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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.

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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


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


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


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.


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?


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