Maruti Udyog Limited - The Pricing Dilemma

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Case Details:

Case Code : MKTG100
Case Length : 15 Pages
Period : 1995-2004
Pub Date : 2005
Teaching Note :Not Available
Organization : Maruti
Industry : Passenger Car
Countries : India

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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The Competition Contd...

But, the cannibalization will remain within the Maruti family and the bigger numbers will help Maruti depreciate Alto faster. Net M800 sales may be less but we would be pushing more Alto and the more we sell the Alto the faster it will depreciate."3 Though industry analysts said this move would boost MUL's profits, they also expressed their views that MUL's long-term plan might be to discontinue M800 and replace the entry segment with Alto.

However, Khattar clarified that MUL's pricing strategy was not meant to replace M800 with Alto. He said, "Now, we have two cars in entry-level. Maruti 800 is still a dream of Indians, how can I replace it?"4

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Background Note

In its efforts to fulfill the growing demand for personal transport vehicles, the Government of India (GoI) established MUL in February 1981 through an Act of Parliament. It was incorporated to take over the assets of the erstwhile Maruti Limited set up in June 1971 and wound up by High Court order in 1978. In October 1982, the GoI signed a joint venture agreement with Suzuki Motor Corporation (SMC) of Japan.

MUL received technology support from SMC. On the other hand, SMC got support from the Indian government, which helped it get import clearances for manufacturing equipment and obtain land for its factory.

At the time of its establishment, the objectives of MUL were:

• Modernization of the Indian automobile industry.

• Production of fuel-efficient vehicles to conserve scarce resources.

• Production of large number of motor vehicles, which was necessary for growth.

In an era when owning a car was a distant dream for a vast majority of Indians, MUL rolled out its first car, the M800. The company labeled it a people's car, with a 796cc 3-cylinder engine that delivered 39.5bhp at an affordable price of Rs. 65,000. The first vehicle was released for sale in December 1983. Initially, the car was criticized for its diminutive size, but it proved to be spacious enough to carry four adults...

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3] Sengupta Nandini, "Goodbye M800, there's a new #1," The Economic Times, June 04, 2004.

4] "No phasing out of Maruti 800: Khattar," Times of India, April 30, 2004.

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