The Case Of

Market Leadership

Can Ashwin retain its market leadership in passenger cars? R. Nair of Business
Consulting Group, V. Venugopal of Mahindra & Mahindra, and B. Palekar of
Eureka Forbes discuss.

By R. Chandrasekhar

Making a passenger car against an individual order? Like a customised Rolls? Kumar
Mahadevan was amused at the distance the Indian passenger car industry had
traversed. As the CEO of Ashwin Udyog Ltd, the country's leading passenger car-
maker, Mahadevan had led the change in the industry from the front. And yet, here
was his counterpart at the Indian subsidiary of a Korean major talking of how the
company would deliver its premium car at a week's notice, straight from the assembly
line.

''The tables have turned,'' he said, addressing his team of senior executives, later in
the day. ''When we started out in 1981, we set the trend on the twin planks of fuel
economy and low maintenance cost. And made fossils of all the stodgy, fuel-guzzling
models prevalent at that time. We got a resounding response from the burgeoning
Indian middle class-at which Ashwin was targeted-at parameters like price, design,
comfort, mileage, and, of course, the aspirations. We went on to corner over 80 per
cent of the market and bestrode the Indian passenger car market like a colossus for
well nigh decades.

"Today, we are in the same position as the companies we upstaged on our debut. As
compared to four manufacturers of passenger cars in the country, offering a dozen
models, in 1981, there are a dozen manufacturers today offering an incredible 112
models. And our marketshare is down to 65 per cent.''

''I have only this morning received a report from a well-known UK-based auto-
consulting firm which has examined the prospects of passenger car makers in India in
2003,'' said Raghu Krishnan, Director (Finance). ''The report predicts on the basis of
indisputable data that Ashwin's marketshare will decline to 36 per cent by 2003.

"It also adds that Ashwin would still be the market leader at that time. But what is
worrisome is that our margins are dipping with marketshare. Ashwin's net profits
declined by 12 per cent last year, as compared to a 10 per cent increase the previous
year.''
''It is not as if we were unaware of the changing scenario,'' AREAS OF
remarked Sandeep Bhatnagar, Director (Manufacturing). ''We did CONCERN
consciously build entry barriers. But, some of those are no longer
sources of unique competitive advantage. Take, for instance, the Volumes under
vendor development programme we pioneered. With import decline because of
tariffs being progressively reduced, indigenisation is no longer an fierce market
entry barrier. Or take the cost-leadership plank. None of our competition
competitors can match the brand equity we have built on the Margins under
value-for-money proposition. While that equity still holds well, it attack due to
has ceased to be a source of advantage because the market, as increasing price
a whole, has been witnessing a major transformation. A bulk of pressure and
the Indian passenger car market is moving away from the low growing costs
end.''
Little focus on new
''A major challenge lies in changing the mindset of people at product launch or
Ashwin,'' said Ravi Shivdasani, Director (HRD). ''People in the upgrades of existing
company are so conditioned to the idea of market leadership that models
they simply can't realise that the good times are over. Perhaps, it Complacency due
helps to build some crisis scenarios so that everyone at Ashwin to long years of
gets charged. We need to educate employees on how the market monopoly and
has transformed, almost beyond recognition, in the last few years organisational annui
and, therefore, how the old ways just will not do.''
PRIORITIES FOR
''The market is moving, as Sandeep mentioned, away from the ACTION
low-end,'' remarked Vinod Bhatia, Director (marketing). ''The Cover all the price
bottom-priced, sub-Rs 2.5 lakh market, which Ashwin built and points in the popular
nurtured, and which it dominated all these years, is beginning to segment to outflank
flatten out. The action is gradually shifting to the next price competition
segment of between Rs 3 lakh and Rs 4 lakh. It is this segment, Identify new
in which Ashwin has had no major presence that most of the new streams of revenue
entrants are concentrating. And it is this segment which will be to protect topline
the growth-driver of the passenger car industry in the years to and shareholder
come. Signs to this end are already evident. While the bottom- value
end of the market grew by only 25 per cent last year, the new
segment grew by as much as 160 per cent.'' Introduce new
variants to enhance
''Of course, the main reason why the bottom is dropping out of customer choice
Ashwin's main market is the availability of easier financing and pre-empt rivals
options today,'' said Krishnan. ''Car loans, offered at zero interest, Push low-end
have narrowed the difference between one price segment and models to semi-
the other in EMIs to just a couple of thousands, providing a urban and rural
strong incentive for customers to revise their aspirations upward.'' areas to deepen
penetration
''Our traditional business operating model is breaking down,'' said
Mahadevan. ''Ashwin depended on a simple strategy to establish its supremacy in the
passenger car market: it concentrated on a single, low-cost model from which it sought
huge volumes. That was how we set up a 2.5 lakh car capacity plant at a sprawling
250 acre estate on the outskirts of Chennai. As years went by, we introduced three
variants within the existing price band. The strategy worked. A market characterised by
low purchasing power lapped up all of Ashwin's offerings. But it is time to redefine what
Ashwin stands for as a company, who its customers are, what its value proposition
should be, and how it can differentiate its product offerings.''

''The passenger car market in the country straddles a wide price range today-from Rs
1.9 lakh at the low end to Rs 64 lakh at the premium end. The premium end, confined
to the Rs 20 lakh-Rs 64 lakh band, is clearly not Ashwin's forte. We have no business
to be there,'' said Bhatia. ''It does not jell with our traditional positioning on the value-
for-money platform. But the small car segment (up to Rs 4 lakh) is the market we
should consolidate our efforts in and the growing mid-size segment (between Rs 4 lakh
and Rs 7 lakh) is the one we should seriously look at getting into.'

SOLUTION
Ashwin Udyog is not exploiting the power of scale, reach, and equity it has built up over the years. The threat to its
market leadership comes not from external factors such as the move forward towards customisation but from its own
mindset of a monopoly. Two questions are relevant. How much of the loss of marketshare is because of migration of
customers towards progressively higher ends of the market? And how much of it is because of factors related to product
quality, features, and service? In the answers lies a clue to developing and positioning the next generation of Ashwin's
offerings. The launch would take two to three years.

Meanwhile, Ashwin should focus its efforts on consolidation. The company, in my view, should
not let go of its hold on the low end. VFM is an attractive plank. The popular segment of the
market can never flatten out in a huge country like ours. A surefire way for Ashwin to consolidate
its hold is to recognise that revenues come from many sources, not from the sale of the car
alone.

 Look at the spare parts market in the country. It is unorganised. If Ashwin were to step
in, the payoffs would be enormous. The process could begin with a campaign aimed at
educating the customer about the imperative of using genuine spares. Given the right
support system, no customer minds buying a genuine part at a higher price. It enhances
dealer revenues and provides an incentive for the dealer to move the main product. "Ashwin's threat
Servicing is another source of revenue. Customer relationship management would be comes from its
the key driver in this initiative. mindset of a
monopoly"
 Ashwin could also consider trading in second-hand vehicles. The mission here is to tap V. Venugopal, Executive
customers looking for opportunities to migrate to their first four-wheeler. This, again, is V-P, M&M
an area where Ashwin could leverage its volumes and enter a segment waiting to be
tapped.

 The car rental business may also provide an ideal diversification option for Ashwin. I think this is a segment which
is under-rated. With a fleet of its own cars, Ashwin is in a commendable position to exploit niches like these. At a
higher level, logistics could be a good source of revenue. How about providing, for instance, inward and outward
supply for its own vendors at a price, to start with?
  Given the fact that its assets are fully depreciated, and Ashwin can afford to sell cars at a price slightly above its
variable costs, I think exports are worth a look. Africa, North America, and even parts of Asia are good target
markets.

 How about getting into multi-utility vehicles? There is a market for these in India. Can Ashwin develop them with
incremental investments and by tweaking the existing facilities just that bit?

Technology is not a major issue at Ashwin. Bringing a strong brand mindset into its operations is. Ashwin should stop
being a hostage to its past and start thinking out of the box. It is only then that it will be able to regain lost ground.

Consider a general who is ensconced within a fortification in a corner of his kingdom. As the kingdom grows in different
directions, the general does not straddle the expanding space. He merely defends his original turf. Inevitably, he leaves
large patches of his kingdom open to invasion-and occupation-by the enemies. And gets reduced, over a period of time, to
a non-entity. Ashwin Udyog is in a similar predicament.
Its entry strategy was no doubt sensible: offer VFM cars at the entry-level. But it ignored the high
priced segments-till competition set in. Even there, it decided that the VFM personality would
suffice. It did not recognise that there were many other marketing planks available.

Another mistake was that even in the small car category it focussed on the single-car owner. It
missed out the second and third car owner whose needs and aspirations are different from what
Ashwin's basic models offer.

The benefits expected from a car are both tangible and intangible. Ashwin's models are excellent
in terms of tangibles. But they are weak on intangibles. Today, a car is a statement of the
"Ashwin should get owner's status. In sophisticated car markets like the US, research has established a clear
rid of corporate correlation between the model and colour of car, and the owner's socio-economic status, sex,
brand personality of and age. The car market there has several multi-dimensional sub-segments. Automobile
VFM" manufacturers plug in models in the relevant ones with brand personality positions which are
Raj Nair, compatible. If you do not have a model to offer, you finally lose the segment.
Chairman, Business
Consulting Group
A decade-and-half after Ashwin Udyog's entry, the Indian consumer is more sophisticated, has
more disposable income, and access to numerous car finance schemes that help him reach out
to premium products. In fact, the Indian car market can no more be segmented purely on price.
Ashwin has evolved all right, but far too slowly. The management has wrongly positioned the whole company as one that
provides VFM products for the market, whereas the Indian market has several consumers who do not want to be seen as
VFM seekers when it come to products like clothing, shoes, and cars. Competitors have plugged in offerings that meet the
aspirations of these consumers.
Since the Indian market is too small to allow a big player like Ashwin to grow on a single platform, it must get rid of
corporate brand personality of VFM. And create individual personalities for its numerous models. It must attack the market
aggressively to occupy new turf in certain strategic non-VFM segments, while it continues to defend the VFM fortification
with existing models. This is a major change for Ashwin. But it must be done before it becomes financially difficult for the
company to pursue this aggressive strategy.
As retail consumer durable markets mature and become competitive, it becomes difficult for a
leader to maintain its marketshare. Competition increases the choice at the customer level, not
only of products but also of terms and conditions of purchase. Simultaneously, at the dealer
level, different dealers develop their own brand affinities, which limit the access of the non-
aligned brands to the clientele of such dealerships. What are the options before Ashwin?

It is true that the market for mid-size cars is growing. But the conclusion that the market is
''drifting'' away from small cars is misleading. It is a very different process of creation of a
'replacement' segment of people who, when they come into the market second time round, want
a better product than they bought the first time.
"Ashwin should have
Targeting the replacement segment created by the collective efforts of previous marketers is a taken the lead
proven entry technique in consumer durables market. It is hardly surprising that the competitors in replacing its own
spotted the opportunity of replacing the huge number of old Ashwin cars much before Ashwin old cars"
did. Ideally, Ashwin should have taken the lead in replacing its own old cars. Even now, it can do S.K. Palekar,
Sr. V-P (Marketing),
four things: Eureka Forbes
 
 Since Ashwin's products have performed well, and its after sales network is good, there is an opportunity for
conducting direct contact programmes to convince existing customers to trade in their old cars for new products
from Ashwin.

 In fact, its wide dealer and service network will give Ashwin a tremendous edge in sponsoring the trade-in cars:
buying back old cars, reconditioning them, and then reselling them.

 Ashwin could launch a special limited edition model, which is available only to its existing customers under a buy-
back offer. This will set the market on fire.

 A scheme for existing customers to give referrals and get benefits in the process of recommending their existing
brand to their friends and relatives, would be effective.

The real winner in the car market is still the small cars segment. Although the rate of growth of the mid-size cars segment
was 160 per cent, we cannot ignore that the small cars one grew at 25 per cent-a respectable growth by any standard.
There may be some temporary problems in this segment, but I do not believe that the market is migrating away from this
position.

I believe there may actually be an opportunity to rejuvenate the sale of small cars, but it cannot be tapped through the
traditional 'economy' position based on low fuel/maintenance. The small car now needs to be positioned as the main car
for small cities and as the second car for main cities. Ashwin should launch a sub-brand to make it exciting to own an
economy model.

But this move will succeed only if two things are done. The product should be re-designed to become young and exciting.
And, in small towns in particular, Ashwin must focus on multi-brand dealers. This, of course, involves changing the very
mindset of the sales force and the very paradigm of the car market.