Speed Breakers Galore - Maruti

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The Industry Strikes Back Contd...

Models like the Esteem and Cielo had had a long innings outside the country and were not exactly contemporary. The other options were the Escort, Lancer and Honda, which were priced above Rs 7 lakh, between them and the Rs 4.5-5-lakh range of the Esteem and Cielo, there was a vacuum. The gap was identified by General Motors' Corsa and Fiat's Siena as well. All three competitors plugged the gap by offering several versions at various price points. Ford first launched Ikon 1.6 but later came up with a lower engine capacity Ikon 1.3 CLXI at a lesser price. GM and Fiat also followed the same approach.

About Price Reduction The fact that 82% of the Indian market was accounted for by cars priced below Rs 4.30 lakh, proved how strongly price influenced volumes. Moreover, with domestic car sales dropping by 15.01% in November 1998 over November 1997, manufacturers had to turn towards price to resuscitate demand. In the prevailing conditions, only 'Second P auto-marketing6,' price reduction seemed to be the only factor able to rejuvenate the stagnant demand.7 However, not every player had the financial muscle to play the price-card. Instead of cutting the price of the Matiz, Daewoo Motors introduced an enhanced version with product features like power steering, and product-plus features like better service and customer-care. Players like Hyundai and Telco did not opt for price reductions, as they simply did not have the economies of scale to profit from such moves.

Such strategies worked best for companies with offerings in several segments of the market. Higher volumes from the combined sales of products across segments enabled them to drive harder bargains with their suppliers; unit marketing and distribution costs decreased; and the higher margins on products positioned near the top compensated for the pared margins on the basic product.

The players who chose to stay out of the race to cut prices had to convince their customers that the higher prices they charged justified by the greater value they offered. A product-and-promotional mix has to be specifically designed to convey the above message. Most manufacturers of mid-size cars, including General Motors, Ford, Honda-Siel, adopted this strategy rather than cut costs to increase sales.

They argued with the 'snob-value' Arguably, buyers in this segment were not that susceptible to be swayed by price-cuts - the 'snob-value' of a costlier car playing a major role in their decisions, buyers in this segment would not be easily swayed by price cuts. They cited the Cielo price reduction fiasco as an example.

When sales of Daewoo's Cielo went down from a peak of 2,260 cars in September 1996 to 314 in December 1997, the company slashed the price of its base model by Rs 1.30 lakh in January 1998. Daewoo also introduced zero-interest finance schemes and its dealers gave 'unofficial' discounts ranging from Rs 0.8 lakh to Rs 1 lakh. Sales increased by 300% to 906 and 1102 by March 1998. However, this was far below the company's capacity of 6000 cars per month.

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6] Referring to the practice of marketing based on strategies involving the second 'P' of the marketing mix, i.e. price.
7] Interestingly enough, a study conducted by Business Today of 200 would-be car-buyers in the 4 cities of Delhi, Hyderabad, Mumbai, and Pune, covering potential first-time purchasers, upgraders, and replacement-buyers revealed some shocking results. Price was the primary driver of choice for only 36.20% of the sample compared to the 38.40% who considered fuel-efficiency as more important. Even among the first-time buyers, price only tied with fuel-efficiency as the prime consideration.

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