Problem Statement Segmenting the customers based on their preference and to find out what features they look

for in their ideal car.

Executive Summary The survey has been conducted on 41 respondents to identify the customer preference for different features/ attributes of a car and to understand what features are the most important for them and are indispensable in their ideal car. The features considered are primarily safety features in addition to features such as color , design etc. Cluster analysis and Discriminant analysis techniques have been used to segment the respondents based on their preferences. The cluster analysis revealed three clusters with distinct characteristics with two of them having similarities and a third cluster different from the rest. On doing the discriminant analysis and building a model it was found that the data collected wasnt enough to build a reliable model. We have used conjoint analysis to determine what combination of specific attributes in a car is most influential on respondent choice or decision making.

Automobile Market in India :

The automotive industry in india is amongst the fastest growing markets in the world producing about 17.5 million vehicles and exports about 2.33 million every year. Indias passenger car segment is the seventh largest in the world with an annual production of 6.5 million units. India is set to overtake Brazil and become the sixth largest producer of commercial vehicles growing at around 18 % . It is also the fourth largest manufacturer in Asia. In 2010 India is home to 40 million passenger vehicles and more than 3.7 million vehicles were produced in 2010 alone making it the second fastest growing country in the world. It is expected to grow by 5% every year and touch 9 million by 2020. A chunk of Indias manufacturing happens from Chennai known as Detroit of India with many companies operating from here. Hyundai , Nissan and Renault are headquarteded here and Ford has its assembly operations here. BMW has an assembly plant on the outskirts. The Chakan corridor near Pune, Maharashtra is another vehicular production hub with companies like General Motors, Volkswagen, Skoda, Mahindra and Mahindra, Tata Motors, Mercedes Benz, Land Rover, Fiat and Force Motors having assembly plants in the area. Ahmedabad with the Tata Nano plant, Halol again with General Motors, Aurangabad with Audi, Skoda and Volkswagen, Kolkatta with Hindustan motors, Noida with Honda and Bangalore with Toyota are some of the other automotive manufacturing regions around the country. The supply chain of this industry in India is very similar to the supply chain of the automotive industry in Europe and America. This may present its own set of opportunities and threats. The orders of the industry arise from the bottom of the supply chain i. e., from the consumers and goes through the automakers and climbs up until the third tier suppliers. However the products, as channelled in every traditional automotive industry, flow from the top of the supply chain to reach the consumers. Interestingly, the level of trade exports in this sector in India has been medium and imports have been low. However, this is rapidly changing and both exports and imports are increasing. The demand determinants of the industry are factors like affordability, product innovation, infrastructure and price of fuel. Also, the basis of competition in the sector is high and increasing, and its life cycle stage is growth. With a rapidly growing middle class, all the advantages of this sector in India are yet to be leveraged. Note that, with a high cost of developing production facilities, limited accessibility to new technology and soaring competition, the barriers to enter the Indian Automotive sector are high. On the other hand, India has a well-developed tax structure. The power to levy taxes and duties is distributed among the three tiers of Government. The cost structure of the industry is fairly traditional, but the profitability of motor vehicle manufacturers has been rising over the past five years. Major players, like Tata Motors and Maruti Suzuki have material cost of about 80% but are recording profits after tax of about 6% to 11%. The level of technology change in the Motor vehicle Industry has been high but, the rate of change in technology has been medium. Investment in the technology by the

producers has been high. System-suppliers of integrated components and sub-systems have become the order of the day. However, further investment in new technologies will help the industry be more competitive. Over the past few years, the industry has been volatile. Currently, Indias increasing per capita disposable income which is expected to rise by 106% by 2015 and growth in exports is playing a major role in the rise and competitiveness of the industry.Tata Motors is leading the commercial vehicle segment with a market share of about 64%.Maruti Suzuki is leading the passenger vehicle segment with a market share of 46%.Hyundai Motor India and Mahindra and Mahindra are focusing expanding their footprint in the overseas market. Hero Honda Motors is occupying over 41% and sharing 26% of the two wheeler market in India with Bajaj Auto. Bajaj Auto in itself is occupying about 58% of the three wheeler market. Consumers are very important of the survival of the Motor Vehicle manufacturing industry. In 2008-09, customer sentiment dropped, which burned on the augmentation in demand of cars. Steel is the major input used by manufacturers and the rise in price of steel is putting a cost pressure on manufacturers and cost is getting transferred to the end consumer. The price of oil and petrol affect the driving habits of consumers and the type of car they buy. The key to success in the industry is to improve labour productivity, labour flexibility, and capital efficiency. Having quality manpower, infrastructure improvements, and raw material availability also play a major role. Access to latest and most efficient technology and techniques will bring competitive advantage to the major players. Utilising manufacturing plants to optimum level and understanding implications from the government policies are the essentials in the Automotive Industry of India. Both, Industry and Indian Government are obligated to intervene the Indian Automotive industry. The Indian government should facilitate infrastructure creation, create favourable and predictable business environment, attract investment and promote research and development. The role of Industry will primarily be in designing and manufacturing products of world-class quality establishing cost competitiveness and improving productivity in labour and in capital. With a combined effort, the Indian Automotive industry will emerge as the destination of choice in the world for design and manufacturing of automobiles.

AUTOMOB

PRODUCTION IN INDIA

Indi n automoti compani s  Chinkara Motors: B t Hammer, R adster 1.8S, R ster, Jeepster, Sailster  Hindustan Motors: Ambassador  ICML: R i o R  Mahindra: Major, Xylo, Scorpio, Bolero, Thar, Verito, Genio  Premier Automobiles Limited: Si ma, RiO  San Motors: Storm  TataMotors: Nano,Indica, Vista, Indi o, Manza, Indi o CS, Sumo, Grande, Venture, Safari, Xenon, Aria Vehicles manufactured or assembled in India y y y y y y y y y y y y y y y y BMW India: 3 Series, 5 Series, X1. Fiat India (in collaboration with Tata Motors): Grande Punto, Linea. Ford India: Fi o, Fiesta Classic, Fiesta, Endeavour. Chevrolet: Spark, Beat, Aveo U-VA, Aveo, Optra, Cruze, Tavera. Honda Siel: Jazz, City, Civic, Accord. Hyundai Motor India: Santro, i10, i 0, Accent, Verna, Sonata Transform. Land Rover: Freelander 2 Maruti Suzuki: 800, Alto, WagonR, Estilo, A-star, Ritz, Swift, Swift DZire, SX4, Omni, Eeco, Gypsy. Mercedes-Benz India: C-Class, E-Class. Mitsubishi (in collaboration with Hindustan Motors): Lancer, Lancer Cedia, Pajero Nissan Motor India: Micra. Renault India: Fluence Toyota Kirloskar: Etios Liva Etios, Corolla Altis, Innova, Fortuner. Audi India: A4, A6, Q5. koda Auto India: Fabia, Laura, Superb, Yeti. Volkswagen India: Polo, Vento, Jetta, Passat.

Market Characteristics:
Market Size The Indian Automotive Industry after de-licensing in July 1991 has grown at a spectacular rate on an average of 17% for last few years. The industry has attained a turnover of USD 35.8 billion, (INR 165,000 crores) and an investment of USD 10.9 billion. The industry has provided direct and indirect employment to 13.1 million people. Automobile industry is currently contributing about 5% of the total GDP of India. Indias current GDP is about $ 1.4 trillion and is expected to grow to $ 3.75 trillion by 2020. The projected size in 2016 of the Indian automotive industry varies between $ 122 billion and $ 159 billion including USD 35 billion in exports. This translates into a contribution of 10% to 11% towards Indias GDP by 2016, which is more than double the current contribution. Demand Determinant Determinants of demand for this industry include vehicle prices (which are determined largely by wage, material and equipment costs) and exchange rates, preferences, the running cost of a vehicle (mainly determined by the price of petrol), income, interest rates, scrapping rates, and product innovation. Exchange Rate: Movement in the value of Rupee determines the attractiveness of Indian products overseas and the price of import for domestic consumption. Affordability: Movement in income and interest rates determine the affordability of new motor vehicles. Allowing unrestricted Foreign Direct Investment (FDI) led to increase in competition in the domestic market hence, making better vehicles available at affordable prices. Product Innovation is an important determinant as it allows better models to be available each year and also encourages manufacturing of environmental friendly cars. Demographic : It is evident that high population of India has been one of the major reasons for large size of automobile industry in India. Factors that may be augment demand include rising population and an increasing proportion of young persons in the population that will be more inclined to use and replace cars. Also, increase in people with lesser dependency on traditional single family income structure is likely to add value to vehicle demand. Infrastructure: Longer-term determinants of demand include development in Indians infrastructure. Indias banking giant State Bank of India and Australias Macquarie Group has launched an infrastructure fund to rise up to USD 3 billion for infrastructure improvements. India needs about $500 billion to repair its infrastructure such as ports, roads, and power units. These investments are been made with an aim to generate long-term cash

flow from automobile, power, and telecom industries. (Source: Silicon India) Price of Petrol: Movement in oil prices also have an impact on demand for large cars in India. During periods of high fuel cost as experienced in 2007 and first half of 2008, demand for large cars declined in favour of smaller, more fuel efficient vehicles. The changing patterns in customer preferences for smaller more fuel efficient vehicles led to the launch of Tata Motors Nano one of worlds smallest and cheapest cars.

Basis of Competition
Competition in this industry is high. Competition in this industry is increasing. Automotive industry is a volume-driven industry, and certain critical mass is a pre-requisite for attracting the much-needed investment in research and development and new product design and development. Research and development investment is needed for innovations which is the lifeline for achieving and retaining competitiveness in the industry. This competitiveness in turn depends on the capacity and the speed of the industry to innovate and upgrade. The most important indices of competitiveness are productivity of both labour and capital. The concept of attaining competitiveness on the basis of low cost and abundant labour, favourable exchange rates, low interest rates and concessional duty structure is becoming inadequate and therefore, not sustainable. A greater emphasis is required on the development of the factors like innovation which can ensure competitiveness on a long-term basis. India, with a rapidly growing middle class (450 million in 2007 as per NCAER Report), market oriented stable economy, availability of trained manpower at competitive cost, fairly well developed credit and financing facilities and local availability of almost all the raw materials at a competitive cost, has emerged as one of the favourite investment destinations for the automotive manufacturers. These advantages need to be leveraged in a manner to attain the twin objective of ensuring availability of best quality product at lower cost to the consumers on the one hand and developing and assimilating the latest technology in the industry on the other hand. As per Automotive Mission Plan 20062016 (2008), the Indian Government recognises its role as a catalyst and facilitator to encourage the companies to move to higher level of competitive performance. The Indian Government wants to create a policy environment to help companies gain competitive advantage. The government aims that with its policies its encourage growth, promote domestic competition and stimulate innovation.

Questionnaire:
1. Name: ______________________________ 2. Occupation : __________________________ 3. Annual Household Income : a. <4 lac b. 4- 8 lacs c. 8-12 lacs d. 12-20 lacs e. >20 lacs. 4. Please rank the following aspects of a car on a scale of 1 to 5.
A pect Price Brand Power Color After sales service Style and design 1 2 3 4 5

5. Rank the following safety aspects on a scale of 5

Safety Feature Seat Belts Air Bag ABS Traction control Parking assistance GPS Handsfree Device Parking assist Power Brakes Fog Lamps Immobilizer 1 2 3 4 5

6. Consider the following ten product combinations and rank them combinations from 1 to 10 ( 1 to the most preferred and 10 to the least) SafetyFeatures : i. Basic (Seat belts, power steering & brakes) ii. Midlevel (Basic + fog lamps, Immobilizer, ABS, Airbags) iii. Premium (Midlevel+ES, GPS, Handsfree devices) b. Price Points:

i. Segment A (5 lacs) ii. Segment B (10 lacs) iii. Segment C (20 lacs)

S.No 1 2 3 4 5 6 7 8 9 10

Color Non Metallic Metallic Non Metallic Metallic Metallic Metallic Metallic Metallic Metallic Metallic

Fuel Type Petrol Diesel Diesel Diesel Diesel Diesel Hybrid Hybrid Petrol Hybrid

Safety Features Basic Basic Midlevel Midlevel Basic Midlevel Midlevel Premium Premium Premium

Price point A A A A B B B B C C

Rank

The questionnaire is designed to elicit responses about what the preferences of each of the customers regarding the safety features essential in a car and then the various features such as colour, design and after sales service which affect the purchase. The second part is about trying to understand the features of the car which the customers find ideal. This is done by having 10 configurations of car by varying the various attributes and asking the customers to rank the cars according to their preferences.

Part 1 : Cluster and Discriminant Analysis

Initial Cluster Centers Cluster 1 SB_1 AB_1 ABS_1 TC_1 PAA_1 GPS_1 HFD_1 PB_1 FL_1 Immbo_1 4.00 1.00 2.00 2.00 1.00 2.00 2.00 5.00 4.00 3.00 2 1.00 1.00 3.00 3.00 4.00 4.00 5.00 3.00 2.00 2.00 3 5.00 5.00 5.00 5.00 4.00 5.00 5.00 5.00 5.00 5.00

Each of the safety features have been coded as follows.

Seatbelts Air Bags ABS Traction Control Parking Assist GPS Hands free device Power Brakes Fog Lamps Immobilizer

SB_1 AB_1 ABS_1 TC_1 PAA_1 GPS_1 HFD_1 PB_1 FL_1 Immob_1

Final Cluster Centers Cluster 1 SB_1 AB_1 ABS_1 TC_1 PAA_1 GPS_1 HFD_1 PB_1 FL_1 Immbo_1 4.46 3.54 3.62 3.50 2.46 2.42 2.69 4.04 3.65 3.27 2 1.00 1.00 3.00 3.00 4.00 4.00 5.00 3.00 2.00 2.00 3 5.00 4.56 4.56 4.31 3.50 3.69 3.56 4.56 4.75 4.13

Distances between Final Cluster Centers Cluster 1 2 3 5.887 2.922 7.056 1 2 5.887 3 2.922 7.056

Number of Cases in each Cluster Cluster 1 2 3 Valid Missing 26.000 1.000 16.000 43.000 .000

ANOVA Cluster Mean Square SB_1 AB_1 ABS_1 TC_1 PAA_1 GPS_1 HFD_1 PB_1 FL_1 Immbo_1 8.002 9.382 4.908 3.589 5.979 8.504 5.657 2.109 8.046 4.870 df 2 2 2 2 2 2 2 2 2 2 Error Mean Square .212 .760 .602 .448 .812 .545 .787 .422 .522 .422 df 40 40 40 40 40 40 40 40 40 40 F 37.827 12.345 8.149 8.004 7.367 15.615 7.189 4.991 15.411 11.549 Sig. .000 .000 .001 .001 .002 .000 .002 .012 .000 .000

Number of Cases in each Cluster Cluster 1 2 3 Valid Missing 26.000 1.000 16.000 43.000 .000

Using the responses and after running a cluster analysis we can see that the cluster centres are very similar to each other although on close analysis it can be observed that there is a niche segment of customers who are looking for a high end safety features namely GPS, hands free device and Parking assist. There is a second cluster where the customers are looking only for very basic features of Seat belts and power brakes. This cluster has about 16 respondents. The final cluster has customers looking for basic and some additional features in addition to the basic ones such as ABS , Fog lamps and Immobizlier. This is the largest segment having 26 of the respondents. Also the clusters 1 and 3 are quite close and 2 is further apart when compared to the other clusters. It shows that a similar set of strategies and positioning can be considered for clusters

1 and 3 and cluster 2 needs to be looked at separately. All the attributes used are significant and hence play a part in the clustering.

Discriminant Analysis :
Tests of Equality of Group Means Wilks' Lambda Price Brand Power Color After sales service Style and design .964 .896 .964 .967 .946 .936 F .750 2.309 .744 .681 1.132 1.369 df1 2 2 2 2 2 2 df2 40 40 40 40 40 40 Sig. .479 .112 .482 .512 .332 .266

Canonical Discriminant Function Coefficients Function 1 Price Brand Power Color After sales service Style and design (Constant) Unstandardized coefficients -.509 .677 -.696 -.072 .791 .816 -4.544 2 -.657 1.111 .612 -.006 -.214 -.995 1.290

Using the consumer dependent attributes such as Price , brand and power a discriminant analysis was run and a model was built using the Cluster memberships originally derived. Checking the Wilks lambda it can be seen that the models derived were both insignificant and hence the model isnt really reliable. Of the two models built the second model is better than the first on comparing the coefficient. Cluster membership = Discriminant( price , brand , power , color , after sales service , style)

Classification Results Cluster Number of Case Original Count 1 2 3 % 1 2 3 1 13 0 5 50.0 .0 31.3 2

Predicted Group Membership

3 3 1 1 11.5 10 0 10 38.5 .0 62.5

Total 26 1 16 100.0 100.0 100.0

100.0 6.3

a. 55.8% of original grouped cases correctly classified.

Checking the above table it can be seen that only 55.8% of the original cases were grouped correctly using the model built. Hence the new model cannot be used reliably for classification.