Speed Breakers Galore - Maruti

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The Stumbling Blocks Contd...

MUL reduced the prices of Maruti 800 and Zen by about Rs 24,000 and Rs 51,000 respectively in December 1998. This resulted in a drop of Rs 300 crore in net profit for the year 1998-99. Khattar justified the price-cuts, saying that MUL wanted to make up for the increase in the 800's price due to higher sales tax figures for the period. The move was described as an attempt to 'redefine the price-value equation.'

MUL sources claimed that they expected lower prices to bring an incremental growth of 25% over the next 12 months. However, despite the price cuts, by March 1999, the company's market share decreased to 54.57%. In early 2000, MUL announced that it would pass on the cost of installing new Euro-II compliant engines with Multi-Point Fuel Injection (MPFI) to its customers. There was a rush in the market for the 800, as many first-time consumers who did not want to bear the hike, hastened their purchase. MUL had to increase the price of the 800 from Rs 1,84,000 to Rs 2,20,000. Around the same time, MUL decided to meet the competition head-on by having a model or variant with every increase of Rs 25,000. The idea was to give the customer the widest choice available. By mid-2000, the company offered 43 models in a market, which had only 127 variants. In June 2000, sales of the 800 stood at 5296 cars compared to the 11,000 plus cars it had been selling per month for the previous few years.

MUL had no option but to again slash prices of various models by Rs 25,000 to Rs 30,000 to bring back the sales to normal levels. Other changes initiated by the company included a transformation in its customer-interface and a revamped branding strategy with the new cars (Wagon-R and Baleno) coming with the Suzuki prefix. The price cuts however, only added to the declining bottomline problem. MUL reported a loss of Rs 6792.11 on every car sold between April and October 2000.

MUL sources however attributed this to the fact that MUL had not passed on the cost of upgradation to meet the Euro I and II emission norms to its customers. Towards the end of 2000, MUL again effected a price increase of between 0.3 to 2.5% on its various models due to increase in the cost of production, raw material and other inputs. The company however, decided to pass on only a part of the increase in cost to the customer.

The Industry Strikes Back

The Indian car market of the early 21^st century was a burgeoning one with over 127 models on the roads, and many more in the pipeline. Increased competition had radically transformed the market, manifested clearly in carmakers' pricing strategy overhaul. Manufacturers were breaking the conventional rules of auto pricing by moving from cost-based to value-based pricing and the market soon became a buyer's market.

When the new players entered the market, there were no doubts that the main artillery for the companies in the car-wars would be the pricing strategies. It was not just a case of competition forcing a downward revision, the players were even ready to forego profits in the short run. Brand-building and technology/feature driven campaigns were to be add-ons to the above plan. Industry observers were quick to point out that MUL would have to get entangled in the price eduction game.

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