Speed Breakers Galore - Maruti

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About Price Reduction Contd...

Daewoo launched an upper-end version, Cielo Executive and an upgraded version, Nexia at higher price-points. However, the market had discounted Daewoo by then, and sales did not pick up further, falling to a low of 148 by February 1999. Companies realized that only when competing brands perceived to be equal in all other aspects, would price be a deciding issue. As the target segment became more affluent, upgraders as well as first-time buyers did not necessarily start at the lowest price-level. Applied as a brand-level strategy, price helped the auto-marketers win over only the entry-level customer.

The biggest price a manufacturer would have to pay for playing the price-game continuously was undoubtedly the loss of customer loyalty. The world over, automobile brands succeed on the basis of their relationships with fiercely loyal customer communities, built around sharp brand images and unique value propositions. By choosing to shift the focus to price, MUL risked the loss of damaging its customer relations and brand valuation, as it ended up antagonizing the buyers who had bought MUL cars just before the reduction. This led to a feeling of betrayal among MUL loyalists. When these customers replaced their cars, it was doubtful whether they would turn back to MUL or go in for a rival car with a vengeance. Much Ado About Nothing? As the Indian automobile market moved from monopoly to free competition, marketshare comparisons from the old era seemed to have lost relevance.

The alarm over MUL's declining marketshare somehow did not seem fully justified. In its hey-days, huge waiting lists for its products ensured that Maruti's marketshare was directly linked to the supply side of the equation. In other words, if MUL had an 80% share of the market, that was also its share of the total industry capacity.

By the late 1990s, things changed radically with over 12 car manufacturers having a presence in the country, with a total capacity of about 1,250,000 cars, of which MUL produced about 400,000 (33%). Khattar commented, "Tell me, if we have a marketshare of 50% out of a capacity that is 33% (of the industry), are we doing badly? Why don't you ask the others who together have a capacity of 800,000, but cannot match our sales?"

All said and done, MUL was still the leader in early 2001. It still had its early mover advantages. Provided Khattar played his cards right, MUL could still rule the roost for years to come. Whether this would happen for real, was a question too early to be answered.

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