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Attention global carmakers! Cheapest price, foreign business models don’t work in India: Here’s what to learn from Maruti Suzuki, Hyundai

Carmakers, in particular, have found India to be a tough market to understand and no company apart from Hyundai has managed to even come close to achieving the customer connect that Maruti Suzuki enjoys.

By: | Updated: December 20, 2017 1:01 PM

Introduction

Ever since the Indian market opened up to the world in the 1990s, companies across the world have tried, succeeded and failed at meeting the unique expectations of buyers in the sub-continent. Carmakers, in particular, have found India to be a tough market to understand and no company apart from Hyundai has managed to even come close to achieving the customer connect that Maruti Suzuki enjoys. The usual perception of Indian vehicle buyers for a large part of the world for long has been to offer the cheapest price tag, even if it involves compromise with features or functionality. We cannot deny having a strong liking for low price-tags but what many failed to comprehend was the strong demand for value we have had. In the past few years though, people have had more disposable income and naturally, demand is riding the high tide. Buyers no longer want the lowest price-tag and are willing to pay more to get more.

Cars in the past few years have seen a strong influx of electronics, most of which are aimed at improving safety and the cabin experience for the occupants. So much so that modern cars these days have more lines of code written than for a jetliner or even some fighter planes. Infotainment and convenience features have gained immense popularity, especially in urban centres, where people also use the car as a social status symbol and not just a machine for commuting.

Cheapest price-tags? No thanks, we prefer higher value.

Tata Nano's failure is proof that lowest price-tags, especially that of being the cheapest doesn't go down well with the aspiring population of the world's youngest country. Cars like the Datsun Go too have proven that even in Tier 2 cities, which are a target market for the company, people like having more features. Almost everyone today wants a touchscreen in their car and connectivity options such as Bluetooth is no longer high-end features. Safety too is gradually gaining importance and people are willingly paying more for their own and their family's safety. Hyundai's Elite i20 was the most expensive model in its segment at the time of its launch, yet it went on to become the best-seller because people didn't mind paying more for a good looking car that came loaded with features. Maruti Suzuki too has had enormous success with it premium retail brand Nexa as people are happy buying vehicles that feel good and make them look good.


A recent study by J.D. Power suggests that buyers in the small car segment, which still accounts for half of all new vehicle sales, are increasingly regarding the audio/ entertainment/navigation category as a key determinant of vehicle appeal. Even in the utility vehicle segment customers are increasingly giving importance to audio/ entertainment and navigation. Interestingly, the J.D. Power 2017 India Automotive Performance, Execution and Layout (APEAL) Study points out that fuel-efficiency still continues to be a key driver of vehicle-buying decisions. In addition, exterior and interior design along with build quality is gaining more importance for consumers while deciding on their new vehicle purchase.

Conclusion

It's clear then that Indian consumers no longer want cars with the cheapest price-tag but instead want more features to make their lives comfortable, especially with the growing problem of traffic. General Motors completely failed to understand this and continued to sell dated Chinese cars rebadging them as Chevrolet. In the end, the whole plan fell apart as consumers were smart enough to make out a cheap Chevrolet from better Japanese, European, American or South Korean cars.


The focus then for carmakers should be on optimising their supply chains in order to increase cost-competitiveness and couple that up with product planning done ground-up from India. Product plans that are partially or half-made in the West or East are more or less bound to fail. Indian market is different from most large automotive markets in terms of climate, purchasing power, buyer demographics and many other aspects. Such a market of wide diversity can be catered successfully by global carmakers only if they try and understand the local requirements.

Even a carmaker as technically sound as Honda got it a bit wrong when their WR-V got delayed more then expected. While the model is right now a success, it could've done far better had it been launched earlier. Getting the product lifecycle management spot-on is key in a market as dynamic as India. A delay of a year in launching a vehicle can be the main difference between it becoming a segment best-seller or just another moderately successful seller.

Carmakers such as Honda, Toyota and Ford have shown the ability to hit the sweet spot of consumer expectations at times. This can only be seen as a positive sign for customers since a higher number of fierce rivals in a segment will push the companies for more innovation and higher value-offering too. Volkswagen received better than expected response for the Polo GT range, which at the time of its launch was priced close to what many sedans were priced at. Still, people bought the hot hatchback because its performance appealed to buyers and justified the high price-tag.

Stepping into the world's most dynamic market requires innovation and breakthrough thinking like never before and Maruti Suzuki and Hyundai's success is testimony that simply replicating the European, Japanese or American style of selling cars doesn't stand a chance in India. With India's vision to have 100 % electric passenger vehicles by 2032, things are only going to get more complicated. While the underlying opportunity is huge, only a handful of automakers are likely to emerge as winners in the next phase of Indian mobility.

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