Cielo - A Car in Trouble

            

Details


Themes : Marketing Mix
Period : 1995-2000
Organization : Daewoo Motors India Limited
Pub Date : 2001
Countries : India
Industry : Automobile & Automotive

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Case Code : MKTG010
Case Length : 8 Pages
Price: Rs. 200;

Cielo - A Car in Trouble | Case Study



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The Mistakes Contd...

S G Awasthi, managing director, Daewoo, defended the company's stand saying that there were no benchmarks in India when Cielo was launched and that market segmentation had not even begun to emerge. He said, "It was difficult to position the car clearly or to communicate it. So we did not position it against any product, but with the idea that Cielo will find its own niche." A Daewoo source commented, "Tell me one ad campaign that improved the car's sales by even 0.1%? Cielo began on a luxury plank and ended on a 'Val-You' note." Media reports remarked that Daewoo's not being able to properly position the car proved to be the biggest reason behind Cielo's failure. An analyst commented, "They must have tried almost every positioning."

The Biggest Blunder?

As all of Daewoo's efforts seemed to be failing, the company Daewoo decided to introduce a hefty price cut of Rs 0.15 million in January 1998. After this, the GLE model cost Rs 0.49 million in Delhi showrooms compared to the earlier price of Rs 0.62 million, while the GLX model cost Rs 0.57 million compared to the earlier Rs 0.68 million.

Daewoo's move took the industry players as well as the customers by surprise. It was even reported that a leading Daewoo competitor sent anonymous letters to automobile dealers on 'how the price reduction had seriously eroded customer confidence in Cielo and was done mainly for the 1996 models stuck in their stock.' However, Awasthi preferred to call it 'price correction,' saying that the price slash had been possible because of the company's achieving a higher indigenisation level (70.10%) and better foreign exchange management. He added that the decision was in line with Daewoo's global strategy of working on lower margins.

Ten days before the price cut announcement, Daewoo had stopped delivering the Cielo to showrooms, hoping to minimize the impact of the price reduction on recent customers. To ensure that existing customers did not feel cheated, the company wrote to each customer individually. They were offered the first bookings for Daewoo's yet to be launched small car, besides a customized package of free servicing. They were also explained how the price change did not really compromise the price they had paid. Daewoo held meetings with senior managers from its regional offices, dealers and the finance companies to explain the rationale behind the price cut.

Daewoo also began monitoring the reactions to the price correction by sending out nearly 1,50,000 letters to the public. In addition to each of the existing Cielo customers, potential buyers - companies, Government and professionals like chartered accountants and doctors were targeted. Each dealership was put under watch by the regional managers to remove any feelings of 'betrayal' in old customers. Immediately after the price cut, Cielo's sales increased to 906 per month in January and February 1998 compared to 314 units in December 1997. Although Cielo became the cheapest mid-size car in the Indian market, this move almost wiped out the car's credibility in the market.

After the price reduction, Daewoo had to work very hard towards salvaging the car's image. This was done by the new 'value benefits' positioning for Cielo in the mid-size segment. Daewoo launched the 'Valyou' campaign designed to educate the customer on the new positioning, highlighting the Cielo's features. The idea was to convey that the Cielo now offered more value for less money and not just the same value for less money. Thus, the aspects of Technology Valyou, Comfort Valyou, and Safety Valyou were emphasized.

As a result of these initiatives, in March 1998 sales went further up to 1102 cars. For 1997-98, Daewoo increased its advertising budget substantially and released double-page advertisements in leading national dailies carrying pictures of a range of automobiles. This was done to give confidence to customers that Daewoo was not just a single-product company. Also, whereas the earlier advertising focussed on Cielo, it now focussed on the Daewoo brand in the same way as other multinational car brands did. However, these moves failed to have the desired effect and as predicted by industry analysts, the impact of the price cut and new campaigns soon wore off - by February 1999, sales fell to a low of 148 cars per month.

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