The Zen of positioning
In December 2006, on a golf course on the outskirts of New Delhi, the Zen Estilo was launched by Maruti Suzuki India after a fashion show by designer Tarun Tahiliani. The Estilo, as it is now known, was launched ostensibly to replace the ageing Zen whose sales had begun to fall sharply. But Maruti priced the Estilo within a few thousand rupees, at every specification level, of the WagonR. The two cars, then, like now, have the same engine and, in terms of other specifications, are fairly similar, though the WagonR is slightly larger.
At the time, Maruti's Managing Director Jagdish Khattar faced queries on how the company would manage two similar products. Several journalists and industry analysts concluded that the newer Estilo would cannibalise sales of the successful WagonR, which was then the second-highest selling model in the Maruti stable, moving over 8,000 units a month.
Khattar pooh-poohed the doubters and argued that both the Estilo and WagonR would succeed because they would both bring in buyers into the showroom. Mayank Pareek, Maruti's Head of Marketing and Sales, today confirms that the strategy has worked for the country's larget carmaker. "Once Estilo sales stabilised, they averaged around 5,000 units a month. But WagonR sales, far from being impacted, went up to 10,000 units a month from 8,000 units earlier. So, in essence, we almost doubled overall sales from when Maruti Suzuki had only the WagonR."
It almost sounds counter-intuitive: Two products sharing the same price tag doing better than just one earlier. But it worked for Maruti. In fact, it worked so well that in 2009, the company tried it again when it launched the Ritz - a car that shares the same platform, engines and price tag of the immensely successful Swift. In this case, while Swift sales haven't increased, primarily because there is no capacity for Maruti to increase production, the Ritz has managed to carve out a niche of its own. Sales of the Swift, between 10,000 and 12,000 vehicles per month, were augmented by the 5,000-6,000 monthly unit sales of the Ritz.Pareek harks back to history: "Cars are like any other major consumer product. The days of Henry Ford saying you can have any colour as long as it is black are long over." Today, it is clear that consumers want choice and if Maruti cannot give them that choice, they will go to other manufacturers, says the Head of Sales and Marketing. In case of premium products, such as the Apple iPhone, or luxury cars, companies can survive with just a single product, but in the larger market there is little choice but to give your customers their choice. "Yes, adding models leads to manufacturing complexity but it also ensures that we run our factories at 110 per cent capacity rather than 75 per cent," Pareek adds.
The additional sales that Maruti has garnered from the Estilo and the Ritz together is over one lakh units a year, sales that most other automotive manufacturers would give an arm and a leg for. And the sales have not come at the cost of the existing models in the same price bracket - the WagonR and the Swift, respectively. So, how did they do it? The logic Maruti gives is that fresher models and a bigger product line-up bring more people into the showroom. "Very few people walk into a car showroom without an intention to buy," says Pareek. More cars give people more incentive to walk into a showroom, and more products there mean that people are more likely to walk out with a Maruti product.
Maruti conducts a "Brand Track" on every customer who buys its cars in 16 cities, and every Monday, Pareek sits with his team and discusses the results. The survey helps them position their vehicles effectively. "Even though the cars might be in the same price and size segment they may not be in the same mind space," argues Pareek. The cars are clearly distinguished, targeting different types of consumers in every aspect from product design to the advertising message.
The Swift and the Ritz might cost the same and share the same engines, but according to Pareek, the Swift is aimed at younger, single buyers, a message reinforced by its advertising slogan "You're The Fuel" and advertising, which highlights the car's performance. The Ritz, on the other hand, has the slogan "Why Make Choices" and is aimed, says Pareek, at the rational, younger family buyer, who does not want scintillating performance but values economy and space."The idea we try and follow in our marketing is to clearly define every product and not follow industry 2 convention. We could create segments or reinforce segments in the process," says Pareek. Of course, not everything goes to a "marketing plan" and there are regional differences. In Kolkata, and in the rest of eastern India, the Estilo outsells the WagonR, for instance. And Pareek jokes that managing models is a lot easier than managing colours, "Not everybody buys silver."
The costs of launching a new model are still quite significant. New metal dies and tools have to be made, which coupled with advertising costs involve a capital expenditure of over Rs 500 crore just to launch a vehicle. However, in the case of both the Estilo and the Ritz, Maruti managed to save costs by keeping some components the same, especially engines. However, Pareek mentions that with his competitors launching new products - in 2010 the Ford Figo, Chevrolet Beat and VW Polo - all targeting the same price bracket as the Swift and the Ritz, Maruti had no choice.
The costs of not launching a car could be higher than the costs of a slow-seller, because, as Pareek argues, a new car still brings people into the showroom. "There are people who did not think they liked the WagonR, came into the showroom because of the Estilo and left with a WagonR. Some may argue that is cannibalisation, and it well may be, but it increases my sales figures and keeps a sale out of our competitor's books."
No other Indian automotive manufacturer has such a strategy. While several two-wheeler makers offer similar models within a narrow price-range, Hero Honda in particular, the closest an automaker comes is General Motors with the Chevrolet Beat and the Aveo U-VA, even though the cars are in slightly different price-points. Unlike Maruti, and its two main rivals Hyundai and Tata Motors, most other carmakers are barely able to use their production plants to capacity. However, Pareek believes that as India's market grows and the "common platform" philosophy becomes more popular among automakers, the costs of launching a similar model will come down. And the opportunity lost by not launching one will increase.
| COMMENTARY-1 Maruti knows there isn't an "Indian market" JACOB KURIAN, former COO, Tanishq, and Partner, New Silk Route Advisors In how many markets around the world has a company consistently held on to a nearly 50 per cent market share even after the arrival of global majors? Extremely rare, though India has two home-grown champions who have managed this extraordinary feat - Maruti and Titan. There is much in common in their strategic approach, but for now, let's see what makes Maruti tick. Maruti gets priority in new product development because India is the largest market for Suzuki. It can tailor products sharply focused on Indian market needs. Even as its competitors are still trying to understand the "Indian market", Maruti has peeled the next layer and understands that there isn't an "Indian market". It has figured out that India is a loose amalgam of diverse mini markets - often complex and contradictory - but large enough to target with tailored products. It is this clarity, of each product targeting a different market segment despite being at the same price point, which has driven Maruti's product strategy. Besides, Maruti has ensured that the post-purchase experience remains trouble-free by offering easy service and affordable parts. On the branding side, Maruti has continued to strengthen the mother brand. At the same time, it has created an array of sub-brands that allows it to psychographically segment the Indian consumer. For the market leader, maintaining its dominant share is very important, both to keep the competition out and costs low. As long as Maruti captures new customers or retains old ones, it means incremental revenue and margin. But can this logic be extended infinitely? Obviously not. There is a cost to product development, inventory, spares and demo cars. But the waiting lists show that Maruti is running a lean and demand-pull based supply chain, avoiding the problems of forecasting accurately for a wide product assortment. So let's salute Maruti as it continues to defy conventional logic and the doomsayers who have been predicting a precipitous collapse in its market share. COMMENTARY-2 Product freshness is the key The challenge in the marketplace is to bring customers to the showrooms. Bringing out and positioning new products that offer choice to consumers hold the key. Positioning and price points are also important. A major plus of this strategy is the availability and positioning of products in the segment and in the minds of customers as distinct and separate from what is available in the market or within the Maruti stable. While the numbers do not show the extent of cannibalisation, the true impact of the multiplicity of products in the same price and feature band cannot be accurately determined. The mere fact that demand outstrips supply is not because demand was high but because of production constraints. The positioning of products and sub-dividing the categories worked in Maruti's case but the impact has been varied in different regions of the country. So one could argue that given the current situation, perhaps, cannibalisation has been avoided. But this may be only to a certain extent and the freshness of the product as well as its uniqueness that drive sales need to be maintained. That would be key to the future. The challenge for Maruti would be to maintain or increase existing market share. If other companies can do around 50 per cent in the two-wheeler category in many markets across the world, Maruti could do it in India. If the main aim of Maruti is to increase sales and retain market share, in addition to launching new products, it should also look at increasing product development out of India. Aspirations are changing and products and features that will be in demand in the future are going to be significantly different from what customers have been satisfied with till now. A lot more value addition and engineering would have to be market (India) driven. A significant gap in the effort to retain the customer within the Maruti stable is the absence of options at the higher end of the market where they do not have anything in India beyond the Swift DZire. As the market grows at both the bottom and the top end, unless products are developed to address those segments, Maruti might get caught in the middle. |
