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)

ISUZU launches the ‘5ecure’ offer for mu-X in India!

  • Offers ‘5 years Comprehensive Warranty and 5 years Free Periodic Maintenance’ at no additional cost on the MU-X
  • Attempts to portray confidence in the reliability, durability and tough build of its vehicles

Isuzu Motors India rolled out the new ‘5ecure’ offer, a ‘5 years  Warranty and 5 years Free Periodic Maintenance’ for its mu-X customers in India. Available at no additional cost to the buyer, the ‘5ecure’ is a value proposition given to the mu-X. The ‘5ecure’ offer is also a attempt from ISUZU to gain consumers confidence and conviction in the reliability, durability and tough build of its products.

The ‘5ecure’ offer comes with the following benefits –

  • Comprehensive Warranty of 5 years / 150,000 kms (whichever is earlier) This is a warranty extension by 2 years / 50,000 kms over and above the standard warranty of 3 years / 100,000 kms
  • Free Periodic Maintenance for 5 years / 150,000 kms – includes PMS parts, lubricants and related labour costs. This excludes wear & tear and accidental damage related repairs

 The offer is applicable with immediate effect and will be valid till 31st March 2018. Applicable terms & Conditions can be checked at the dealerships of ISUZU across the country.

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)