Maruti800 casestudy.www.internsindia.com

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Maruti800 casestudy.www.internsindia.com

  1. 1. Business News Analysis: Free Student Articleswww.internsindia.com-A FREE site for MBA live projects.Maruti 800 StrategyMaruti 800, the name most common for a middle class Indians and theonly car in the A-Segment category. It served as cash cow of MUL fornearly 17 years. It can still milk better and MUL is trying its level bestto capture the market. The basic strategic focus of MUL is to offer Zen,Alto LX and its variants to all the existing customers and on the otherhand position Maruti 800 to those who want to switch from two-wheeler to four-wheelers segment.The obvious idea is to keep Maruti 800 out of the competition andmake it nearest alternative for two wheeler segment. According toAnsoff matrix it will be called as new market / old product move. It isquite clear from the strategic point of view that Alto never influenceMaruti 800 or its variants for cannibalization. Though there was hardlyany difference of more than Rs.35000 between the two entry level andsmall car segment. Placing all facts and moves of MUL since 2000 willgive a broader picture of the game plan and strategic sequence.Tracing back to start of year 2000, MUL market share fallen to 51percent from 80 percent that it had enjoyed for nearly seventeenyears. Though the market share fallen altogether but the sales ofMaruti 800 had grown by 22 per cent that of Omni by 48 per cent andthat of the Zen by 22 per cent. The MUL’s logic for increase in unit salewith the decrease in over all market share is that when there are moreplayers in the market there will be competition. When there iscompetition, the market expands and the consumer base increaseswhich means there will be more number of unit sales.March 2000, MUL came out of the mess with sales of 44,167 units. Thesales included 3,980 units for export. These sales included 12,348units in the B segment and 7,510 units of Zen and 4,838 units ofWagon R. The market equation balanced the loss on Hyundai’s Santroand Daewoo’s Matiz part. Some market share eaten up by Telco’sIndica as well. The Hyundai’s lose of market share was not because oflack in marketing strategy but the production problem. Hyundai’sSantro and Accent was produced on the same assembly line andHyundai was trapped in catch-22 to maintain a restriction on trade offbetween the production of Santro and Accent. MUL’s strategy to offercredit sale to its dealers also fueled the fire.At the same time Alto was strategically placed with two variants LXand VX. Alto LX was placed between Maruti 800 and Zen at price Rs.Copy Right© Protected 2007-2009, www.internsindia.com, Sylloge CorporationAll Rights Reserved by www.internsindia.comOnly to be used for academic purpose.
  2. 2. Business News Analysis: Free Student Articleswww.internsindia.com-A FREE site for MBA live projects.299,000 (mind the psychological pricing) while Alto LX was placedbetween Wagon R and Esteem at price Rs. 365000. Later on the VXversion was backed out from the market as customers were hardlyable to differentiate between two models. The difference was of LX andVX but one cost 66,000 more then another. So what is the lesson fromthis mistake ☺ Never position two brand extension with high pricedifference and to wrong customer.January 2003, MUL hiked the price of its all 800 cc variants, Omni andEsteem. Competitors were emotionless on this move of MUL. Just sixmonths after that Tata Engineering gestured for price hike due tohigher input cost. MUL going against the situation slashed the price ofits entry level car-Maruti 800. OOPS!! How it is possible when the costof raw material is increasing and out of 12 Manufacturer one (MUL)has slashed the price and for what they hiked the price for just sixmonths.This key insight was in the long term profit at the expense of shortterm decrease in sales. The three Brands, Maruti 800, Omni andEsteem covered 55 percent sales of MUL portfolio and MUL covered 60percent market share of the total four wheeler segment. The wholegame plan was to cash this opportunity of increase in raw materialcost. If you remember, the increase in price in Jan-2002 was in thenearly Rs. 8000 for 800 cc variants and Rs. 4000 for Omni andEsteem. Now after six month the price reduction was only for Maruti800 and in the range of Rs.15000 for 800 cc variants. Logically, therewas no loss but profit by this price decrease. The only thing they didwas that they took money Rs. 8000 from one consumer (price hike) inthe month of January and gave it to a customer who bought in themonth of July (as a decreased price) and the increase in sales with thisgame plan bought all the profit. The only question comes is that how ithappened? The answer comes from psychological effect on customerwith the increase in the steel cost. But some still think that the pricereduction was due to decrease in sales and on the other hand MUL toldits due to cost rationalization and improvement in productionefficiency.MUL was thinking hard to curb the market in the A and B segment.The main competition for these segments was coming from secondhand cars market as substitute. This market being unorganized andlarge was on the radar of MUL. The MUL shaped it as organized sectorwith the brand name True Value. All dealers in this market were sellingthe second hand car with 85 percent price of the new car. All theCopy Right© Protected 2007-2009, www.internsindia.com, Sylloge CorporationAll Rights Reserved by www.internsindia.comOnly to be used for academic purpose.
  3. 3. Business News Analysis: Free Student Articleswww.internsindia.com-A FREE site for MBA live projects.damaged parts were replaced with the new Maruti branded parts. Onlyvehicles which are less than seven years old were procured under theTrue Value scheme in accordance with the norms of MUL. All thevehicles done lesser then 60,000 km were on one–year warrantee. Thehighly sold brands were Maruti 800, Zen and Santro. The motive ofMaruti behind this ball game was to maintain market share of itsbrands and to regulate the market from either end.The Zen was in the top list of true value brands. To make some visibledifferentiation between a newly bought Zen and the one bought underTrue Value brand, MUL relaunched Zen with new look and with out aprice change. How Smart!!!The luck charmed on the royal part too which was exempted by Suzukifor Alto, Maruti 800, Omni, Gypsy, Esteem and Zen. Suzuki, for theperiod April 2003 to March 2005. A 10 per cent discount on knockeddown components imported by Maruti came as additional relax to MUL.To make it an opportunity MUL reduced Rs. 50000 on Alto.Competitively, MUL was on a strong position. The portfolio of MUL hadat least five models in the A and B segments, while on the other sideHyundai with Santro, Tata Engineering with Indica and Fiat Auto withPalio were competing with only one product in B segment. Thecompetitors were not ready to reduce the prices and were shrinkingtheir market with more expensive variants like Hyundai Getz. The indication is that MUL is M a r u t i 8 0 0 - S a le s only company to penetrate 200000 in the market with low 180000 priced vehicles. This makes 160000 the MUL also busy in price 140000 120000 adjustments. The upcoming 100000 problem was of Maruti 800 S a le s 80000 and its variants. Sales of 60000 40000 Maruti 800 were eroding 20000 continuously since 2000. To 0 make strategic fit of Maruti Y e a r- Y e a r- Y e a r- Y e a r- 2000 2001 2002 2004 800, MUL stepped outin year 2003 to tie-up with the State Bank of India for financing, themain objective was to use wider rural market network of SBI forCopy Right© Protected 2007-2009, www.internsindia.com, Sylloge CorporationAll Rights Reserved by www.internsindia.comOnly to be used for academic purpose.
  4. 4. Business News Analysis: Free Student Articleswww.internsindia.com-A FREE site for MBA live projects.tapping the prospects. To take the competition by Hyundais Santroand Tata Motors Indica seriously for B-segment cars, Maruti UdyogLtd, Indias largest carmaker, unveiled a new-look Zen, withoutchange in price.In mid of 2004, more national and international bank startedintegrating in the win-win strategy of MUL. HDFC Bank has launched anew product for financing Maruti 800. The bank promised to offer 85percent finance for on road Maruti 800 (with registration andinsurance) for tenure of seven years. The objective was to match EMIof the two-wheeler with Maruti 800. Apart from easy loans from banks,MUL launched a new market offer called `2-se-4 in Ahmedabad andHyderabad under which a consumer can exchange his two-wheeler fora Maruti 800. In the same year, Alto performance made it to overtake thecompany’s bread-and-butter car Maruti 800 to become the largestselling car. In July 2004, Alto sales were 14 percent higher then Maruti800.To cope up with the increasing cost, MUL increased the price of allmodels indirectly by launching new variants of Zen. The price of Maruti800 was kept constant to suit it for the targeted customers who weretwo-wheelers owners. The next thing MUL did was to increase theprocurement of steel from domestic market by 15%. This was to getcompetitive advantage of low cost steel as compared to importedsteel. MUL also relaxed the norms of schemes for True Value cars toincrease the market share. It was a different kind of proliferationwhere a customer can choose a second hand Maruti 800 or Zen or anew variant of Zen and Wagon R as per the value fathomed bycustomers.With eye on entry car market, Tata threaten with a car priced on Rs.100,000 which is still on papers. The threat was caught by MUL andproactively advertised launch of its LPG variants of Maruti 800 andAlto. The idea was to reduce the maintenance and fueling cost. WOW!!Handle threat with a counter threat.The over all sales MUL grown by 20 percent in the financial year 2007Despite decrease in sales of Maruti 800 by 11 percent, Baleno andEsteem sales by 7 percent Alto, Zen and Wagon R shares the highestCopy Right© Protected 2007-2009, www.internsindia.com, Sylloge CorporationAll Rights Reserved by www.internsindia.comOnly to be used for academic purpose.
  5. 5. Business News Analysis: Free Student Articleswww.internsindia.com-A FREE site for MBA live projects.share of sales in the product portfolio of MUL and maintained the overall sales increase by 20 percent.In A3 segment, with the presence and focus of car-makers such asHyundai, Ford, GM, Honda and new entrants like Mahindra-Renaultcombine is making existing and competition intense. Maruti the majorplayer of the small car segment market has only 15 percent share inthe A3 segment. The true indication of Head-on can be guessed by thelaunch of new models by major players who also expanding theirpresence in the segment. MUL launched sedan SX4 and priced just atpar with Honda City. This launch was the replacement of Baleno and tostrengthen the A3 segment. The only restriction will come withproduction unit at Manesar which produces the Swift and SX4.Theinstallation capacity of this unit is 100,000 units. Nearly 7000 units ofSwift already produced from this plant per month. This left little scorefor the production of SX4. The momentum in the economy andincrease in the disposable income of the consumers increased themarket demand by 22 percent. So the scope in the market is higher.The MUL reshuffled its portfolio launched five new models starting withSwift Petrol in May 2005. In 2006-07, the company phased out theZen and replaced it with a brand new car the Estilo and gave Wagon Ra face lift. The strategic focus is on three dimensions; new engine design, fuel efficiency and diesel engines. Till now the diesel engine is the domain of Tata. The launch of LPG models has witnessed the strategy of MUL. Swift diesel was initial step for the whole journey.Apart from internal problems, the external factors are turningunfavorable to customers. It is fact that 75 percent of the customersbuy the cars on loans. The increasing interest rates have begun toaffecting the sales. On the other hand increasing cost of steelprocurement has affected the operation margin which is flat on 13.36percent. In the FY06, the sales were driven by lower exercise duties.Copy Right© Protected 2007-2009, www.internsindia.com, Sylloge CorporationAll Rights Reserved by www.internsindia.comOnly to be used for academic purpose.
  6. 6. Business News Analysis: Free Student Articleswww.internsindia.com-A FREE site for MBA live projects.To beat the competition, loans for Marutis cars are being priced at thelowest rates in the industry - 8.59 per cent per annum, which is about40 basis points lower than that offered by arch rival Hyundai Motor,makers of the popular model Santro. MUL has the capacity ofproducing 2500 units per month due to restriction on productioncapacity. The car makers inability to replace its fading models Gypsy,Versa and Omni is also going against the company.In June 2007, MUL has offered discounts ranging from Rs 5,000 to35,000 across various models. The discount is on Maruti 800, Omni,Alto, Esteem, Versa and on the petrol models of Wagon R, Swift. Nodiscounts have been given on Swift diesel and SX4. The domestic saleswere zoomed by 25.5 percent. C segment, that comprises Omni andVersa, MUL sales up by 24 percent. The company sold 37,646 units inthe A2 segment comprising hatchbacks Alto, Wagon-R, Zen and Swiftas against 27,228 units in the same month last year, up 38.3 per cent.Sales of sedans Esteem and newly-launched SX4 increased 46.4 percent in the month at 3,923 units. Sales in the A1 segment, comprisingMULs flagship Maruti-800, dipped 20.3 per cent at 6,214 units.Questions: a) Evaluate the marketing strategy of MUL. b) What could be the possible reason for the dip in sales of Maruti 800, through its only car in the entry segment? c) Design a marketing plan for Maruti 800? d) What could be the best pricing strategy and brand position for Maruti 800?Copy Right© Protected 2007-2009, www.internsindia.com, Sylloge CorporationAll Rights Reserved by www.internsindia.comOnly to be used for academic purpose.

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