China’s market for compact cars is evolving quickly. Consumers are already differentiating among brands, often developing preferences based on emotional factors such as a manufacturer’s image or what friends think. Intangible attributes (those a customer attaches to a brand) may be even more important to car buyers than practical matters such as fuel efficiency. For automakers that can deliver on these consumer preferences, the potential is huge: by 2015, more than three million compact cars a year may be sold in China, making it the world’s largest market. Yet the opportunity has resulted in a crowded field: 7 new models were introduced in 2002 and 9 more in 2003, bringing the total number of compact cars available to 24. How can brands set themselves apart?

Our research has identified the attributes that attract Chinese consumers to particular brands. Industry leadership—the belief that a car manufacturer’s good reputation ensures safety and reliability—draws the largest group of consumers. This intangible attribute is important to more than 60 percent of them, though some bargain hunters don’t value it at all. Intangibles consistently rank highest, accounting for six out of the top ten brand attributes (Exhibit 1), which indicates that functional attributes such...