A number of car manufacturers in the country are now looking beyond the product segments they have traditionally operated in. For instance, American companies such as Ford Motors and General Motors, and even Japanese companies such as Honda and Toyota have traditionally operated in the mid to premium/luxury car segments in the world. These companies replicated the model in India too. Suzuki, in contrast, does not have a very significant presence at the premium end of the market in the world. So, along with the Government of India, its partner in the Indian venture Maruti Suzuki, it went after the small car segment?its core area of operations globally in the country.
But if product profiles in the past were drawn up keeping in mind global rationale, understanding and expertise, that?s no more the trend now. The accent today is on a well-rounded product mix, on a presence, in other words, in more or less every segment of the value chain.
Let?s go back to Maruti Suzuki: This year the company added the SX4 at the upper end of the C-segment, replacing the Baleno and relaunched its Sports Utility Vehicle (SUV) Grand Vitara. For a company that has made its presence felt in the A and B segments with the Maruti 800 and Alto among other products, plugging C – the mid-sized car segment- with a compelling product was imperative indeed. Also, jumping right back into the SUV category was required to a certain extent for Maruti, given the 14.6% growth that the utility vehicles segment in general has seen over the last three years.
In fact, Maruti is unlikely to stop here, indicated as much by the company?s managing director Jagdish Khattar during interactions with analysts at the 2006-07 financial results? conference in April this year. He had said, ?We are going to expand our capacity. We are getting our new engine series. We are going in for new models. We are refreshing our existing models.?
Khattar?s words in many ways are symptomatic of the times. The need to not only get new customers, but also retain the existing ones is pushing car manufacturers to plug gaps in their product portfolio. As S Ramnath, vice-president, research, at Mumbai-based SSKI Securities, says, ?It?s about keeping them (customers) in your fold by catering to different price points, requirements and aspirations. The scenario is so competitive today that the pressure to convert a walk-in at a dealer showroom is extremely high. Manufacturers then have to have enough options on hand to make sure that the customer does not walk into a rival?s showroom.?
Hyundai Motors, for instance, has addressed this pressing need for product diversification pretty well. It has a model in every segment from B to E, beginning with the Santro and Getz in B, Accent and Verna in C, Elantra in D and Sonata in E. It also has the Tuscan in the SUV segment, which, in a way, completes the portfolio for the company. But far from being content with it, the auto major is now focussing its attention on a deeper penetration within segments, like in the B segment, for instance, where it is looking to introduce a car between the range of Santro and Getz. Says Arvind Saxena, vice-president, sales & marketing, Hyundai Motor India, ?We felt there was room for further penetration with more models in the segment.?
Just how keen Hyundai is to keep customers within its fold can be gauged from the competitive pricing of both Santro and Getz. The latter is just about Rs 1.3 lakh higher than the popular Santro, which is priced at Rs 2.7 lakh (ex-showroom, Delhi). Archrival Maruti?s price list is even more competitive since it has more options in B – the largest car segment in the country.
For instance, the entry-level mini car Maruti 800 (in the A segment, that is) is priced at about Rs 1.99 lakh (weighted average price). The next option, the compact Alto in the B segment, is available at about Rs 2.3 lakh. The Zen Estilo, Wagon R and Swift?all products in the B segment?are available at Rs 3.3 lakh, Rs 3.7 lakh and Rs 4.5 lakh, respectively. Then comes the Esteem at the lower end of the C segment, which is available at Rs 4.8 lakh, while the SX4 comes at a price tag of Rs 6.6 lakh (all prices stated here are weighted average prices). Quite clearly, Maruti is keen to bring down customer leakages by targeting almost every price point and value proposition between the A to C product segments.
In fact, most car manufacturers are coming to realise the benefits of this exercise, as emphasised by Abdul Majeed, partner and auto analyst at PriceWaterhouseCoopers, Chennai. ?In a growing market like India, car manufacturers sense that a presence across segments is imperative to push up penetration and sales, which is why most are now venturing into allied areas.?
Rightly so. The growth in four-wheeler domestic sales over the last three years has been 15.2%. In the last fiscal alone, says the Society of Indian Automobile Manufacturers (SIAM), the growth in four-wheeler sales in the country has been 20.7%, while in the current fiscal, between April to August ?07, the growth in domestic sales, has been 13.5%, despite high interest rates affecting easy financing options in the auto sector.
Clearly, higher purchasing power, improved lifestyles, lower duties, especially, on small cars, and competitive pricing of models is driving this overall growth in the four-wheeler market. So tapping the consumer mindset is not lost on players at all. Not at this stage, when the tide seems to be in their favour. So, Mahindra & Mahindra, which dominates the UV segment with Scorpio, Bolero, etc, ventured into the C-segment this year along with partner Renault with the launch of the very competitively-priced Logan (Rs 4.28 lakh for the petrol variant) in April. General Motors, a mid to premium car and SUV player, on the other hand, made its much-hyped entry into the B-segment in the same month this year with the Chevrolet Spark. Then there are those contemplating entry into new product segments like the Volkswagen group, Toyota and Honda?all of them players in the executive, premium and luxury segments (D, E, F) in India?who are eyeing a presence in the small car segment too.
Tata Motors? Rs 1-lakh car project, if it does take off, will mean the addition of a new segment (the entry-level A segment) to its existing list of B and C segments, where the Indica and Indigo are positioned. ?The market is moving upwards, opening up opportunities for manufacturers in all segments. Its makes sense then for all players including us to take advantage of this environment, given our long-term commitment to the Indian marketplace,? says Jnaneswar Sen, senior general manager, marketing, Honda Siel Cars India. The need to bring down production costs by introducing economies of scale is what lies at the heart of the matter.
?By increasing the product bandwidth, one can cross-deploy technology, share platforms, etc,? says Dr Arun Jaura, senior vice-president (R&D and global product development), automotive sector, Mahindra & Mahindra. That will be the new trend going forward as companies here increasingly broadbase and expand.