Maruti800 Case Study

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It reveal all the strategic movies by MUL in its product launch and consumer acquisition.

It reveal all the strategic movies by MUL in its product launch and consumer acquisition.

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  • 1. Business News Analysis: Free Student Articles www.internsindia.com-A FREE site for MBA live projects. Maruti 800 Strategy Maruti 800, the name most common for a middle class Indians and the only car in the A-Segment category. It served as cash cow of MUL for nearly 17 years. It can still milk better and MUL is trying its level best to 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 other hand 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 and make it nearest alternative for two wheeler segment. According to Ansoff matrix it will be called as new market / old product move. It is quite clear from the strategic point of view that Alto never influence Maruti 800 or its variants for cannibalization. Though there was hardly any difference of more than Rs.35000 between the two entry level and small car segment. Placing all facts and moves of MUL since 2000 will give a broader picture of the game plan and strategic sequence. Tracing back to start of year 2000, MUL market share fallen to 51 percent from 80 percent that it had enjoyed for nearly seventeen years. Though the market share fallen altogether but the sales of Maruti 800 had grown by 22 per cent that of Omni by 48 per cent and that of the Zen by 22 per cent. The MUL’s logic for increase in unit sale with the decrease in over all market share is that when there are more players in the market there will be competition. When there is competition, the market expands and the consumer base increases which means there will be more number of unit sales. March 2000, MUL came out of the mess with sales of 44,167 units. The sales included 3,980 units for export. These sales included 12,348 units in the 'B' segment and 7,510 units of Zen and 4,838 units of Wagon R. The market equation balanced the loss on Hyundai’s Santro and Daewoo’s Matiz part. Some market share eaten up by Telco’s Indica as well. The Hyundai’s lose of market share was not because of lack in marketing strategy but the production problem. Hyundai’s Santro and Accent was produced on the same assembly line and Hyundai was trapped in catch-22 to maintain a restriction on trade off between the production of Santro and Accent. MUL’s strategy to offer credit sale to its dealers also fueled the fire. At the same time Alto was strategically placed with two variants LX and VX. Alto LX was placed between Maruti 800 and Zen at price Rs. Copy Right© Protected 2007-2009, www.internsindia.com, Sylloge Corporation All Rights Reserved by www.internsindia.com Only to be used for academic purpose.
  • 2. Business News Analysis: Free Student Articles www.internsindia.com-A FREE site for MBA live projects. 299,000 (mind the psychological pricing) while Alto LX was placed between Wagon R and Esteem at price Rs. 365000. Later on the VX version was backed out from the market as customers were hardly able to differentiate between two models. The difference was of LX and VX but one cost 66,000 more then another. So what is the lesson from this mistake ☺ Never position two brand extension with high price difference and to wrong customer. January 2003, MUL hiked the price of its all 800 cc variants, Omni and Esteem. Competitors were emotionless on this move of MUL. Just six months after that Tata Engineering gestured for price hike due to higher input cost. MUL going against the situation slashed the price of its entry level car-Maruti 800. OOPS!! How it is possible when the cost of raw material is increasing and out of 12 Manufacturer one (MUL) has slashed the price and for what they hiked the price for just six months. This key insight was in the long term profit at the expense of short term decrease in sales. The three Brands, Maruti 800, Omni and Esteem covered 55 percent sales of MUL portfolio and MUL covered 60 percent market share of the total four wheeler segment. The whole game plan was to cash this opportunity of increase in raw material cost. If you remember, the increase in price in Jan-2002 was in the nearly Rs. 8000 for 800 cc variants and Rs. 4000 for Omni and Esteem. Now after six month the price reduction was only for Maruti 800 and in the range of Rs.15000 for 800 cc variants. Logically, there was no loss but profit by this price decrease. The only thing they did was that they took money Rs. 8000 from one consumer (price hike) in the month of January and gave it to a customer who bought in the month of July (as a decreased price) and the increase in sales with this game plan bought all the profit. The only question comes is that how it happened? The answer comes from psychological effect on customer with the increase in the steel cost. But some still think that the price reduction was due to decrease in sales and on the other hand MUL told its due to cost rationalization and improvement in production efficiency. MUL was thinking hard to curb the market in the A and B segment. The main competition for these segments was coming from second hand cars market as substitute. This market being unorganized and large was on the radar of MUL. The MUL shaped it as organized sector with the brand name True Value. All dealers in this market were selling the second hand car with 85 percent price of the new car. All the Copy Right© Protected 2007-2009, www.internsindia.com, Sylloge Corporation All Rights Reserved by www.internsindia.com Only to be used for academic purpose.
  • 3. Business News Analysis: Free Student Articles www.internsindia.com-A FREE site for MBA live projects. damaged parts were replaced with the new Maruti branded parts. Only vehicles which are less than seven years old were procured under the True Value scheme in accordance with the norms of MUL. All the vehicles done lesser then 60,000 km were on one–year warrantee. The highly sold brands were Maruti 800, Zen and Santro. The motive of Maruti behind this ball game was to maintain market share of its brands and to regulate the market from either end. The Zen was in the top list of true value brands. To make some visible differentiation between a newly bought Zen and the one bought under True Value brand, MUL relaunched Zen with new look and with out a price change. How Smart!!! The luck charmed on the royal part too which was exempted by Suzuki for Alto, Maruti 800, Omni, Gypsy, Esteem and Zen. Suzuki, for the period April 2003 to March 2005. A 10 per cent discount on knocked down 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 had at least five models in the A and B segments, while on the other side Hyundai with Santro, Tata Engineering with Indica and Fiat Auto with Palio were competing with only one product in B segment. The competitors were not ready to reduce the prices and were shrinking their 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 out in year 2003 to tie-up with the State Bank of India for financing, the main objective was to use wider rural market network of SBI for Copy Right© Protected 2007-2009, www.internsindia.com, Sylloge Corporation All Rights Reserved by www.internsindia.com Only to be used for academic purpose.
  • 4. Business News Analysis: Free Student Articles www.internsindia.com-A FREE site for MBA live projects. tapping the prospects. To take the competition by Hyundai's Santro and Tata Motors' Indica seriously for B-segment cars, Maruti Udyog Ltd, India's largest carmaker, unveiled a new-look Zen, without change in price. In mid of 2004, more national and international bank started integrating in the win-win strategy of MUL. HDFC Bank has launched a new product for financing Maruti 800. The bank promised to offer 85 percent finance for on road Maruti 800 (with registration and insurance) for tenure of seven years. The objective was to match EMI of the two-wheeler with Maruti 800. Apart from easy loans from banks, MUL launched a new market offer called `2-se-4' in Ahmedabad and Hyderabad under which a consumer can exchange his two-wheeler for a Maruti 800. In the same year, Alto performance made it to overtake the company’s bread-and-butter car Maruti 800 to become the largest selling car. In July 2004, Alto sales were 14 percent higher then Maruti 800. To cope up with the increasing cost, MUL increased the price of all models indirectly by launching new variants of Zen. The price of Maruti 800 was kept constant to suit it for the targeted customers who were two-wheelers owners. The next thing MUL did was to increase the procurement of steel from domestic market by 15%. This was to get competitive advantage of low cost steel as compared to imported steel. MUL also relaxed the norms of schemes for True Value cars to increase the market share. It was a different kind of proliferation where a customer can choose a second hand Maruti 800 or Zen or a new variant of Zen and Wagon R as per the value fathomed by customers. 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 and proactively advertised launch of its LPG variants of Maruti 800 and Alto. 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 2007 Despite decrease in sales of Maruti 800 by 11 percent, Baleno and Esteem sales by 7 percent Alto, Zen and Wagon R shares the highest Copy Right© Protected 2007-2009, www.internsindia.com, Sylloge Corporation All Rights Reserved by www.internsindia.com Only to be used for academic purpose.
  • 5. Business News Analysis: Free Student Articles www.internsindia.com-A FREE site for MBA live projects. share of sales in the product portfolio of MUL and maintained the over all sales increase by 20 percent. In A3 segment, with the presence and focus of car-makers such as Hyundai, Ford, GM, Honda and new entrants like Mahindra-Renault combine is making existing and competition intense. Maruti the major player of the small car segment market has only 15 percent share in the A3 segment. The true indication of Head-on can be guessed by the launch of new models by major players who also expanding their presence in the segment. MUL launched sedan SX4 and priced just at par with Honda City. This launch was the replacement of Baleno and to strengthen the A3 segment. The only restriction will come with production unit at Manesar which produces the Swift and SX4.The installation capacity of this unit is 100,000 units. Nearly 7000 units of Swift already produced from this plant per month. This left little score for the production of SX4. The momentum in the economy and increase in the disposable income of the consumers increased the market demand by 22 percent. So the scope in the market is higher. The MUL reshuffled its portfolio launched five new models starting with Swift Petrol in May 2005. In 2006-07, the company phased out the Zen and replaced it with a brand new car the Estilo and gave Wagon R a 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 turning unfavorable to customers. It is fact that 75 percent of the customers buy the cars on loans. The increasing interest rates have begun to affecting the sales. On the other hand increasing cost of steel procurement has affected the operation margin which is flat on 13.36 percent. In the FY06, the sales were driven by lower exercise duties. Copy Right© Protected 2007-2009, www.internsindia.com, Sylloge Corporation All Rights Reserved by www.internsindia.com Only to be used for academic purpose.
  • 6. Business News Analysis: Free Student Articles www.internsindia.com-A FREE site for MBA live projects. To beat the competition, loans for Maruti's cars are being priced at the lowest rates in the industry - 8.59 per cent per annum, which is about 40 basis points lower than that offered by arch rival Hyundai Motor, makers of the popular model Santro. MUL has the capacity of producing 2500 units per month due to restriction on production capacity. The car maker's 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 to 35,000 across various models. The discount is on Maruti 800, Omni, Alto, Esteem, Versa and on the petrol models of Wagon R, Swift. No discounts have been given on Swift diesel and SX4. The domestic sales were zoomed by 25.5 percent. C segment, that comprises Omni and Versa, MUL sales up by 24 percent. The company sold 37,646 units in the A2 segment comprising hatchbacks Alto, Wagon-R, Zen and Swift as 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 per cent in the month at 3,923 units. Sales in the A1 segment, comprising MUL's 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 Corporation All Rights Reserved by www.internsindia.com Only to be used for academic purpose.