However, the flip side to this sudden influx of manufacturers is that the Indian consumer, who, until the early 90’s, had minimal choice in spite of Maruti Udyog’s (MUL) presence, now suddenly had an embarrassment of riches. To put that into perspective, about 28 new models have been launched so far this decade.
And things look like they could only get worse for carmakers, given that the “Car Wars predicted by many pundits look set to move into top gear in the first year of the millennium. With three new players Toyota of Japan, Skoda of Czechoslovakia and Proton of Malaysia set to make their Indian debuts in the next 15 months and at least 14 spanking new car models slated to hit Indian roads, the heat is definitely on.
The predicament of carmakers is further highlighted by the fact that last year the automotive market, after five straight years of double digit growth, was privy to a marked slowdown in offtakes. A fact amply illustrated in the 4.5 per cent drop in unit sales of passenger cars for the period April 1998 to February 1999.
But this year, after a slump, the automotive market has clocked a 46 per cent growth in the first five months of the financial year, which most players agree is unsustainable. Given that the industry actually has far more capacity (nearly 12 lakh vehicles by 2000) than what the Indian market can absorb, a question of survival, therefore, becomes paramount.
It is here that carmakers have realised that an optimum mix of three critical factors have become quintessential for ensuring “success of their vehicles on Indian roads. These three factors gain precedence in the context of the Indian market and, hence, are very important for us to understand.
Additionally, in the Indian context, indigenisation has gained in importance ever since the directorate general of foreign trade (DGFT) recommended that new entrants into the Indian automotive sector achieve a 50 per cent indigenised component level within three years of start-up, rising to a 70 per cent within five years.
Thus, indigenisation is fast becoming a key to profitability in the automotive segment. Realising which car manufacturers are either busy developing a vendor base from amongst the existing Indian auto ancillary units or setting up component joint ventures. Also, exemplifying which has been the firming up of nearly Rs 600 crore worth of investment plans by Korean component manufacturers to support the Hyundai project in Chennai. Tata Autocomp and Delphi, respectively, are two other ancillary manufacturers that spring to mind almost immediately when one thinks of TELCO and GM.
In fact, the criticality of indigenisation can be viewed from the fact that MUL is said to be targeting an indigenisation level of 85-90 per cent for its planned new models, namely the Baleno and the Wagon R, within a year. This same level was achieved for the Maruti 800 cc after twelve long years.
Further, analysts state that it is the 70 per cent indigenisation level of the Ford Ikon that has given the American car maker the unique opportunity to get aggressive in the mid-sized car segment.
Select, develop and communicate the chosen positioning concept.The emergence of segmentation is largely due to the fact that each buyer is potentially a “separate market , wherein carmakers need to understand that buyers differ in their wants, needs, purchasing power, geographical locations, buying attitudes and buying practices.
Keeping this in mind, the Indian automotive market has been historically segmented into a basic three-tier structure: the small car segment, the mid-sized segment and the luxury sedan segment.
However, given that the Indian market has been in a constant state of flux, these segmentations have been broadened to include sub-segments within.
Small car segment: This section currently includes the mini segment, which is the undisputed domain of the Maruti 800 cc and the Omni, given the price entry barrier.
However, changes in consumer lifestyles and an increase in disposable incomes in urban markets have led to the consumer wanting a vehicular upgrade. This is where the new “supermini segment comes into play. The Rs 2.5 lakh to Rs 4 lakh segment comprises Maruti’s Zen, Hyundai’s Santro, Daewoo’s Matiz, Telco’s Indica and Fiat’s Uno.
Interestingly enough, it is this segment that has started outselling the basic Maruti 800 cc mini segment with a 150 per cent growth rate, compared to a 20 per cent growth in the basic-mini segment.
What’s more is that in spite of being the leader in the supermini segment with its Zen, MUL, which should have been cheered by the growth, is now wearing a worried look. Reason being that competitors like Hyundai (Santro) and Daewoo (Matiz) are breathing down its neck touting USPs such as the technology platform. Moreover, cars like the Uno and the Zen are the oldest in the segment, in terms of technology.
Mid-sized segment: Competition in the most crowded one-way street in the Indian automotive segment just seems to have got fiercer. The segment in question here is the mid-sized passenger car segment, wherein the winds of change are blowing fast and furious. A new approach being adopted by most auto manufacturers towards this segment looks set to change the very dynamics of this market once and for all. The emergence of the mid-sized, mid-priced segment is again a play on lifestyle upgradation, as the vehicles in this segment fall within the Rs 4.5 lakh to Rs 6 lakh range.
Earlier, there was only MUL’s Esteem, which enjoyed the fruits of price leadership in this segment, but all that is about to change.
The obvious reference here is to the new pricing regime adopted by three of the players for their respective new offerings within the segment. They include Fiat (Siena),Hyundai, which has announced a price tag of Rs 5.35 lakh for its Accent, and Ford, which has priced its Ikon at Rs 4.99 lakh. These two new additions aside, there is GM’s Opel Corsa (price yet to be announced) which is also likely to carry a similar price tag. These new offerings are over and above the almost thirteen players that are vying for honours in this passenger car segment.
Earlier, the mid-sized segment included only the high priced, semi-luxury cars such as GM’s Opel Astra, Ford’s Escort, Peugeot’s 309, Honda’s City, HM/Mitsubishi’s Lancer and Daewoo’s Cielo. Here, again the market dynamics have changed and a battle royal for the ever-important market share looks well and truly on.
Super luxury segment: The last of the automotive segment, this has for long been the sole pride of only one manufacturer, namely Mercedes Benz. And given that none of the global players have evinced much interest here, it looks like Mercedes will remain the undisputed player within the confines of this segment. Here, “price is of no importance, with factors like, safety, aesthetics, driver comfort, accessories, sheer luxury, etc. ruling the roost. And, hence, the German automaker can breathe easy!
Pricing
This is the last of the troika of factors critical for the Indian automotive market and until recently, was the most important factor for success in India. The “price phenomenon as a concept received tremendous impetus due to the development of large-scale retailing at the end of the nineteenth century. And throughout history, price has operated as the major determinant of buyer choice, company market share and profitability. Particularly since price has evolved in theory as the only element in the marketing mix that produces revenue.
Interestingly, analysts state that it is this very aspect that has been critical in ensuring MUL’s runaway success in the small car segment. More so, since India’s largely mythical 200-million-strong middle class has proven time and again that it is more concerned about “price than anything else. No wonder then that MUL is the undisputed price leader in all the three segments that it services, namely the small car segment with the 800 cc, the mid-sized segment with the lowly priced Esteem and the utility segment with the Omni and the Gypsy. Thanks largely to a high indigenised content no doubt.
This meanwhile , analysts state, is quite unlike the west where buyers consider aesthetics, comfort and safety, not necessarily in that order, before finalising a purchase.
In fact, company sources at MUL state that the small car (800 cc) was an ideal entry level product for India given its price, which was augmented by the convenience factor, since the country did not have a well developed mass transport system.
However, winds of change are also blowing fast and hard here as explained by Fiat India’s managing director G Ravina: “The mindset of the Indian consumer is such that he is delighted if he buys a pen a little cheaper than his neighbour. Things are, however, slowly changing and customers at the upper end of the market are now ready to pay more for more. We hope that this approach will soon enter the small car segment, maybe not with the same intensity .
Telco’s general manager (commercial) Rajiv Dube echoes Ravina’s thoughts when he states: “Indian customers expect a whole value proposition and pricing is just one of the key factors .
And so you have it, change appears to have engulfed the historical dynamics of the Indian automotive sector. But, along with these three critical components of the “success equation is the evolution of some other elements, which carmakers in India will have to keep a keen eye on.
We refer here to the changing psychographic profile of the Indian consumer. The Indian car market currently appears to be at a crossroads, where car marketers are attempting to change customer perceptions of their brands and where specific buying motivations appear to be replacing generalities.
States Lexicon Finance’s manager Shahnoor Contractor: “It’s smarter to think about emotions and attitudes, if marketers are to do a better job of marrying what a car offers to the consumer’s image of the offerings. Especially since an intensive psychographic perspective that connects behaviours, demographics and media usage provides a deeper understanding of why consumers buy specific cars .
Keeping this in mind, The Financial Express conducted a small market survey of some 50 respondents, in attempt to understand the mindset of the Indian consumer and this is what was uncovered.
Currently, buying decisions of Indian consumers can largely be divided into four distinct psychographic profiles.
Accessorised Indians: Compared to other automotive segments, accessorised Indians agree with the concept that it is unpatriotic to buy a foreign car, believing very stoically in the ‘be Indian, buy Indian’ credo. And, hence, the huge success of Telco’s Indica.
Accessorised Indians also strongly consider factors such as resale value, after sales service, and tend to be the only segment that will buy a new car from a trusted dealership near where they live or work. This group of consumers also like reading a great deal about the cars that they are about to buy and are also most likely to pay the most attention to what experts have to say about their choice of cars.
Stylish fun: For this user profile, “cars are fun... not just a mode of transport. This consumer, generally, has an ongoing love affair with his car and “usually pays more for a new car than his budget allows. A lively car like the Ford Josh machine, aka the Ikon, with huge power under the bonnet is incredibly important for the category of stylish fun users.
Styling is another thing that users check in this category. A car has to be abreast of the latest global automobile trends like the retro look or sports fenders for the consumer to even give it a glance.
Reliables: For this category of users, driving is just a way of getting from point A to point B. These users view cars as just a “mode of transportation . Reliables are very happy with a car that is inexpensive and reliable.
Mileage is another criterion with high weightage on the list of priorities amongst Reliables. Vehicles like the Maruti 800 cc and UNO rank high amongst such users. Ever practical, this category of users will buy a car in spite of its looks. The amount of head room or leg room is not very important to this category of buyers, who bank quite heavily on how consumer reports rate a car, before they buy it.
Uninvolved: This is the last category amongst Indian users and like reliables, they view the automobile as a mere mode of transport. This group does not even research the vehicle they buy. Aspects like car maintenance, etc. are a big bore to this category, which consists largely of housewives.
Thus, with the battle lines drawn and strategies worked out to the nth detail, the question on everyone’s lips now is: which carmaker will survive?
Car manufacturers are now busy baiting their hooks with aggressive pricing, brand positioning, dealer incentives and a strong after service network all of which translate into “true value for money for the consumer.
The overcompetition aspect aside, another spanner in the works could come post 2005, when the government will have little option but to allow free imports of second hand cars in accordance with the World Trade Organisation (WTO) agreements. Would this not effectively kill the Indian automotive industry, just as it did in New Zealand and Australia? How would then carmakers cope?
Well, perhaps success in the next millennium will come to those auto manufacturers that seek new solutions, over and above the factors stated above.
So, what are we talking about?Well, traditionally, dealer networks have been the front line for carmakers, but few actually operate downstream from their dealers except to sell parts and accessories.
Thus, post 2000 auto makers might have little option but to integrate operations with other players like oil companies, repair facilities (workshops), tire makers, aftermarket part suppliers and accessory manufacturers to retail all products under one roof. A sort of “one stop automotive shop for everything.
Importantly, the carmaker cannot even leave out the provision of insurance and financial funding to help him enhance the retail push. This aside, another option that players like MUL and M&M have already embraced seems very good. The obvious reference here is to the practice of extending auto manufacturers’ reach into the used vehicle market, via both direct sales and the Internet, a la websites like M&M’s automartindia.com and MUL’s marutiudyog.com.
Thus, success could well hinge on the best of bundle of services that a carmaker can provide. A fact not at all lost to M&M’s managing director, Anand Mahindra, who states: “Success will largely be determined to the extent a company can differentiate itself in terms of intangibles that go with a car.