Wednesday, January 12, 2011

Uncharted Territories

Jitesh Patel, Rahul Mantri, Ritika Nagar | IIM S

Uncharted Territories

Automakers in India exploring the road less traveled…

Behold the turtle; he makes progress only when he sticks his neck out. (Bruce Levin)

For the turtle, sticking his neck out is essential to move forward. The automobile companies in India are doing just that – sticking their neck out. India is poised to become one of the largest automobile markets in the world and to succeed in India, companies are entering uncharted territories. Territories which they have shied away from until now. Tata made the cheapest car in the world keeping in mind the Indian customer and the world took notice. Now, Toyota has, for the first time come out with a small car, the Etios which has been designed completely based on the needs of the Indian market. Maruti is coming out with Kizashi; a D-segment car which is a first for Maruti Suzuki . Tata Motors is aiming to create a new segment altogether with the launch of its car Aria deemed to be India’s first crossover car. We take a look at the reasons for these business decisions, the strategies being employed for their success and also on how the market might react to these offerings.

The Toyota Etios – Toyota’s first “Indian” car

The Etios has been in development for 4 years, employing over 2000 engineers from Toyota’s Indian and Japanese operations. The Japanese major is investing Rs.3200 crores to set up its manufacturing facility in Bangalore. It has been designed keeping in mind the minute preferences of the Indian consumers. Toyota says it is the first and last ever low cost sedan coming out of their stable. Etios was recently launched with much fanfare (A.R.Rahman was there for the launch) and has been priced in the range of 4.96 lakhs to 6.84 lakhs.

The Etios was born out of the need to compete in the very lucrative and high growth compact car market in India. Toyota is something of a non-entity in the emerging markets in terms of market share volumes and with Etios it wants to change that. A small car is essential to gain foothold in the rapidly developing countries. Toyota believes that entering the right segment with a car such as the Etios will be a winning proposition for them in the long run. Toyota’s usual plan of action has been to design cars for the developed world and then sell watered down versions of the same car to the developing nations. This attitude restricted its scope of expansion in the emerging economies. Etios is a car that has been designed solely for the Indian context and it will be launched in other developing nations as well.

The tagline for the Etios is “World First. India First.” which emphasises Toyota bringing its world class quality and engineering skills to meet the demands of the Indian people. The promotional campaign stresses that the Etios is in a class of its own and has no competitor as such. Toyota did a road show of 25 cities to reach into a wider market in India; it currently has presence only in 15% of the Indian market. The market penetration is essential for Toyota since it currently has costlier cars which are largely based in the metros and Tier-I cities. To ensure Etios is successful, the expansion is necessary and rapid growth plans for its distribution chain are in the pipeline. Toyota expects to have 150 dealerships by the end of this year and deliveries for the Etios will start in January 2011. In addition to this, A.R.Rahman has been signed on as the brand ambassador for the Etios.

Competitors are wary of the effect of Toyota jumping onto the bandwagon and starting to manufacture cars at a lower price point. Toyota is known for its world class quality and also has the reputation of redefining the marketplace with its stringent cost and quality measures. The competitors for Toyota Etios would be Indigo Manza, Ford Figo, Hyundai i20 and the Swift Dzire which all lie at similar price points to the Etios. The Etios promises to offer more on the features and performance front but Toyota lacks in terms of the on ground support. Its competitors Maruti Suzuki, Tata Motors and Hyundai have a far more widespread presence and this will be an uphill climb for Toyota to achieve its ambitious goals for the Etios.

The Etios is almost like a make-or-break car for Toyota. The company believes that the Etios will carry forth Toyota through the 21st Century, just as the Corolla carried them through the 20th century. Such a statement, coming from the World’s largest automobile manufacturer shows how bold and significant this move is for Toyota. The start has been bright; Etios has already received over 8000 bookings in the first week after its launch was announced. The plans are to sell 70,000 cars in the first year. This seems to be an ambitious but nevertheless achievable figure with the amount of effort Toyota has put into the Etios. Toyota has stuck its neck out, only time will tell whether it was the right move and whether this will help spur Toyota’s forays into uncharted territories.

Kizashi – Maruti Suzuki’s foray into the Luxury car segment

Maruti Suzuki is the market leader in the A2 and A3 segments with a market share of 53.3% in A2 and 42.7% in A3 segment. It is currently exiting the A1 segment by phasing out its 800 model. It wants to become a company which is capable of satisfying the needs of customers across segments (Full market coverage, segment by segment invasion plan). The next logical step that could be taken to achieve this objective was to enter into the A4 segment. Although breaking into this segment may take time but with the high growth rates expected in this segment it is an opportunity that should not be wasted. The A4 segment is expected to grow annually at the rate of 30% per year for the next 5 years.

So, Maruti the name synonymous with “the best service and value for money” is planning to add another feather to its crown with its launch of Maruti Kizashi in 2011. Maruti Kizashi is a mid-size sporty looking sedan. Maruti has lots of cars in small car segment starting from Maruti 800, Maruti Alto, Maruti Wagon R, Maruti A-Star, Estilo and Maruti Ritz. But there was a vacant space for a luxury sedan in D-Segment which will be soon filled by stunningly beautiful and elegant car Kizashi. The issues which crops up is with respect to the brand Maruti Suzuki which is perceived as low cost and value for money. Moreover Maruti has to compete with D-segment giants and gain market share. Pricing and proper positioning of the car will be a challenge for the success of this new project. The promotional activities and defending the market share by MNC leaders in the segment are other major issues.

The competitor cars are priced between 10-15 lakhs with various models. However Kizashi is being launched as a sport model car (price range Rs 10-12 lakhs). Its UVP is its design and style. An advantage on power of 2000CC is also there (with compromise on mileage which does not affect this segment much). It has also more room compared to competitor products and Maruti has a better distribution system and aftersales service adding to its competitive edge.

In this segment both Maruti and Honda have decided not to go for a full on frontal attack. Their strategy has been such that they have emphasised that the Civic is youthful, while the Kizashi is mature. The Civic is sharp and designed to look quick and fast, while the Kizashi is rounded and has a majestic of bearing while on the move. The Civic breaks new ground when it comes to sedan design, while the Kizashi improves upon what already works. Kizashi can steal Civic’s market share in this market, by emphasising on these aspects.

Kizashi was earlier released in USA and Japan in 2009 but it was unable to make any significant impact in the US market and sales figures were not encouraging In India, Maruti Suzuki known for its low priced cars which have helped it establish a stronghold in the automobile market .The Kizashi is a sign of diversification and Maruti aims to be the market leader in this segment as well. The growth plans are sanguine and the result of Kizashi will decide Maruti Suzuki’s fate outside the small car segment.

Tata Aria – India’s first Crossover

Recklessness meets caution, contemporary meets the classic, the first Indian crossover TATA Aria hasn’t even hit the road and it has already created a buzz on various media channels. It is the company’s most expensive offering till date between Rs13 lakh and Rs16 lakh. Targeting the niche the Tata Motors has again not only developed a truly revolutionary product but also surprised people with the right and unique marketing campaign.

Although the issues in the launch of Aria are manifold like lack of awareness in the Indian market about crossovers, the brand itself and being first of its kind. But using the integrated marketing channel Tata has adopted a planned strategy to position Aria into the Indian market. Aria has been packed with lots of features which are supposedly to compete with those of the Innova and Xylo. Aria sports a 2.2 litre common rail diesel engine and blends the functionality and comfort of a mid-range MPV with the all-terrain assurance and premiumness of an SUV. In terms of features it has 6 air bags for safety as well as an Electronic stability program offered first time by an Indian manufacturer.

To overcome all issues related to Aria, Tata is driving the most ambitious marketing strategy. Tata starting with online campaign which will be followed by viral marketing will try to create curiosity in the customer about the crossovers and Aria in particular. Through a LIVE webcasting channel, thousands of automobile lovers across the world bore witness to the unveiling of a new breed in vehicles. Tata recently launched a website called the which allows users to create a user or connect via Facebook. Then a participant can create a car step by step in various levels, which is also kind of fun if you are into cars. Apart from their online presence with “LIVE” and Build a Dream Car” they have also showcased the prototype in Geneva Auto Expo and Delhi Auto Expo.

The planning for Aria started 5 years before the launch. They formed a focus group including owners of Sedan, SUVs and MUVs and gathered all their problems related to these existing products and after all that they tried to implement most of the features in Aria. A small example is of ground clearance for Indian women in saris. This speaks a lot about the positioning strategy of Tata.

The Tata Aria aims to create a new market segment for itself and hence has its task cut out. The aggressive promotion strategy is essential when aiming to create a buzz for the growth of a product such as the Aria. Tata has tried something like this before, with the Tata Xenon which was a lifestyle pickup truck and it failed to take off. This time Tata is treading more carefully to ensure that Aria captures the market share it deserves.

These cases show that the automobile companies in India are experimenting and experimenting big to find the right way to tap the growing opportunities. Companies are no longer satisfied with sticking to the beaten path; new paths are being treaded upon in the hopes of making tremendous progress. This bodes well for the consumer; he now has more choice and has better products awaiting him. As for the companies, it will be a while before their success or failure becomes clear. Some experiments will bring in the desired results, some will not, but one thing is sure the experiments will continue.

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