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Maruti 800 Case Study
Maruti 800 Case Study
Jhanvi Thakkar 2010086 Kanupriya Kohli 2010090 Nirmal Modh Kiran Karkera 2010099 2010093
Topic for the study: Maruti 800 Model car of the MUL company. Justification and Relevance: Maruti 800 was a revolution of sorts in the 4-wheeler area in India. It was the first small car to be launched in India. The strategies used by MUL from time to time to maintain/increase the sales of Maruti 800 were exemplary. It was the leader in market sales for nearly 20 years.
INTRODUCTION:
Company (MUL) Introduction:
MUL was a joint venture created in February 1981 between Japans Suzuki Motor Company and the Indian Government when the latter decided to produce small, economical cars for the masses. The intention from the beginning was to produce a peoples car. To get the project off the ground MUL took over the assets of the erstwhile Maruti Ltd., which was set up in 1971 and closed in 1978. It was the fag-end of 1983, in the cold winter of North India, when one Harpal Singh of New Delhi was handed the keys to a small, never-seen-before-in-India, hatchback by the then Prime Minister, the late Indira Gandhi. What in any other circumstances would have been just an ordinary car launch turned out to be the start of the automobile revolution in India.
The past: Limited choices better left alone India's protected market meant that until the early eighties Indians had essentially three model choices in terms of automobiles: the Morris Oxford derived Hindustan Ambassador, the Fiat 1100 derived Premier Padmini and the Standard Herald derived Gazel. With all three products obsolete, quality construction more of an afterthought and attributes like power, safety and comfort being last on a manufacturer's to-do-list, the Indian automobile industry was going through what might be termed its anthracite period in history. The company Maruti Udyog was conceived by the Indian government in 1981 as a means of providing affordable personal transportation to Indians. Named after Hanuman, the name of the God of Wind in Hindu mythology, Maruti was the brainchild of the late Sanjay Gandhi, son of the then Prime Minister Indira Gandhi. After toying with the idea of a joint venture with Volkswagen, Renault, Daihatsu and some other majors, Suzuki was short-listed because of the Japanese major's expertise in small cars. The Maruti 800 based on the European Alto IV (SS80 in export markets) was launched in December 1983 in a four-door, two-box saloon (the tailgate opened only from the externally hinged rear window that was the access to the boot area) with a total length of 329.5cm. The car was powered by a 796cc, threecylinder, SOHC, 6-valve, carburetted engine and had front-wheel drive. Power was 39 bhp, which though not much, still made for a respectable power-toweight ratio because the car weighed slightly above 600kgs. The launch price was INR 47,500 making it the cheapest car at that time in India. The rivals tried to play it down on the power front, citing three cylinders to be insufficient for taking on a five-passenger load. However, the Maruti 800 proved everyone wrong by a long margin. It was a time of licenses in India and manufacturers needed to get a license from the government on what to make and what numbers to make. This used to create a huge gap between demand and supply resulting in long waiting lists. Often waiting lists for cars would take up to three years to clear. A Maruti 800 booked in 1984-85 would be cleared only by 1987-88. The 800 soon notched up a huge waiting list as sales boomed. The Maruti 800, in 1983, marked the introduction of the modern automobile into the Indian passenger car market. People were awed by Japanese reliability, ease of operation, refinement and fuel efficiency - attributes that the small Indian passenger car industry, in 1983, was unable to provide.
STRENGTH
WEAKNESS
SWOT ANALYSIS
OPPORTUNITIES THREAT
Maruti- Suzukis strength at the time of its entry in the Indian auto sector was its technological know-how and ability to produce quality products. They had expertise in engine building courtesy Suzuki .They knew what the Indian car buying populace desired and they delivered it in spades. Weakness at the time could only have been its relative inexperience with the Indian audience. Maruti were entering muddy waters and they read the minds of the consumer so well that the company became Indias largest car manufacturing company with the largest number of models and iterations on the road and today with a commanding market share of close to 50%. Opportunity that was quickly realized by Maruti was the existing demand for enhanced mobility among the Indian car buying audience. They wanted and deserved better products which Maruti had and was ready to sell to them. The growing purchasing power and disposable income of the Indian middle class was at an all time high which was perfectly tapped by Maruti with the all conquering 800. Threat at the time could only have come by way of sanctions that the Indian government could have applied on Maruti or from a similar new entrant that could have also entered the Indian market like Suzuki. There was no major threat to its operations either from its existing competitors or perspective new players. So all in all, things were favorable for Maruti on virtually all fronts.
b) Bucket seats c) Floor mounted gear box d) Better servicing options e) Cheaper spares So with a favorable PEST analysis Maruti Suzuki zoomed into the country and the hearts of millions of people.
BARGAINING POWER OF CONSUMER: Negligible because of only 2 existing players in the market
BARGAINING POWER OF SUPPLIER: Very less because size of the unserved market was very large scale
THREAT FROM NEW PLAYERS: Not at all because of the govt.'s J.V rules for new players
THREAT FROM EXISTING PLAYERS: Negligible as the 2 players were selling 2 decade old products with no new models planned
STAR
????
800,Alto.
Omni
Even according to the latest (year 2004) BCG matrix the famed Maruti 800 is a cash cow business for Maruti, yes the sales have slumped to around 2500 monthly. But there are still hard core fans that swear by the 800 name and would just not put their trust in any other car. Thats the precise reason why MUL would not discontinue the 800 just yet. Yes because of the latest Bharat Stage 4 emission norms it has been proposed that the 800 be phased out but that phase out would not be immediate it would be carried out slowly and timely as its been started with Maruti not selling/producing the 800 in 13 of Indias top cities, the phase out would follow a similar path into tier1 and tier 2 cities.
If we take a look back at Marutis flagship models performance a decade and half ago it was the shining star of Maruti. When the car was launched in 1983 within two years the car lapped up numbers like no other and emerged as a star for the company. For more than a decade since 1987 till 1998 it was the star of the Maruti stable and thereafter it assumed the role of a cash cow which it holds to this day. Its safe to say that Indias answer to VW Beetle and the Citroen 2cv will not die just yet. On the advertising and promotional front the 800 has always been projected as a compact entry level family car. The campaigns have always shown a sensitive, family centric theme that always found favor with the sentimental Indian audience. Since they were high involvement purchases involving a great degree of thought, time and effort Maruti always scored big by making their ads high on the emotion quotient as well. Maruti always touched the emotional cord with their adds weather it was the India comes home in a Maruti campaign or joy of life campaign their adds were always that much closer to the hearts of the audience. There portrayal of the 800 as a member of the family only goes to reinforce their family and values orientation. Fuel efficiency was another trump card on their side that Maruti always played to perfection. The campaign Petrol Khatam Hi Nahi hunda highlighted the super mileage of the car and incorporated the warmth of the family as well. Their creatives also targeted the youth quite effectively as it was presented as young peppy car when actually it was aging, their target audience was always most certainly the young family man or a young man who is about to start one. On the PLC front though sadly it is coming to an end its in the decline phase of its life with it having already created a market share and that too is being eaten away. Marutis plans of taking it out in 2-3 years would mean the end of the road for a motoring true icon.
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 did they hike 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 segments. 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 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 arises is that how did it happen? 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 oneyear 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 without 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 only company to penetrate in the market with low priced vehicles. This makes the MUL also busy in price adjustments. The upcoming problem was of Maruti 800 and its variants. Sales of Maruti 800 were eroding continuously since 2000. To make strategic fit of Maruti 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 companys 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. Apart from internal problems, the external factors are turning unfavourable 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. 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. 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.
Prices over the past five years haven't moved much 2,32,444 February 2000 2,15,401 (price cut to June 2000 offset sales tax hike) January March May July March April 2001 2001 2002 2002 2003 2004 2,21,144 2,08,903 (excise cut) 2,24,201 2,06,419 (price cut) 2,00,969 (excise cut) 2,04,827
Maruti 800 (Domestic Sales Volume in Units) Fiscal Years 852 1983-84 20269 1984-85 63763 1987-88 106114 1994-95 139403 1995-96 183593 1996-97 184584 1997-98 161975 1998-99 189061 1999-00 151976 2000-01 144387 2001-02 143322 2002-03 167561 2003-04
Time Line:
Maruti launched the first 800 (Alto IV generation), the SS80, in the Indian market in December 1983. The car was known just as the Maruti 800 and was essentially a four-door saloon with a rear window that opened for access to the boot area. The model received a heavy facelift in 1986 with the introduction of the SB 308 body style. This new shape made the 800 into a five-door hatchback though the mechanicals remained the same including the 796cc, three-cylinder engine and the leaf-spring rear suspension. This body style continued unaltered, barring a few changes to the grille, for the next 11 years till 1997. The present Maruti 800 shape was launched in 1997. Maruti replaced the carburetion system in the 796cc engine in early 2000 with an MPFI unit to meet the Euro II emission norms. Power went up from 39bhp to 46bhp though there were no other major changes. Platform remained the same though the rear leaf spring suspension was changed to coil springs for the deluxe model. The company also offered a five-speed gearbox in the deluxe model. The 800 in this form has continued till date though the company has now withdrawn the five-speed gearbox from the range in order to push the new Alto.
December 1983: Launch. SS80, four door saloon with a rear window that opened like a hatch. 1986: Major facelift: SB 308, the tailgate opens completely and the car is now a five-door hatchback 1997: First major facelift in eleven years. New headlight, taillight, dashboard, indicators etc 2000: Upgraded engine MPFI. 46bhp. Also five-speed gearbox, coil-spring rear suspension and radial tyres. 2003: Five speed version withdrawn.
The then Managing Director of Maruti Udyog added, "The point that Maruti 800 would make way for a lower priced Alto, assumes that price is the only factor for entry-level buyers. That is not true. For many thousand aspirants, Maruti 800 is the only brand they will settle for, because it is the one they trust." And trust is something that the 800 has in abundance as a brand that has crossed 20 years of existence and sold in excess of two million units to date. To support the 800, Maruti is now targeting the 40-million two-wheeler owners in India. With financial institutions ready to offer loans up to eight years, the Maruti 800 base model is now available at a down payment of INR 21,000 and an EMI of INR 2,500, something that brings it closer to two-wheeler prices, a fact that Maruti is strongly publicising with millions spent on a new ad campaign to highlight the affordability of the 800. A fresh facelift cannot be ruled out. Yet, the bias towards the Alto cannot be missed as the company realises that they have an eventual replacement of the 800 now. The intention is to depreciate the Alto faster so that prices can be further brought down. Maruti is also working hard to further reduce component costs of the Alto so that prices can be further rationalised. Other steps, like stopping the 800 five-speed version and delaying a long overdue facelift for the 800, have pushed customers towards the Alto. What may eventually bring the end to the 800 story - point out some analysts is future legislation. New safety legislation and the impending upgrade to Euro III may make Maruti think very hard about whether or not to invest in the 800. But that is still three years away and this is a long time period in India's automotive industry.
Fate of Maruti-800:
In early Feb-2009 Maruti-Suzuki Limited announced to scale down the production of the popular brand Maruti-800. They cited inability to upgrade the Maruti-800 engine to comply with engine efficiency and pollution standards as reason for the same. At that time Euro IV norms were recently adopted in 11 major cities of India. The cities were Delhi, Mumbai, Kolkata, Chennai, Bangalore, Hyderabad, Pune, Kanpur, Ahmedabad, Surat and Agra. Later in the same year the Maruti-800 was phased out from production schedules completely due to ever diminishing contribution to the sales revenue.
References:
Philp Kotler Prof. Bharadwajs Slides Wikipedia Google www.managementfunda.com www.articlesbase.com www.icmrindia.org www.slideshare.net www.internsindia.com