Since it is called "war", it is obviously different from the phased promotion policy. It has the characteristics of long duration, wide battlefield space, many price reduction models and large price reduction range. Looking at the multiple rounds of price wars in recent years, there is no doubt that they are in line with these characteristics.
The background and logic behind the price war
After an investment feast of 4 trillion yuan, from May 2011, the sales volume of excavator suddenly turned around and began to decline year on year. However, thanks to the high growth in the first four months, it still maintained year-on-year growth throughout the year. The inflection point of the market appeared in 2012 and fell to the bottom in 2015. In 2016, with a new round of soaring house prices, the excavator market finally ushered in a long lost spring.
For the long dormant excavator industry, it is like a long drought, and no one is willing to give up the opportunity to increase market share. The continuous and rapid growth of the market in 2017 and 2018 has enhanced the confidence of many brands, and the prediction of the future situation is more radical and optimistic.
Based on this, the "mass production campaign" in the excavator industry is in full swing, and domestic brands are the first to join in the competition to expand production capacity. No one is willing to lose at the starting point of the track, so the capacity of China's excavator industry is seriously overcapacity.
Excess capacity, homogeneous 名媛直播, and the overwhelming majority of retail investors in the Chinese market who are highly price sensitive provide the right soil for the price war. The desire of domestic brands for scale and market share in the process of growth gives the price war a sufficient internal impetus. At that time, the price war is imminent. At the same time, the cost of replacing imports with domestic configuration is reduced, so that the profit space of host brands with scale advantages is increased.
Adhering to the concept of "first strike, second strike", in order to seize market share and win the market opportunity, the leading brands finally significantly reduced the sales price of small excavators across the line in 2018, starting the first shot in the price war. Other brands followed up, and the price war broke out in the Chinese market.
In 2009, the excavator market in China was dominated by Japanese, Korean and European and American brands, and the market share of domestic brands was 26%; By 2016, the market share of domestic brands was only about 36%, with a relatively slow growth. In 2018, as the price war started, the market share of domestic brands soared to 56%, surpassing foreign (joint venture) brands at one stroke, becoming a milestone in China's excavator industry.
Subsequently, the price war went on in depth, and domestic brands were overwhelming. In 2021, the share of domestic brands had reached 80%, and the latest statistics in 2022 had reached 83%. In a short period of more than ten years, domestic brands have written a major industry drama with practical actions - "Changing the World".
From the perspective of market share, the domestic leading brands that took the lead in launching and actively participated in the price war are undoubtedly the biggest beneficiaries, and the price war is undoubtedly successful. Looking at all kinds of marketing strategies and means, what kind of competitive means can make such brilliant achievements in such a short time? In the face of price war, other means of competition without exception appear powerless, and price war has become the primary magic weapon for domestic brands to seize the market.
Since the price can solve the problem, who is willing to fight for other laborious competition means? Enterprises in different stages of development must adopt different competitive strategies. When the big powers are around and domestic brands first need to solve the survival crisis by forming scale, it is inevitable to choose price war. Don't underestimate the wisdom and vision of domestic brand decision-makers, and don't say nothing about the price war or even domestic brands because the current price war has mired the industry. This is not in line with materialistic dialectics. Achieving the rise of the Chinese excavator brand in a very short period of time is a remarkable achievement in itself. As witnesses and participants, we are fortunate to have left a trace in the rolling history.
Admittedly, there is still a big gap between domestic brands and foreign leaders in terms of product structure and internationalization, but this situation is also changing rapidly. The gradual improvement of the product pedigree of large tonnage excavators and the rapid growth of exports are strong proof. Now, the domestic leading brand with scale advantage is not Wuxia Amun, but has basically the ability to compete with foreign brands in the front battlefield, which undoubtedly benefits from the rapid rise and accumulation of these years through price war and other competitive means.
The impact of price war,
The success is also Xiao He, the failure is also Xiao He
Foreign brands have long dominated the Chinese excavator market and maintained high profit margins. As an important granary, the Chinese market has contributed higher turnover and profits. While foreign brands are making a lot of money, the high profit margin undoubtedly lowers the industry barriers, laying the groundwork for the entry of domestic brands. The domestic construction machinery giants, who have made a breakthrough in other sub industries of construction machinery, have entered in a large scale in the temptation of high profit margins in the excavator industry and in the bright prospect of the market.
Positive effect of price war
As a late developing industrialized country, China once had a big gap with developed countries in terms of industrial base, technology research and development, human resources, etc. In the excavator industry, it is also an objective fact that skills are inferior to people. If we compete with foreign brands on R&D, product quality and management level step by step, the rise of domestic brands will undoubtedly be a long way off.
Therefore, domestic brands adopted a radical marketing model, offering the banner of "price war", exchanging profits for space, and the market share increased rapidly. Foreign brands also have to follow up to some extent, but they still cannot keep up with (or are unwilling to follow) the price reduction of domestic brands, resulting in the gradual encroachment of market share by domestic brands. If there is no rapid rise of domestic brands, it is tantamount to profiting from the tiger to expect foreign brands to actively reduce prices.
The price war forces host companies to constantly improve their management efficiency and tap their potential. By improving the ability to organize raw materials and labor force, the enterprise strengthens its internal production management efficiency, enhances its marketing channel ability, and further enhances its comprehensive competitiveness. After the baptism of "war", the domestic excavator head brand became stronger in the Vietnam War.
At the same time, the expansion of domestic brands and the rapid expansion of the whole industry have cultivated a large number of professionals, and led to the establishment and development of many supporting enterprises. The domestic supporting system has been rapidly developed and gradually matured. Whether from the perspective of employment or taxation, it is of great significance to the national economy.
The price war reduced the sales profit of the complete machine, decreased the profitability of the OEMs' agents, and increased the pressure on survival, which forced the industry to accelerate transformation and innovation, accelerate product upgrading and business structure adjustment. Excellent enterprises in the industry have made gratifying achievements in the new round of transformation and upgrading represented by digitalization, intelligence and new energy.
As an important equipment tool for infrastructure construction, the reduction of purchase cost of excavators has lowered the average social construction cost in China. It plays a positive role in accelerating domestic infrastructure construction, especially new rural construction, and enhancing the competitiveness of domestic construction units abroad.
The user-friendly price of small digging has fulfilled the entrepreneurial dream of countless young people in villages and towns, especially the excavator operators, and has devoted themselves to the vigorous new rural construction. Most of those who invested in digging machines in the early years made their first bucket of money in the rapid development of the industry. Many people are now successful in their careers.
In a word, through the price war, domestic brands have risen rapidly, leaving a significant mark in China's industrialization process. Therefore, we cannot completely deny their previous contributions because of the negative effects of the current price war.
Negative effects of price war
As the price war becomes more and more baseless and out of control, the negative effects of the "action of the anti way" become increasingly apparent. The price war that brought great vitality to the industry in the past has now been almost recognized as the cancer of the industry, seriously affecting the sustainable development of the industry. The young dragon slayer in those days has become a fierce dragon. It can be said that success is also small, and failure is also small.
The price war has seriously overdrawn the market, seriously unbalanced supply and demand, resulting in a large number of idle equipment and a huge waste of social resources. The stalled excavator was leisurely basking in the sun, and the owner's messy heart was swaying in the wind. The monthly working hours of the equipment barely constructed also decreased a lot. According to many industry personnel, the average monthly starting time of many excavators this year is less than 100 hours.
The idle rate of equipment is too high, and the supply exceeds the demand. In order to obtain limited construction opportunities, the end customers must compete to lower the price, and the machine shift cost will be reduced again and again. Although the cost of buying excavators has decreased, the profitability is lower, and the return on investment cycle is longer, the overall profitability of customers is getting worse.
Long term price war and excessive pursuit of market share have seriously degraded the business ability of some domestic brand agents, and the business structure is extremely unbalanced. Some agents have transformed from service providers in the circulation link into sellers who survive on the price difference of complete machine sales, and then degenerated into middlemen who survive on the margin of manufacturer steps. In this process, the independence of agents is gradually reduced or even lost, and the value of their own survival is getting smaller and smaller.
The agent closest to the user group suffers from the price war for many years. According to the data of China Construction Machinery Market Research Center, 76.52% of the agents in the third quarter of 2022 were in a loss, and only 23.48% of the agents were in a marginal or profitable state. Compared with the second quarter, the number of enterprises in loss increased slightly, and the loss area increased by 3.90 percentage points.
The market overdraft suffered from the market downturn, resulting in high inventory, and manufacturers' huge capacity could not be released. Now, major manufacturers have started a slimming mode of production, and the impact is quickly transferred to suppliers. As the industry ecology continues to deteriorate, each link of the supply chain must not be isolated. In addition, on December 1, 2022, the national fourth emission standard for non road machinery was implemented, and how to deal with the national third garage storage also deeply troubled manufacturers.
The silent majority,
Customers under the price war are filled with grief
Customers are the foundation of the industry and the source of energy, especially for the vertical industry of construction machinery, which is a means of production. The quality of the industry ecology ultimately depends on the overall survival status of the end customer. If customers fall into overall difficulties, it is an extravagant hope that the whole industry will continue to develop healthily.
The biggest feature of customers in the Chinese market is that like the Chinese stock market, retail investors account for an absolute majority. This is very different from foreign countries. It may be similar to foreign countries in the future with the development of the industry, but it is obviously different at present.
It is conservatively estimated that there are about 1.5 million excavators in the Chinese market. In the market dominated by retail investors, we can imagine how many excavator owners and machine operators make a living. However, a large number of customers, especially retail investors, have always been the silent majority of the industry.
With the increasing scale of manufacturers, the senior executives and customers of the enterprises above the temple are moving away from each other, and direct communication is becoming less and less. Host manufacturers and customers are separated not only by agents, but also by arrogance and indifference to small and medium-sized retail investors.
For a long time, the voice of the industry has been firmly held in the hands of host manufacturers, and the industry has paid more attention to host brands and agents. We have long been used to observing and thinking from the perspective of manufacturers or agents.
Even now, although everyone knows that our "God" days may be more difficult. However, there is more discussion in the industry, and more attention is paid to the operating conditions of host manufacturers and agents. The attention paid to customers is far from enough, and the limited attention is more for the research of promotion policies and services.
The craziest three years of the price war had a great impact on the survival of customers due to the overlapping epidemic. It is no exaggeration to say that some customers have reached the edge of withdrawal. This year, the project quantity is less, and the relatively large inventory is typical of "more wolves than meat". In order to attract customers, some customers have to reduce the price of machine shift openly and secretly, which is tantamount to drinking poison to quench thirst, making the market ecology that has been seriously damaged worse.
The domestic oil price has soared from five or six yuan to more than eight yuan, and the cost has increased significantly. Apart from the fuel money, the wages of maintenance and drivers are not reduced, and the profits are pitiful. It is difficult to settle the bill for work on the construction site. The expenses for fuel, maintenance and drivers must be paid in cash, but the project funds cannot be settled at any time, which is equivalent to taking cash to exchange for notes.
The author visited a customer some time ago. Talking about the current situation, I frankly said that the business has been abnormal this year, the machine shift fee has declined, and the construction site has stopped working. Most of them are working with money, and even last year's accounts have not been settled. He said that the only harvest this year was white hair on the temples and crow's feet lines growing day by day. Behind this seemingly understatement, in fact, how bitter and helpless it is!
The overall situation of customers is getting worse step by step, and they cannot make ends meet, which has seriously damaged the hematopoietic function of the industry.
The rapid growth of sales in recent years gives everyone the illusion that the market demand is also growing at the same time. The sales volume generated by the price war is mistaken for the real market demand, and the market analysis based on this must seriously deviate from the facts. The market demand is indeed growing, but the growth rate cannot keep up with the growth rate of excavator sales. Therefore, a large number of excavators are idle and the operating rate is insufficient. If the construction is not started, the income will inevitably decrease, the risk of overdue payment will increase greatly, and the problem of creditor's rights will follow. This year, there has been a marked increase in enforcement due to the issue of creditor's rights.
In order to deal with the creditor's rights enforcement machine, the manufacturer and the agent set up their own leasing company to lease directly to larger construction sites. The manufacturer is considering the return of funds, which has led to a sharp drop in the rent of excavators. Therefore, it is not only the involvement of excavators' bosses, but also the involvement of manufacturers and agents, leading to a more vicious circle. It is undoubtedly the front-line customers who are directly impacted.
How can the industry develop healthily when customers are in dire straits and there is something wrong with the most basic ecology that supports the development of the industry? Pay more attention to customers, their living conditions and profitability. Creating value for customers should not be just a slogan, but a reason for the existence of enterprises. If an enterprise does not pay attention to the interests of its customers and wants to achieve sustainable and healthy development, it is tantamount to seeking fish out of wood.
When will the price war end?
The industry has long been aware of the harm of price war and the potential crisis in the future. As early as 2019, the China Construction Machinery Association, the Mining Machinery Branch and the Agent Working Committee and other organizations warned against vicious competition. The Association also issued the Risk Notification Letter on Improper Competition in the Chinese Mining Machinery Industry Market, suggesting the possibility of forming a systematic risk or debt crisis, calling for promoting the long-term stable, high-quality and sustainable development of the industry, and encouraging benign market competition. At the same time, the Association has also convened industry enterprises to hold symposiums on "preventing low price competition and promoting the healthy development of the industry" for many times. For a while, the voice of opposing vicious competition and not fighting price war grew stronger and stronger.
As the most authoritative organization in the industry, the Association is committed to maintaining the benign competition of the industry, but has no power to issue administrative orders to various market entities. Despite the appeals of the leaders of the Association, they are still too high and too few. The price war shows no signs of stopping. The major brands "talk while fighting" have won the essence of wartime diplomacy.
By the beginning of 2020, a sudden epidemic will hit the land of China, and the supply chain will be greatly impacted in a short time. In April 2020, domestic brands announced the price increase of excavators one after another, and the price of basically all 名媛直播 increased by 5%~10%. In June 2021, some enterprises will again publicly issue a notice of price increase, announcing a 5%~10% price increase, on the grounds of a substantial increase in the price of raw materials.
Talk and do. Those who are familiar with the operation process of the OEMs know that there is no need to tell the world if the price is really going to rise, and people have to doubt the motivation and authenticity. So it was finally reflected in the market, which surprised people. The price did not rise but fell, and it kept falling. The two "price rises" were fruitless.
A customer complained that he thought he had bought a new machine at a very favorable price at the beginning of the year. At the end of the year, as the price of the new machine dropped all the way, the profit from the construction in that year could not catch up with the price reduction of the excavator, so he spent a year in vain. The range and speed of price reduction can be seen!
"Once the military situation has been handed over, there can be no ending". It is easier to start a war than to end it. Although all major brands have seen the harm of price war and hope to stop it, they are already in a prisoner's dilemma for fear of declining market share. For each brand decision-maker, the local optimum of the enterprise is obviously superior to the overall optimum of the industry.
Just as war is not the normal state of human life after all, a peaceful and stable life is what most people aspire to. The price war is not the normal state of the industry. As the price war has become a war of consumption and a protracted war, the marginal benefit of the price war has become lower and lower, and the payment and income are increasingly out of proportion. All parties have shown signs of fatigue. The agent is really unable to fight on, and the supplier is plagued by endless "cost reduction", and has faltered. Due to upstream and downstream constraints, the space for the OEMs to move is becoming smaller and smaller.
The price war must be gradually reduced after the climax, and gradually stopped with the increase of industry concentration. Because it is no longer in the interests of industry leaders to fight endlessly. In 2016, the market share of domestic excavator CR4 (the top four in sales) was 48.3%, and that of CR8 was 70.4%; In 2020, CR4 will be 62.3%; In 2021, CR2 will approach 50%, CR4 will reach about 65%, and CR8 will exceed 80%. The industry concentration will continue to increase. In just five years, the market pattern has changed from disputes in the Spring and Autumn Period to the Warring States Period.
With the declining profit margin of the OEMs and the increasing market concentration, this round of price war is nearing the end. The industry position of leading brands has been relatively stable, and all brands will return to rational competition under a price system selected by the market. Of course, it is not ruled out that as the industry continues to decline sharply, in order to seize a limited market share, the price war may rise again and again.
In consideration of their own interests and social responsibilities, the head brands should take the lead in maintaining the order of the industry and end this protracted price war as soon as possible. The leader is undoubtedly the biggest beneficiary of the healthy development of the industry ecology. So today, due to the large market share of the head brands, there is no doubt that their sincerity and efforts to end the price war may only need the right time.
It is time for this escalating price war, which started in 2018, to end. With the coronation of the new king and the reshaping of the industry landscape, the market will eventually be governed by chaos and return to the essence of competition.
For domestic brands, there is still a long way to go in the future. The fundamental way for a long-term foothold in the future is to continue to improve the operation and management level, continue to improve the technology research and development ability, continue to improve product quality, and continue to create value for customers.
