The case Market expansion strategies of Maruti Udyog examinesthe market expansion strategies adopted by Maruti UdyogLimited (MUL), Indias biggest carmaker, in response to intensecompetition and a decline in sales of its bread-and-butter model -the Maruti 800. MUL enjoyed a near-monopoly status, until theGovernment of India liberalized the economy in 1991.This led to the entry of foreign players like Hyundai, Fiat,Mitsubishi, and Toyota. Even Indian auto players like TataMotors and Mahindra and Mahindra entered the fray to giveMUL tough challenges. MUL began to introduce new models,and upgrade its existing models in response to market demand.For instance, the company introduced the hatchback Swift toshed its image of being a manufacturer of low-cost staid cars. Thecase study looks into how MUL came back from the crunch toretain its place as the top carmaker in India. It also deals with thetussle between Suzuki Motor Corporation and the Government ofIndia over ownership issues.The case highlights the promotional offers undertaken by MUL inits quest for market dominance and examines how the companywas able to mould itself according to the market requirements, byentering new domains and reaching out to potential customersthrough its True Value and other promotional offers.
Issues:The case is designed to help students:• Gain an overview of the Indian automobile Industry, especiallythe passenger car market.• Study the rise of MUL, and its measures to tackle competitionsuccessfully.• Analyze the impact of macroeconomic variables likegovernment regulations and environmental guidelines (Euronorms) on the functioning of an automobile manufacturer inIndia.• Show how promotional offers can work wonders for a companyin expanding the market and overcoming competition.• Provide an overview of the pre-owned/used car market inIndia.IntroductionMaruti Udyog Limiteds (MUL) share of the Indian passengervehicle market dropped to below 50% in 2004-05 (Refer to ExhibitI for the performance of the Indian passenger vehicle industryand MUL between April 2003 and March 2005). The future ofMULs low-cost model - the Maruti 800 (M-800) - was at stake dueto the entry of global automakers into India.M-800 had dominated the Indian car market since it waslaunched in 1984. The introduction of new cars by competitorsmade the M-800 look obsolete as it had not been changed in any
major way for over two decades. Apart from the increasedcompetition, MUL also had a few other problems on its plate.There was a delay in setting up of a plant in India formanufacturing diesel engines and transmission systems for cars.The engines for its diesel variants were imported from othercountries, and there were limits on the quantities it could import.In the market, MULs models like the Zen, Alto, WagonR, andBaleno were showing mixed results.While Zen, Alto and WagonR were successful, Baleno failed tolive up to MULs expectations. Its utility vehicle Versa met with adisastrous response from the Indian consumer. In addition, risingincomes, the growth in the used-car market, and availability ofeasier finance options, led customers to shift their allegiance toother models from competitors. To reduce its excessivedependence on a single model (M-800), the company hadrestructured the strategy for the M-800, and planned for productupgrades and new product development. In tune with changingcustomer preferences, the company launched its hatch-backmodel, Swift in May 2005, to compete with Hyundai3 Getz andFiat4 Palio.ntroduction Contd...MUL hoped this model would help the company shed its low-cost and simple look. The move expressed the companys intent tomove up the value pyramid (by upgrading Alto-WagonR-Santro
customers to the new model) while simultaneously increasingmarket penetration at the bottom of the value pyramid by makingthe M-800 more affordable.Indian Automobile IndustryThe Indian automobile industry has four major segments --commercial vehicles (CVs), passenger vehicles, three wheelers,and two wheelers. The market share for each of these segments ofthe Indian automobile industry, for the year 2003-04, is shown inFigure I.According to the Society of Indian Automobile Manufacturers(SIAM) , the Indian passenger vehicle market has three categories-- passenger cars, multi-purpose vehicles (MPVs), and utilityvehicles (UVs)The passenger car market is further divided into varioussegments based on the length of the car (Refer to Exhibit II for adetailed description of the lengthwise classification of passengercars.The Indian automobile industry was a highly protected slow-growth industry with very few players till the opening up of theIndian economy in 1991. Low manufacturing costs, availability ofskilled labor, an organized component industry, and thecapability to supply in large volumes attracted global auto majorsto set up their operations in India after the opening up of thesector.For example, Fiat and DaimlerChrysler started outsourcing theircomponent requirements to India. 100 percent Indian subsidiariesof global players, like Delphi Automotive Systems and Visteon ,
exported components to other parts of the world.Macroeconomic factors like government regulations, low interestrates, and availability of retail finance played an important role inthe rapid development of the automobile industry in India duringthe late nineties (Refer to Exhibit III for an understanding of theimpact of the Union Budget on the Indian automobile industryover the years)...ExcerptsMaruti Udyog LimitedMULs M-800 was ideally suitable for Indian customers as it wasreasonably priced, fuel efficient and was sleek and easy to drivewhen compared to the models then available. With the success ofits M-800, MUL soon replaced Hindustan Motors as the leader inthe passenger car market...Government of India - Suzuki tussleIn August 1997, there was a major difference of opinion betweenthe GoI and SMC regarding the appointment of the ManagingDirector (MD) for MUL. SMC did not support the appointment ofR. S. S. L. N. Bhaskarudu (Bhaskarudu), holding that he wasincompetent to hold the post...Decline in market shareThere was a gradual decline in the market share of MUL over theyears from 1999 to 2004. This happened even though MUL hadslashed prices of certain models on a couple of occasions...
Maruti Strikes BackLaunch of new variants and modelsDespite analysts predicting that the M-800, the bread and buttermodel of MUL, would be phased out, the company asserted thatit would take necessary steps to maintain its leadership position.MUL had three compact car models -- Alto, WagonR, and Zen --competing with Hyundai Santro, Tata Indica, and Fiat Palio...Increasing dealer profitabilityDuring 2003 and 2004, MUL visualized and implemented astrategy for its dealers to increase their profitability levels in viewof increased competition. According to the strategy, the 300-odddealers of the company were asked to strengthen theirmanpower, increase the salaries of their sales agents, and offerthem better incentives...Promotional offersFaced with stiff competition and declining market shares, MULfocused its promotions strategy on targeting two-wheelerowners...Change Your Life campaignIn 2003, MUL launched novel offers like "Change Your Life"campaign and also offered vehicle insurance for Rupee Oneonly, to attract customers...
Television campaignsIn 2003, MUL came out with a toy car advertisement that becamepopular for its simplicity and straightforward message. Theadvertisement depicted a child playing with a toy car. Whenreprimanded by his father the child replies, Kya karoon papapetrol khatam hi nahin hota (What should I do? The petrol neverfinishes)...Excerpts Contd...2599 offerIn 2004, MUL introduced the 2599 offer under which a consumercould buy an M-800 by paying an EMI of Rs 2,599 only, for aperiod of seven years. The down payment was fixed at Rs 40,000.MUL entered into an agreement with the State Bank of India(SBI), the largest bank in India, to promote this scheme...Teacher Plus schemeTo further penetrate into the market, MUL continued to focusits efforts on the rural markets and specific target groups. In2004, it introduced the Teacher plus scheme, in a tie-up withSBI, aimed at teachers who were interested in buying a newcar...Maruti True ValueThere was a gradual decline in the market share of MUL over
the years from 1999 to 2004. This happened even though MULhad slashed prices of certain models on a couple of occasions...ConclusionThe companys change in strategy and emphasis on developingeffective marketing communications began to yield results. In theJ.D. Power Asia Pacific 2004 India APEAL study, WagonR andZen were ranked first and third in the premium compactsegment; Esteem was picked as the best entry level car in the mid-size category.MUL also topped the J.D. Power Asia Pacific 2005 India SalesSatisfaction Index in terms of customer satisfaction with the newvehicle sales process.As per the J.D. Power Asia Pacific 2005 India CustomerSatisfaction study , MUL ranked highest in customer satisfactionwith after-sales service for the sixth consecutive year."Marutis consistent performance in the study over the pastseveral years has resulted in a steady increase in the percentage ofits customers who say they intend to remain loyal to the brand,"said Mohit Arora, India director, J.D. Power Asia Pacific...
Maruti Udyog, a joint venture between Suzuki of Japan and theIndian government, has dominated Indias automobile marketby providing a wide range of cars at affordable prices. In thelate 1990s, as competition intensified, it started losing its marketshare. A change in management control from the Indiangovernment to Suzuki, and intensive cost cutting andproductivity improvement initiatives helped the company tostrengthen its competitive position. This case covers the variousrestructuring activities undertaken by Maruti since the late1990s. ExcerptsBackground NoteEarly HistoryIn the early1980s, the Indiangovernment decided to produce asmall car, which would be withinthe buying reach of the Indianmiddle class. The obvious place toshop for technology was Japan,which had developed world-classcapabilities in small cars by thattime...RestructuringIn the early 2000s, Marutiintroduced various measures tostreamline its operationalefficiency and marketingeffectiveness...
Product developmentProduct development in the automobile industry was a verycapital intensive process. At the same time, car companies had nooption but to introduce new models regularly...Vendor managementVendor management was a critical success factor in theautomobile industry, where many parts were outsourced. Marutihad implemented a system of Vendor Rating that gave timelyfeedback to vendors...ManufacturingMarutis manufacturing facility comprised three integrated plantswith flexible assembly lines at Gurgaon. The first plant was set upin 1984 with an installed capacity of 20,000 vehicles per annum...Brand BuildingBrand building had gained momentum at Maruti since the late1990s. In 2002, Maruti had a promotional budget of Rs 230 crore.Maruti employed two ad agencies, Lintas and Rediffusion. Lintashandled advertising for Baleno, Esteem and Zen brands whileRediffusion took care of Maruti 800, Omni, Gypsy and Wagon Runder its fold. With new product launches, upgradations andincreasing competition, the company decided to give CapitalAdvertising the Rs 15-crore corporate advertising account, in2000...Excerpts Contd...DiversificationMaruti entered four related businesses- corporate lease and fleetmanagement (Mid-2001), buying and selling of used cars (October
2001) auto finance (January 2002), car insurance (May 2002).Maruti believed it was important to provide customers a "one-stop shop" for automobiles and automobile-related products andservices, in what it termed the "360 degree customer experience"...Future OutlookMaruti had set a target of wresting a 60% market share of thecountrys car market during the period 2003-2006.SPECTRA MOTORS LIMITEDGANDHI PAREKH INVESTMENT CORP. LTD, CTF NO. 170,MUMBAI AGRA ROAD , NEXT TO ASHOK SILK MILLCOMPOUND, LBS MARG, GHATKOPAR WEST, MUMBAI-400086Ph #: 022-66440000 ,Fax :67554560Email :Pin Code:SPECTRA MOTORS LIMITEDCTS NO. 17CTS NO. 170 4081,OPP.DAMODAR PARK, L.B.S.MARG,GHATKOPAR (WEST)Ph #: 022-66440000,, ,Fax :67554560Email :firstname.lastname@example.orgemail@example.comPin Code: 400086