Empirical Study : Brand Elasticity in Mass Market

Primarily, right Product (having attributes which meets or exceeds consumer’s needs – both emotional & functional) and right Price (delivering value = perceived benefits {emotional & functional} >= price tag) are key ingredient for successful car recipe. Affordable, reliable and consistent After-Sales-Service is key to sustainability. For example -Renault Duster was runaway success, in medium run before competition came in, and Kwid did what Hyundai fail to deliver with Eon, despite Renault having relatively slim footprint across India. Resurgence of Tata Motors as a result of HORIZONEXT strategy is another example.

In spite of having all three vital ingredients mentioned earlier, sometimes companies do felt constrained in selling product in higher price band, because of brand inelasticity across mass market price band – ₹ (0-35) Lakhs. While going through 2017 data set we saw an interesting trend. Companies which have presence in ₹ (0-5) Lakh price segment find it difficult to make a mark in 15+ segments. That gives a glimpse of relation between elasticity of brand over price range. Here Tata and Mahindra have played it safe by introducing value for money (VFM) UVs in ₹ 15-20 Lakhs price bracket, undercutting competitor’s price by huge margin. VFM, how? Consider this, on paper, a fully loaded 140 BHP Mahindra XUV 500 (W10 AT AWD) is priced at ₹ 18.93 Lakhs (Ex-Showroom) and similarly sized and equipped 150 BHP Skoda Kodiaq being sold at ₹ 34.5 Lakhs (Ex-Showroom), in territory of entry level luxury brand. Both have similar fancy features like sunroof, electric seats etc, Skoda is enriched with exquisite features like panoramic sunroof, adaptive cruise control, self-park etc. Yes, XUV 500 sells 10 times more than Kodiaq and in flesh (metal) Kodiaq is much nicer. But the crux is Skoda is still able to sell Kodiaq for 35+ Lakhs, and it is significant because revenue it generates is only 5 times less than XUV 500, not 10 times less as in case of volume.

Volume Distribution across Price Range (Ex-Showroom)

Globally Skoda occupies bottom rung in VW’s brand hierarchy, even below VW. However, numbers suggest that Skoda is more accepted as a premium brand than the parent VW in India. If you leave Polo, it’s Skoda that always had an upper hand in premium segments– Octavia/Jetta, Superb/Passat, Kodiaq/Tiguan.

Maruti Suzuki in past had tasted some sort of failure with Vitara and Kizashi in 15 Lakh+ segment. Both were promoted as pure Suzuki vehicle, by shedding Maruti name all together, a strategic effort for brand differentiation, except for sales channel. Both were available only as CBU with petrol engine, that could be the reason of failure, but Honda was able to sell Civic and CRV in relatively good numbers in the same period with petrol only engine. Moreover, in India, people in general recognize the “S” logo of Suzuki as Maruti only. Suzuki as a brand is still not strong; this is further corroborated by relatively lack of recognition of its two wheeler business, where Suzuki alone is used as brand name.

So, Maruti Suzuki tried a different approach. It began experimenting with sales channel. Rather than launching a sub brand, it has started sub brand of sales channel called NEXA, portrayed as premium channel to sell premium product, seems innovative. If you observe carefully, you will notice that none of the product sold through NEXA channel has Maruti written on it, anywhere. What difference one could observe at NEXA is the ambience, however, staff at regular Maruti showroom are equally courteous and diligent throughout sales cycle and offer similar purchase experience too. Neither Baleno nor Ignis, sold through NEXA, seems premium over Dzire and new Swift. Current product mix seems to be misplaced across sales channel. Also potential buyers need to visit two different showrooms for products which fall in similar price band. Has Suzuki succeeded in creating premium brand image with NEXA? Super success of Brezza, a lifestyle oriented product, sold through regular Maruti showrooms, raises question on efficacy of a separate and expensive to maintain NEXA sales channel.

Another case in point is Hyundai. It tried multiple times in ₹15 Lakh+ segment, but was never successful, whether Santa Fe or Sonata or currently on sale Tucson and Elantra. Each one had an upmarket interior and felt premium. Still potential buyers in respective segment were not willing to pay premium price asked by Hyundai.

That is why in recent past Toyota was planning to launch its budget brand Daihatsu in India. Reason is obvious, gaining volume without diluting brand.

Revenue (Conservative estimates) Generated in Each Price Band  

₹ (15-35) Lakh price band is though low on volume but it is high revenue generating zone, see Ford. Below table also shows the white space for each of the manufacturer. Going by prevalent trend and potential buyer’s aspiration, it seems the best way to fill these gaps is with aggressive looking, well-equipped and aggressively priced diesel SUV or to certain extent a MUV, sedan will sure struggle for volume though.

The figures provided below are conservative estimates for illustration purpose, calculated based on base price (excluding GST/Excise/VAT/Dealer Margin) of each model, diesel and petrol variant considered separately and actual figures based on particular variant of model might vary.

Classic Example When a Good Product Fail to Sell Itself : VW Phaeton (2002-2016)        

Some say Phaeton (2002) was the best VW car made ever, the then technological marvel of over-engineering excellence. It shared its platform with uber-luxury Bentley Continental Flying Spur and Audi’s flagship model A8 and priced slightly less than A8. In 2002 VW had set a production target of 20k annually but production run that lasted 15 years, only 84,253 were produced. It bombed in the US market and they have to pull out from the US within 2 year of its launch. Reason – VW logo. VW name itself stands for “People’s car”, loosely can be translated as an affordable car.  Brand conscious Americans never accepted VW phaeton but Audi A8, despite being similar car under the skin did well in same period. This shows how much brand identity is critical and no matter how good a product is, it can’t sell itself.

Hypothesis

Simply taking an SUV route to make headway into the ₹15 Lakh+ segment too didn’t work well for Hyundai! Is this an indication that to get the brand to make headway in 15+ segments:

  • Follow “Value for money” strategy of Tata or Mahindra by undercutting price of competitor by huge margin?

OR

  • Relegate ₹ (0-5) Lakh tight budget segment into sub brand, just like Nissan-Datsun?

OR

  • Create a premium (not luxury) sub-brand exclusively for India, something like Tata Racemo?

OR

  • Is there another way?

Can Suzuki go to an extent to experiment on these lines? It has a lot at stake in India, as roughly 50% volume contribution comes from India. Current generation of electric cars will face similar challenge from mass market adoption perspective, as they won’t be able to deliver value by fitting into the existing price band which is psychologically ingrained in mind of potential customer.

(The article is written by Rohan Rishi. You can connect with him at emailrohanrishi@gmail.com)

Best Money Making Cars of 2017!

Yes Sales Numbers is important, But Revenue is more important! 

It is not only the absolute sales that matter, but the $$$$s generated by the particular product is also important. We have come up with the list of models who have generated highest revenue in 2017. Maruti Suzuki dominates this list with 5 models in top 10, however, there are some interesting observations. Despite sheer numbers, Alto doesn’t feature in top 5 and Innova with around ~72K sales stands at the second position! Another interesting one on the list is The Toyota Fortuner, its total dominance in a low volume premium SUV segment ensured its position.
Lets look at the numbers:
Each model featured in this list has left an impact in the auto sector. Market share numbers of these models and the complete dominance in respective segment justifies the sales revenue generated.
Let us look at how these featured models stand in their segment –
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Year 2017 Analysis – What Price? What Fuel?

With over 3.1 million dispatches from the factory, 2017 has been the best year for Indian passenger car Industry. To be precise September 2017 has been the best month ever in the history, followed by July and August.

Maruti and Hyundai too had their best monthly numbers in same period, others didn’t, and that’s what makes them worthy #1 and #2.

Price Range

Close to 80% of cars sold in India falls under ₹ 10 Lakh price level, ₹ (5-7.5) Lakhs range being most popular. Certainly base (₹ 0-5 Lakhs range) of price pyramid is getting narrower, it is visible sign of improving purchasing power. Still 90% of petrol powered car had a price tag of less than ₹ 7.5 Lakhs.

Thanks to compact SUV and Sedan, sub 10 lakhs priced product has brought lot of excitement for the buyers. A pointer to automakers to shift focus from low margin sub 5 lakh products to 5-10 Lakh range, as buyers are migrating to higher price range.

Engine : Petrol vs Diesel

Maruti is most preferred brand across petrol and diesel variants. Also, petrol is preferred choice of fuel for hatchback and diesel for SUV, rest, fall in between.

90% of petrol engines sold are 1200cc or smaller in size. And that’s good news for public in general and environmentalist in particular. Smaller engine means lesser fuel consumption and lesser pollutants too.

People usually tend to buy diesel SUV, however, compact SUVs like Ecosport and Creta has made owning petrol SUV more affordable.

Hyundai has widest range of petrol engines to offer in Indian Market followed by Maruti.

Despite appalling YoY sales figures posted by Fiat India, almost 40% of diesel cars sold in India are powered by Fiat’s Engine. For Fiat India, it’s not the public, but, Maruti is the biggest customer.  96% of Fiat’s 1248 cc diesel engine is sold through Maruti, rechristened as DDiS and rest by Tata.

1500 cc engine block is quite popular too; Honda and Nissan deploy it across their entire product range. Economies of scale certainly bring the cost down by using common engine block. However, there is tradeoff to be made, as smaller cars with larger engine may become tad more expensive or larger cars with smaller engine may feel underpowered.

Tata has widest range of diesel engines to offer in Indian Market followed by Mahindra and Hyundai.

(The article is written by Rohan Rishi. You can connect with him at emailrohanrishi@gmail.com)

F1 2018 – Sporting regulations

The world awaits yet another season of the biggest motorsport event – F1 2018, the drama unfolds, like every year, with a slew of regulations. After all what would F1 be without these rules and regulations. I personally see these as challenges thrown at every manufacturer on that starting grid to push the envelope of their already advanced machines. These regulations are introduced or so called changed in many instances to catch up with the changing tactics in terms of technological prowess, or sometimes to introduce new technology (usually safety related tech) or simply to ward off a potential problem that might occur down the line. So lets get our hands on the changes that the FIA has introduced this year and how it changes the fortunes of some of the teams and manufacturers.

For starters I would like to split the regulations rule book into 2 parts like the FIA does –

  • Technical Regulations – Like the name suggests this basically covers the machine (the car) and its systems. Basically this is the book that the design engineers and staff refer to before and during the race. This deals with technicalities like dry weight, aerodynamic downforce, the KERS systems, braking systems, etc.

  • Sporting regulations – In lay man’s terms this rule book deals with how the race is supposed to be run. This is basically the written law on how the drivers and teams should act during a race. Primarily this is the domain of the race engineer who constantly makes strategies within the boundaries of these regulations and instructs the drivers under different circumstances of the race

There is not many changes in the sporting regulations. The only small change is in the safety car restarts where the driver gets to choose between a standing start or a rolling start offering more flexibility to the teams. The biggest changes for next year which is of interest and will impact the sport are as follows –

Three Engines per season

This is the biggest change F-1 will see this year. I will term this as the most stringent engine quota that the sport will see. Each car will be allowed to use only 3 power units over the course of 2018 season. That means teams will get to use just 3 engines for a span of 21 races. This puts immense pressure of the reliability of the engines that engine manufacturers will have to build. To give you some background, back in 2004, FIA allowed the use of one engine per weekend which was reduced to 5 engines for the whole season in 2014 and four in 2015. The advantage of this move is reduced costs as manufacturers will push to make the engines more reliable, which maybe a concern for a few manufacturers. The downside which even I agree to is that drivers will now be asked to nurse their engines rather than drive flat out like they used to. Driver’s aren’t particularly happy with this move but I feel they aren’t happy since May 13th 1950 when the FIA came into picture!

Grid penalties changes

This is an obvious step for the FIA. With the 3 engines per season rule, God forbid if the drivers have to change their engine they will have to face grid penalties. I personally found the last year’s penalty system confusing, however this year FIA has gone ahead and tweaked it to some extent. This is, needless to say, an alteration in the sporting regulations. The detailed penalty system can be downloaded from this link – https://www.fia.com/regulation/. To summarize if a driver collects a 5 or a 10 place penalty based on the component changed. If they replace a second component he gets a 15 place penalty and he will automatically be sent to the back of the grid. In case there are multiple drivers who are attracting this penalty then the line-up will be decided by the FIA based on when the FIA was informed of the offense. This year the race stewards also get the power to issue penalities even if it’s not detected on auto detection system (learning from Vettel’s race in Chinese GP)

Tyre compounds

This year fans will be able to see more colours of tires around the pits. Pirelli will be expanding the array of dry weather compounds to 7 from earlier 5. They have basically added 1 compound each on either end of the spectrum – superhard and hypersoft. I personally feel the super-hard tyre will just be a catalog addition and will be used by teams as a last resort. This is primarily because in reality teams are pushing for softer compounds across the board. This point will be evident from the fact that Pirelli has announced that in 2018 every compound will be one level softer from 2017. So for example the medium compound tyre in 2018 will be comparable to soft compound in 2017. In such scenarios, it’s a wait and watch for the superhard tyre and will be interesting to see how teams will come up with that extra downforce as Pirelli is anticipating. This hence will be restricted to high energy circuits like Germany.  It will really be interesting to listen to the commentary this year (pun intended).

The colour palette for 2018 is –

Super-hard – Orange, Hard – Ice blue, Medium – White, Soft – Yellow, Supersoft – Red,  Ultrasoft – Purple, Hypersoft – Pink

Like every year 2018 is going to be an interesting season. Alas FIA gave a miss to India this year as well. I am eagerly waiting for those 5 lights to go off on 25th March in Melbourne and see how teams fare this year. 10 teams, 20 talented drivers one sport!

(Author’s Profile:  Manu Sasidharan. Am a hardcore petrol head, an auto enthusiast and an amateur designer. I have been in close touch with the industry for a long time and am abreast with the action in the automotive sphere. Driving is my passion and combined with a love for travelling makes me a nomad by nature. On the education front, I have done my Engg in Electrical and Electronics from Cochin university and my Management studies from Symbiosis Pune.)

Mahindra THAR — India’s own off road champion!

Launched in the Indian market on October 4, 2010, This compact and mid-size four-wheel drive off-road Jeep CJ-like SUV has always been appreciated for its brilliant off-roading capabilities, rugged and masculine robust body-built and legendary jeep styling. This also has been voted one of the top 10 SUVs available in the Indian market.

Let’s see the volume trend for past 5 years –

Monthly Sales Data (2015-2017)

Thar earned a lot of reputation in its segment and won the hearts of many with its off-roading capabilities but what could be a concern for Mahindra is the stabilizing volumes Month on month and has not been able to give any significant volumes addition. Rather we can term Thar now as a Brand building vehicle in Mahindra’s portfolio.

Year 2013 2014 2015 2016 2017
Average Monthly Sale 637 729 742 510 588

Mahindra Thar which is facing almost No competition in its segment but has the closest competitor in terms of sales volume, despite of New (Thar) vs. outdated design Maruti Suzuki Gypsy which doesn’t offer a diesel engine, power steering but still stands as the closest competitor of Mahindra Thar! In the other hand The Thar has a rugged design, masculine robust body-built, while the Gypsy has conventional styling and outdated design. Still Gypsy brings good numbers to Maruti Suzuki and has been able to give competition to Mahindra Thar in terms of sales volume.

Let’s look at the comparison:

The total volumes of Thar models are about 7,700 units a year and of which 65 per cent comes from DI model. Mahindra expects the incremental sales go come from CRDe version in the near future with changing aspirations of urban people and launch of new Thar with more features. Best of Luck for the off-roader!