The case 'Market expansion strategies of Maruti Udyog'

examines the market expansion strategies adopted by

Maruti Udyog Limited (MUL), India's biggest carmaker, in
response to intense competition and a decline in sales of
its bread-and-butter model - the Maruti 800. MUL enjoyed
a near-monopoly status, until the Government 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 Tata
Motors and Mahindra and Mahindra entered the fray to
give MUL 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' to shed its image of being a manufacturer of low-
cost staid cars. The case study looks into how MUL came
back from the crunch to retain its place as the top
carmaker in India. It also deals with the tussle between
Suzuki Motor Corporation and the Government of India
over ownership issues.

The case highlights the promotional offers undertaken by

MUL in its quest for market dominance and examines how
the company was able to mould itself according to the
market requirements, by entering new domains and
reaching out to potential customers through its 'True
Value' and other promotional offers.
Issues:
The case is designed to help students:

• Gain an overview of the Indian automobile Industry,

especially the passenger car market.

• Study the rise of MUL, and its measures to tackle

competition successfully.

• Analyze the impact of macroeconomic variables like

government regulations and environmental guidelines
(Euro norms) on the functioning of an automobile
manufacturer in India.

• Show how promotional offers can work wonders for a

company in expanding the market and overcoming
competition.

• Provide an overview of the pre-owned/used car market

in India.
Introduction
Maruti Udyog Limited's (MUL) share of the Indian
passenger vehicle market dropped to below 50% in 2004-
05 (Refer to Exhibit I for the performance of the Indian
passenger vehicle industry and MUL between April 2003
and March 2005). The future of MUL's low-cost model -
the Maruti 800 (M-800) - was at stake due to the entry of
global automakers into India.

M-800 had dominated the Indian car market since it was

launched in 1984. 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 two decades.
Apart from the increased competition, MUL also had a few
other problems on its plate.

There was a delay in setting up of a plant in India for

manufacturing diesel engines and transmission systems
for cars. The engines for its diesel variants were imported
from other countries, and there were limits on the
quantities it could import. In the market, MUL's models
like the Zen, Alto, WagonR, and Baleno were showing
mixed results.
While Zen, Alto and WagonR were successful, Baleno
failed to live up to MUL's expectations. Its utility vehicle
'Versa' met with a disastrous response from the Indian
consumer. In addition, rising incomes, the growth in the
used-car market, and availability of easier finance
options, led customers to shift their allegiance to other
models from competitors. To reduce its excessive
dependence on a single model (M-800), the company had
restructured the strategy for the M-800, and planned for
product upgrades and new product development. In tune
with changing customer preferences, the company
launched its hatch-back model, 'Swift' in May 2005, to
compete with Hyundai3 Getz and Fiat4 Palio.

ntroduction Contd...
MUL hoped this model would help the company shed its
low-cost and simple look. The move expressed the
company's intent to move up the value pyramid (by
upgrading Alto-WagonR-Santro customers to the new
model) while simultaneously increasing market
penetration at the bottom of the value pyramid by
making the M-800 more affordable.
Indian Automobile Industry
The 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 of the Indian automobile industry, for the
year 2003-04, is shown in Figure 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 utility vehicles (UVs)
The passenger car market is further divided into various
segments based on the length of the car (Refer to Exhibit
II for a detailed description of the lengthwise classification
of passenger cars.
The Indian automobile industry was a highly protected
slow-growth industry with very few players till the
opening up of the Indian economy in 1991. Low
manufacturing costs, availability of skilled labor, an
organized component industry, and the capability to
supply in large volumes attracted global auto majors to
set up their operations in India after the opening up of
the sector.

For example, Fiat and DaimlerChrysler started

outsourcing their component requirements to India. 100
percent Indian subsidiaries of global players, like Delphi
Automotive Systems and Visteon , exported components
to other parts of the world.
Macroeconomic factors like government regulations, low
interest rates, and availability of retail finance played an
important role in the rapid development of the
automobile industry in India during the late nineties
(Refer to Exhibit III for an understanding of the impact of
the Union Budget on the Indian automobile industry over
the years)...

Excerpts
Maruti Udyog Limited
MUL's M-800 was ideally suitable for Indian customers as
it was reasonably priced, fuel efficient and was sleek and
easy to drive when compared to the models then
available. With the success of its M-800, MUL soon
replaced Hindustan Motors as the leader in the passenger
car market...
Government of India - Suzuki tussle

In August 1997, there was a major difference of opinion

between the GoI and SMC regarding the appointment of
the Managing Director (MD) for MUL. SMC did not support
the appointment of R. S. S. L. N. Bhaskarudu
(Bhaskarudu), holding that he was incompetent to hold
the post...

Decline in market share

There was a gradual decline in the market share of MUL

over the years from 1999 to 2004. This happened even
though MUL had slashed prices of certain models on a
couple of occasions...

Maruti Strikes Back

Launch of new variants and models

Despite analysts predicting that the M-800, the bread and

butter model of MUL, would be phased out, the company
asserted that it 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 profitability

During 2003 and 2004, MUL visualized and implemented

a strategy for its dealers to increase their profitability
levels in view of increased competition. According to the
strategy, the 300-odd dealers of the company were asked
to strengthen their manpower, increase the salaries of
their sales agents, and offer them better incentives...

Promotional offers

Faced with stiff competition and declining market shares,

MUL focused its promotions strategy on targeting two-
wheeler owners...
'Change Your Life' campaign

In 2003, MUL launched novel offers like "Change Your

Life" campaign and also offered vehicle insurance 'for
Rupee One only', to attract customers...
Television campaigns

In 2003, MUL came out with a toy car advertisement that

became popular for its simplicity and straightforward
message. The advertisement depicted a child playing
with a toy car. When reprimanded by his father the child
replies, 'Kya karoon papa petrol khatam hi nahin hota'
(What should I do? The petrol never finishes)...
Excerpts Contd...
'2599' offer

In 2004, MUL introduced the '2599' offer under which a

consumer could buy an M-800 by paying an EMI of Rs
2,599 only, for a period 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' scheme

To further penetrate into the market, MUL

continued to focus its efforts on the rural markets
and specific target groups. In 2004, it introduced
the 'Teacher plus' scheme, in a tie-up with SBI,
aimed at teachers who were interested in buying a
new car...

Maruti 'True Value'

There was a gradual decline in the market share of

MUL over the years from 1999 to 2004. This
happened even though MUL had slashed prices of
certain models on a couple of occasions...
Conclusion
The company's change in strategy and emphasis on
developing effective marketing communications began to
yield results. In the J.D. Power Asia Pacific 2004 India
APEAL study, WagonR and Zen were ranked first and third
in the premium compact segment; 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
Sales Satisfaction Index in terms of customer satisfaction
with the new vehicle sales process.

As per the J.D. Power Asia Pacific 2005 India Customer

Satisfaction study , MUL ranked highest in customer
satisfaction with after-sales service for the sixth
consecutive year.

"Maruti's consistent performance in the study over the

past several years has resulted in a steady increase in
the percentage of its 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 the Indian government, has dominated
India's automobile market by providing a wide
range of cars at affordable prices. In the late
1990s, as competition intensified, it started losing
its market share. A change in management control
from the Indian government to Suzuki, and
intensive cost cutting and productivity
improvement initiatives helped the company to
strengthen its competitive position. This case
covers the various restructuring activities
undertaken by Maruti since the late 1990s.
Excerpts
Background Note
Early History

In the early1980s, the Indian

government decided to
produce a small car, which
would be within the buying
reach of the Indian middle
class. The obvious place to
shop for technology was
Japan, which had developed
world-class capabilities in
small cars by that time...
Restructuring
In the early 2000s, Maruti
introduced various measures
to streamline its operational
efficiency and marketing
effectiveness...
Product development
Product development in the automobile industry was a
very capital intensive process. At the same time, car
companies had no option but to introduce new models
regularly...

Vendor management
Vendor management was a critical success factor in the
automobile industry, where many parts were outsourced.
Maruti had implemented a system of Vendor Rating that
gave timely feedback to vendors...

Manufacturing
Maruti's manufacturing facility comprised three
integrated plants with flexible assembly lines at Gurgaon.
The first plant was set up in 1984 with an installed
capacity of 20,000 vehicles per annum...
Brand Building
Brand building had gained momentum at Maruti since the
late 1990s. In 2002, Maruti had a promotional budget of
Rs 230 crore. Maruti employed two ad agencies, Lintas
and Rediffusion. Lintas handled advertising for Baleno,
Esteem and Zen brands while Rediffusion took care of
Maruti 800, Omni, Gypsy and Wagon R under its fold.
With new product launches, upgradations and increasing
competition, the company decided to give Capital
Advertising the Rs 15-crore corporate advertising
account, in 2000...
Excerpts Contd...
Diversification
Maruti entered four related businesses- corporate lease
and fleet management (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 and
services, in what it termed the "360 degree customer
experience"...
Future Outlook
Maruti had set a target of wresting a 60% market share of
the country's car market during the period 2003-2006.
SPECTRA MOTORS LIMITED
GANDHI PAREKH INVESTMENT CORP. LTD, CTF NO. 170,
MUMBAI AGRA ROAD , NEXT TO ASHOK SILK MILL
COMPOUND, LBS MARG, GHATKOPAR WEST, MUMBAI-
400086Ph #: 022-66440000 ,
Fax :67554560
Email :Pin Code:
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LIMITED CTS NO. 17
CTS NO. 170 4081,OPP.
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MARG,GHATKOPAR (WEST)
Ph #: 022-66440000,, ,
Fax :67554560
Email
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Pin Code: 400086