Positioning - Small Cars, India

Positioning - Small Cars

Small Car The small car is one of the largest car segments in India. It comprises of nearly two-third of the sales in the country. This car segment has grown by 15% CAGR over last 5 yrs. The new breed of young executives with fatter paychecks has led to more purchase power. By the year 2010, India shall witness a boom in the small car segment with major car makers making their foray in India and India will have small cars from General Motors, VW, Fiat, Ford, Toyota, Honda, etc.

India will become the world's largest producer of A-segment small cars by 2013, a recent study by US-based market global intelligence firm Global Insight reveals. By 2013, India will produce about 31 per cent of the world's Asegment cars. A combination of key reasons such as technical expertise, low costs, stable economy, and government policies favouring small cars, large and integrated supplier base, and competence in diesel power train manufacturing will propel India as a major small car manufacturer.

Segmentation 1.

2.

Geographic a. Region: The major regions for small car market in India are north, south, and west. The most auspicious moths in the south, when buyers, laterally lap up cars from the showrooms, often turn out to be the lean season in the north or west. So marketers need to identify when to market a product according to the region in which the consumer lies. b. Rural/Urban: Since more than 60% of the total population is living in interiors, it becomes all the more important to cater to this segment. However, so far, the marketers have laid more focus on Urban/semi urban market and their products are primarily catering to the needs of the urban segment. But with the recent market hits, the companies are trying to pay more attention the rural market segment to gain profits. Ex: Maruti Suzuki India said that by the end of 2009 calendar year as much as 8 per cent of sales will come from rural areas, up from 3.8 per cent last year. Ex: Tata Magic which is priced @ 2.6lacs is primarily targeted to the rural India. Demographic a. Age & life cycle stage: Student, Young Married, Single working. The average age profile of a car buyer is 25-46 years. Although the percentage of people buying cars between 31 and 40 years of age has remained stagnant at 31 per cent (1999-03), there has been a 9 percentage point increase in the number of car buyers in the 25-30 age groups. The number of older people (51 to 60 plus) buying cars has gone down.

b. Family Size: Average Indian household size is 5 people. Hence Small cars are the most obvious and affordable choice available for the Indian middle class.

c. Income: Higher income households tend to be less price-sensitive, placing a higher value on buying higher-quality merchandise. Because of the growth in dual-income households, there has been a dramatic growth in the proportion of total spending in the economy coming from such households, implying that the market for high-end products and services should increase substantially. Thanks to the easy availability of cheap financing options, there has been an increase in the number of younger people buying cars in India during 1999-2003EMI: a factor affecting the most of the buyers. 3 out of the 4 cars sold in the country are funded by a loan. d.

Occupation

Distribution of households (owning a car) by income

Occupation of the consumer affects the buying power. For ex: A Regular salaried employee will easily get finance done for buying a car , whereas a self employed consumer will opt for full down payment option. This explains the reason for high contribution from salaried and self employed people in buying small cars

3.

e. Literacy Distribution of household (owning a car) by literacy% Behavioural Segmentation a. Decision Roles: When it comes to car, where huge investment is involved, people generally tend to take reference from other users. They go for test rides, get it checked from some experienced people who are much more comfortable about cars. b. Occasions: In India, people do buy cars in the festival season, and during the marriage seasons. c. Benefits: Consumer looks for the following benefits from a car. i. Power: People do look for power from power. According to their need they look for cars in their respective power basket (i.e. 600cc – 1300cc). A higher power is related to give higher speed, acceleration by the consumers.

ii.Technology: With all sort of products available in the small cars market, technology can act as

4.

5.

a differentiator for consumer. New technologies such as MPFI (multi point fuel injection), turbo charging, electronic traction control, anti locking braking systems, and catalytical convertors. iii.Fuel Economy: People do look for better fuel economy in terms of mileage given by the car. Preferred Fuel: With the rise in petrol prices, people have been looking for alternatives such as diesel, CNG, LPG. Many car buyers in India prefer the diesel variant whatever may be the choice of car, because of the favourable cost differential diesel. iv.Low operational cost: For some of the users, operational cost is a major factor in deciding the buying decision. Operational cost includes Maintenance cost, insurance cost, spare parts, cost of service. v.Space and comfort: Buyer does look for spacious and comfortable ride. Various factors in deciding comfortable ride are leg room, head room, driving position, adjustable steering. vi.Safety: the most important factor for family buyers is the safety feature of a car. A car must follow safety norms, various safety features which people look in car are ABS, airbags. vii.Styling: To certain buyers, functionality was not everything, looks were also important. They wanted styling, and contemporary looks. d. User Status: The kind of buyer can be classified into non-buyer, first time buyers, and repeat buyers. The major of the buyers in the small car are a first time buyer, that’s why this market is often referred as entry level car market. While going for car replacement, 50 percent of small car owners in India are again going for small cars and are reluctant to experiment with luxury cars. e. Usage Rate: On the basis of the frequency of travel, people decide on the car to buy. In case a person needs a family car only for family outing, they may look for a one time investment in a spacious car. On the other hand, if a person has huge amount of daily travel, he would prefer a good mileage car with less operational cost as well. Psychographic Segmentation a. Social Class – Social class plays a major role in segmentation for the automobile industry. With more than 40% of the population of Indian lying in the middle class bracket, it becomes all the more important segment for the marketers to consider. Working class and upper lowers constitute the other prime target in the small car manufacturers. b. Life-style – life style is an important psychographic segmentation composed of a combination of factors such as activities, interest and opinions. Ex: As part of its rebranding exercise, Fiat India is rolling out a number of products to cater to the lifestyle segment in the auto market.(economic times) c. Personality – The customers are further segmented on their personality traits like sports oriented person, easy going. People are also segmented on their value system. The awareness about the new technologies, latest trends in the car market is a direct attribute of the level of education of the consumer. This is evident from the fact that 2/3rd of the car buyer are graduate or above. Behavioural Segmentation a. Decision Roles: When it comes to car, where huge investment is involved, people generally tend to take reference from other users. They go for test rides, get it checked from some experienced people who are much more comfortable about cars. b. Occasions: In India, people do buy cars in the festival season, and during the marriage seasons. c. Benefits: Consumer looks for the following benefits from a car. i. Power: People do look for power from power. According to their need they look for cars in their respective power basket (i.e. 600cc – 1300cc). A higher power is related to give higher speed, acceleration by the consumers. ii.Technology: With all sort of products available in the small cars market, technology can act as a differentiator for consumer. New technologies such as MPFI (multi point fuel injection), turbo charging, electronic traction control, anti locking braking systems, and catalytical convertors. iii.Fuel Economy: People do look for better fuel economy in terms of mileage given by the car. Preferred Fuel: With the rise in petrol prices, people have been looking for alternatives such as diesel, CNG, LPG. Many car buyers in India prefer the diesel variant whatever may be the choice of car, because of the favourable cost differential diesel.

iv.Low operational cost: For some of the users, operational cost is a major factor in deciding

6.

the buying decision. Operational cost includes Maintenance cost, insurance cost, spare parts, cost of service. v.Space and comfort: Buyer does look for spacious and comfortable ride. Various factors in deciding comfortable ride are leg room, head room, driving position, adjustable steering. vi.Safety: the most important factor for family buyers is the safety feature of a car. A car must follow safety norms, various safety features which people look in car are ABS, airbags. vii.Styling: To certain buyers, functionality was not everything, looks were also important. They wanted styling, and contemporary looks. d. User Status: The kind of buyer can be classified into non-buyer, first time buyers, and repeat buyers. The major of the buyers in the small car are a first time buyer, that’s why this market is often referred as entry level car market. While going for car replacement, 50 percent of small car owners in India are again going for small cars and are reluctant to experiment with luxury cars. e. Usage Rate: On the basis of the frequency of travel, people decide on the car to buy. In case a person needs a family car only for family outing, they may look for a one time investment in a spacious car. On the other hand, if a person has huge amount of daily travel, he would prefer a good mileage car with less operational cost as well. Psychographic Segmentation a. Social Class – Social class plays a major role in segmentation for the automobile industry. With more than 40% of the population of Indian lying in the middle class bracket, it becomes all the more important segment for the marketers to consider. Working class and upper lowers constitute the other prime target in the small car manufacturers. b. Life-style – life style is an important psychographic segmentation composed of a combination of factors such as activities, interest and opinions. Ex: As part of its rebranding exercise, Fiat India is rolling out a number of products to cater to the lifestyle segment in the auto market.(economic times) c. Personality – The customers are further segmented on their personality traits like sports oriented person, easy going. People are also segmented on their value system.

Segment Targeting Single Segment concentration: In this type of segmentation targeting, the company identifies a specific segment and fully concentrate its marketing energies to reap the maximum from the segment. A typical example in the Indian small car market is - Reva, an electric car. The car manufacturers have identified electric car user target segment and works on updating the same model with the market demand.

Selective Specialization: With the growing market and tougher competition in the small car industry, there is a need for the marketers to cater to the needs to different market segments. Here the marketer approaches more than 1 market segment, and designs its strategies accordingly. For example, Maruti which primarily targeted the middle men through Maruti 800 and Maruti Alto have now moved to new segment which comprises of youth and the member of the upper middle class by launching premium range of hatchbacks like Swift and Ritz.

Petrol Cars

Electric Cars

Diesel /CNG / LPG

Maruti Reva Hyundai

Dual Fuel

Price sensitivity

Style

WagonR Alto Swift

Deep Segmentation: The purpose of deep segmentation is to create a deep differentiation among the products in the market. There are distinct group of car buyers with widely varying and clearly distinguishable needs. Hence marketers to target these kinds of buyers created sub-segments. They enlarged the number of segments in three ways:

•

They discovered new segments: Whenever marketers discovered a new segment and decided to incorporate it into their target markets, they had to necessarily bring in a new offer. Ex: When they hit upon the lifestyle segment, they had to, for those specific buyers, make available lifestyle oriented vehicles.

•

They propped up sub-segments within a given segment: There were sub segments that preferred different versions of the same vehicle. The difference between the two versions was substantial. Also almost all the players had brought in many versions/models in each of their offers.

•

They located very small niches with special requirements and served them-even though they were not sizeable.

Downside of Deep segmentation: 1) Cannibalisation among one’s own offers 2)Price slots in a narrow range blur distinction between segments/offers 3)Lowering of EMI accentuates the blurring. How Maruti have created deep segmentation within its small car offering The above chart shows how different products in the same segment/sub segment have been offered by the same company targeting different needs of the buyers. For ex: Maruti offers a car, Alto which low on price, maintenance cost, style but is high on fuel efficiency. When you compare this with Maruti swift, it is higher in price (in the small car), technology, style, space and comfort, but lower in fuel economy. Maruti has a gamut of cars in the small car market, as it has off late focused on creating new sub-segment or creates deep segmentation within a segment.

Segment invasion plan – Maruti Udyog limited

Dark colour indicates competition existed at the time when Maruti targeted the segment

1.

M-800 had dominated the Indian car market since it was launched in 1984.

2. Maruti introduced Maruti Zen into the market (in 1993) which catered as an entry level car for the people who can afford to spend more (as compared to M-800), with better features available. Maruti enjoyed being the only small car manufacturer till year 1996, when Hyundai launched Santro.

3. In the mean while Tata also launched Indica, and there was a gradual decrease in sales of M800. The introduction of new cars by competitors made the M-800 look obsolete as it had not been changed in any major way for over a decade. Hence Maruti launched Alto in the year 2000, trying to recover the lost market. Alto was once again targeting the entry level low cost segment, but it gave features of a good car. Within 18 months of the launch, the Maruti was able to regain its market share and was once again in a position to hold entry level A-segment in its pocket.

4. Watching the dominance of Maruti in the A-segment, competitors focused on other segments, Maruti also followed and launched its first Duo car, Wagon R duo in the year 2004. This car could be run on LPG along with petrol.

5. In an effort to move beyond the value for money or the basic utilitarian function of a car, Maruti launched Swift in the year in 2004, to target the high end customers, who are willing to pay more for a better styled, safe, sporty car.

6. Maruti strengthened its position in the small car market by launching Ritz in the year 2009 , which was targeting upper middle income group ,who were looking for exciting looking , globally renowned car.

Positioning Small cars have been positioned in India as city cars, which are easy to drive, give high mileage, with low operational cost and low price. Because of the tremendous growth in the small car market, various global car manufacturers are entering this market and thus leading to growing competition. This has further led to each manufacturer positioning it, better than the rest; by upgrading products, several versions, new technology giving discounts & offers, better financing options. The table below shows customer focused value proposition, showcasing the reason why the target market should buy their product. Brand and Company

Target Customer

Benefits

Value Proposition (Point of difference)

Positioning Image

Santro Eco , Hyundai

Environmentally conscious consumers who want an economic and a safe small car

Better power and fuel efficiency, Better performance on city roads, less maintenance costs, spacious interiors and more headroom

Economical environment small car

and friendly

Santro Eco – An environment friendly car

Swift, Maruti Suzuki

Customer seeking a stylish, powerful and a premium car for City driving

Powerful, Styling and Handling, Advanced features

A vehicle that provide comfort , power and luxury in small package

Style, modern looks and young attitude

Spark, Chevrolet

“Value for Money” consumer

Low Maintenance cost, Extended warranty of spare parts, Good mileage, High end Features

A vehicle that provides good mileage and extra features at competitive prices

“Big car luxury at a Small car price”

Indica ,

Smallcar consumers who want a more spacious car

Spaciousness

A small spacious car with no extra cost

“More Car per Car”

Fabia, Skoda

Customers seeking a luxurious small car

World-class styling, technology, luxury and safety features

A vehicle in the upperend of the B-segment and lower end of the Csegment. Dynamic looks, compact yet roomy, first-in-its class features and exemplary performance

India’s Super-hatch

Alto, Maruti

A

Good

A trusted and reliable car

India’s

Tata Motors

first-time

car

performance,

#1

largest

Suzuki

buyer looking for the best affordable car in the market

Nano, Tata

A middle class family that needs a car but cannot afford one

good fuel economy. Good in price as well as quality Affordable price, very high fuel efficiency

with access to the largest service network and commanding the highest resale value

selling car. “Your Sachha Hamsafar”.

An engineering marvel in terms of cost , fuel and space efficiency

The Car

“Alto. Let’s go”. People’s

Positioning – Hyundai Santro Case The table below represents the changes in the positioning strategy of Santro car by Hyundai Motors. It shows that a company has repositioned its product about 5 times in past ten years. The main factors were either competitors’ activities or changes in the mindset of consumers. Each time the company has repositioned itself, they have changed their ‘Target customers’ and has done a deeper penetration in segmenting its market. Year 1998

Positioning Strategy Family Car

2003

A smart car for young people

2004

Focused on pride that consumers will derive on buying the car.

2005-06

2008

The tagline was “Santro wale hain” Changed the tagline to “ First Car, First Choice” Environment friendly car – Santro Eco

Forces A car in competition with the best selling Maruti 800 and Zen. The average age of a car owner had declined from around 35-40 three years ago, at that time, to 25-30, primarily because of changing lifestyles, cheap and easily available finance, etc Changes in strategy and positioning by rival competitors like Maruti and Fiat.

Target Consumers A 35-45 year family person Age group of 25-30 years and First time buyers.

Income of middle class during that period as economy was growing rapidly and they focused on new buyers. Idea of “Going Green” and saving environment was spreading and at the same time demand for a cheaper fuel was at maximum.

First Time Buyers

Anyone for whom buying a car was a status symbol

Environment Conscious and people looking for cheaper fuel

Positioning of Various Small Car players based on POD (Point of Difference) & POP (Point of Parity) The figure below shows that majority of the cars fall in all the POP, as it’s the important characteristic of that segment. In case of small cars, low price, fuel efficiency, low maintenance cost and space. Whereas companies do target special buyers by offering innovation like new style, features, or may be the car itself is environment friendly, it is considered as a POD for that car. POD acts as a stimulating factor for a buyer to get attracted toward a car, whereas absence of POP will make the buyer uninterested in that car.

PO

PO Perceptual Map – Maruti Udyog Limited

The above map shows the perceptions of the customers or potential customers. The map shows the change in the perception of the various models of the cars based on the price and benefits perceived by the consumer. The observation from the map shows that, most of the cars which have low cost are being perceived to have lower benefits as well, exception being Santro Xing, and Zen Estilo which are believed to give more benefits compared to the cost incurred in buying those cars. Same thing also applies to cars which are perceived to be higher on the cost side are having higher benefits, exception being Hyundai Getz ,which despite being high on cost , still is perceived to have lower benefits. Positioning Strategy of MUL : The line drawing from Maruti 800 to Maruti Swift shows that Maruti has positioned its products across all range from low cost-low benefit perception to high cost-high benefit perception. This shows the change in the positioning strategy of Maruti, where it has moved away from the only low cost –low benefit (Maruti 800) model to other models as well.

References:

1. Marketing Management, VS Ramaswamy, S Namakumari 2. 3. 4. 5.

6. 7.

KPMG Automobile Industry Analysis, 2007 Contemporary Market, Tapan Panda Lifestyle Market Segment, Dennis J. Cahill Wikipedia.com : a. http://en.wikipedia.org/wiki/Suzuki_Wagon_R b. http://en.wikipedia.org/wiki/Suzuki_Swift c. http://en.wikipedia.org/wiki/Perceptual_mapping Fiat India drives into lifestyle segment. Economic Times, 28-08-2008 Magazine: Autocar, July 2009