In May, Rajesh Kumar, 46, almost booked a Vitara Brezza from Maruti Suzuki. After driving the Tata Indica and Volkswagen’s Polo, he “wanted to drive a SUV”. He had his reasons for buying a Maruti-badged model — at Rs 6.9-9.5 lakh, it is attractively priced (similar models from other carmakers are in the Rs 9.57-13.8 lakh range), looked good, offers best-in-class mileage (up to 24.3 litres per km), has the latest tech features (like a push button start-stop), relatively low maintenance costs and a high resale value. Yet Kumar dithered. Instead he brought home a Renault Duster.
“Brezza had an eight-month waiting period. I could not wait,” he says. Kumar’s change of mind is unlikely to faze Maruti’s marketers — after all, if the Vitara Brezza, a sub-4 metre compact SUV, has an eight-month waiting period, it is because there’s a long line of consumers who reckon the wait is worth it. That’s not the only reason why India’s No. 1 carmaker should be pleased. Its Baleno hatchback, launched last October, too has an eight to nine-month waiting period. Older models like Swift and Dzire have upto four-month waiting period. Midsized sedan Ciaz, launched in October 2014 and updated last September with a mild diesel hybrid, is the best-selling car in the segment today, beating for-longundisputed segment leader Honda City. In virtually every passenger vehicle segment that Maruti has a presence — mini, compact, super compact, mid-sized sedan, entry-level UV — the company is the segment leader.
But for a company that lords over half the passenger vehicle market in India, that’s not the big news. “Maruti’s biggest achievement is that it has managed to crack the higher-margin Rs 6-10 lakh segment with its new launches (which it had consistently failed at in the past),” says Hormazd Sorabjee, editor, Autocar India. This is in line with what the new global CEO Toshihiro Suzuki told media earlier this year (he was president then, and elevated to CEO in June, taking over from chairman Osamu Suzuki): “We have been selling compact cars. Now we are aiming at (Indian) customers who buy vehicles that are slightly bigger than compacts. We would like to expand here (in the bigger segment).” When the Going Gets Tough... Difficult times separate the men from the boys.
The last few years have been difficult for the automobile industry with muted consumer sentiments and flat sales. Passenger vehicle sales, which hovered around 2.6 million in 2011-12, remained almost flat for three years in a row before inching up to 2.78 million in 2015-16. Maruti Suzuki, the undisputed leader in India with 1.5 crore customers and the Japanese carmaker’s brightest spot on the global map, tightened its grip. Between 2011-12 and 2015-16, market share in the passenger vehicle segment went up from 38% to 46% (see Maruti has been increasing share...), its sales growth consistently outpacing the industry. Maruti has a history of waiting periods. Maruti 800, its debut India launch in 1983 priced at Rs 48,000, had a waiting period over a year long and commanded a premium of Rs 20,000 in the grey market. Since then it has had many models with long waiting periods — from the three-box Maruti 1000 to the Zen in the 1990s, Swift and Dzire in the 2000s and Vitara Brezza and Baleno hatchback now. But this time it is different.
The Indian car market has never been more competitive than it is today. In the most important compact segment, which contributes over 40% to passenger vehicles in unit sales, there are 12 carmakers with 37 models vying for customers. “Credit goes to Maruti. But it says a lot about the competition, too. From product to price, sales reach to after-sales experience, Maruti has excelled in its entire package of offering,” says VG Ramakrishnan, a former managing director of Frost & Sullivan who is now nurturing a consulting startup called Advanteum Advisors. With the Ciaz and Brezza, Maruti has finally managed to move up a few notches into a pricier segment. Its last few attempts with the Baleno sedan and SX4 weren’t very successful. But the Vitara Brezza in the Rs 7-9.5 lakh price band has been received well. The Ciaz, priced between Rs 7.6 and Rs 10 lakh, has become segment leader in mid-sized sedans, helping Maruti grab a 36% segment share. Aspirational Buyers How did Maruti manage this? It starts with the product.
“Take for example Baleno, its fit and finish and the features it packs. You would never say it is a Maruti product,” says Ramakrishnan. Agrees Sorabjee. “Brezza ticks all the right boxes. It is pulling customers from everywhere — hatchbacks, compact sedans, sedans, SUVs.” Maruti has always been a price warrior with low ownership costs and the best sales and after sales network. For example, the price of Hyundai’s Creta (diesel) pretty much starts where the Vitara Brezza’s tops off. Where Maruti has moved the needle in its new launches is in offering the latest features and technology that appeal to aspirational car buyers. For example, along with a button startstop and keyless entry, the Apple CarPlay infotainment system has been integrated with a 7-inch touchscreen, a navigation system and a reverse camera. Deviating from its past strategy, Maruti has made driver airbag a standard while passenger airbags and ABS remain optional.
“We realised the youthfulness factor was missing in our cars,” says RS Kalsi, executive director (marketing & sales), Maruti Suzuki. Net-savvy buyers typically look for the latest designs, styling and a touch of premiumness on top of the core values like value for money, low cost of ownership and the like that Maruti traditionally offered. Kalsi says the new launches focused on addressing these gaps. India R&D Helps A new, fully-equipped R&D center in Rohtak with 1,200 staff played a critical role in the new launches. The Vitara Brezza is the first model that was conceptualised, engineered and developed in India, says CV Raman, executive director (engineering), Maruti Suzuki. Then, Maruti has further strengthened its formidable sales and marketing network.
With 1,800 dealer outlets in 1,450 cities, it has a dealership footprint that is as large as its top five competitors put together. Last August, the premium Nexa showrooms were rolled out. Today there are 125 Nexa showrooms, which contribute a tenth of Maruti’s sales. By March 2017, Kalsi expects the Nexa network to double to 250 outlets and pitch in with 15% of Maruti’s sales. Maruti has also figured how to quickly tap into emerging growth niches. “Often, Maruti has not been the first one to get in. But whenever it does, it does a great job of grabbing market share,” says Deepesh Rathore, director, EMMAAA, an automobile consultancy firm. The UV segment is a great example, which from 14% of industry sales in 2011-12 contributed 21% four years later. Binaifer F Jehani, director of Crisil Research, expects UV growth to continue to outpace that of the industry by at least 6% for the next few years.
UV’s share in Maruti’s total sales too have gone up sharply from 0.65% in 2011-12 to 12%. Maruti has also been smart in equipping its car with new technologies. In 2014, instead of opting for pricier fully automatic gear systems, it brought in the more economical automated manual transmission system (AMT) in its cars like Alto and Celerio. Purists scoffed at the idea but Indian buyers lapped it up. It is doing something similar with smart hybrid systems. Maruti has launched a mild hybrid Ciaz; while it is not a full-blown hybrid, the Suzuki Hybrid Vehicle System helps store power generated during braking or decelerating, conserves fuel and cuts down emissions when the car halts at traffic signals. This has helped Ciaz offer best in class fuel efficiency. More importantly, the mild hybrid attracts lower excise duty of 12.5% instead of 24%, and a subsidy of around Rs 12,000 under the electric and hybrid vehicle policy.
This has helped Maruti price Ciaz up to Rs 2.9 lakh lower than Honda City. It helped that most of its competitors from Ford, GM and VW, to Nissan, Toyota and Honda have struggled in India. Perhaps the only MNC that has kept pace with Maruti is Hyundai. Also, carmakers have reeled under policy flip-flops and some dramatic turns in the industry. Take the petrol versus diesel issue. At its peak, when petrol prices were 1.5 times those of diesel, demand for diesel cars peaked at 58% (of industry sales) in 2012-13. Carmakers with no diesel offerings like Honda were hit hard. Soon, they invested in launching diesel variants. Fast forward to 2016. Diesel is the new villain. With the diesel ban in the NCR and parts of Kerala, diesel vehicle sales are declining.
Crisil expects the trend to continue, from around 42% of total sales in 2015-16 to 38-40% in 2016-17. “The Indian car market is young and growing with very dynamic changes in customer preferences. In an industry that takes 3-4 years for new product planning and with so many new launches, forecasting demand for new products is very challenging as it requires a deeper customer insight,” says Rakesh Srivastava, senior VP (sales), Hyundai Motors India Ltd. Speed Bumps Ahead Relatively, Maruti has negotiated these twists and turns in the industry well. But it will face its share of challenges. The biggest is its inability to command a brand premium and pricelead the segment, says Sorabjee. Aggressive pricing remains one of Maruti’s biggest weapons. But as it moves up the value chain it is critical that Maruti builds on other brand attributes to lure customers. It has been trying; for instance, it tried to premium price its crossover S-Cross but the strategy has not worked. Also, Maruti must work harder on its service and quality to woo aspirational customers in the pricier segments. Maruti fares decently on VDS (vehicle dependability study) which captures the car’s long-term (threeyear) durability, but Mohit Arora, executive director, JD Power, is worried that Maruti is slipping on its iQS ranking (initial quality service that captures customer’s experience in the first 2-6 months).
“Maruti’s average transaction price has moved up. Customers in that segment have much higher expectations on quality and refinement,” Arora says. Maruti’s Nexa showroom helps improve the experience. But remember Nexa must benchmark vis-a-vis Honda, Toyota and not Maruti’s dealers. Two distribution channels can create confusion and challenges on the dealer front. For example, the Vitara Brezza and Ciaz retail at Maruti showrooms and not Nexa. Kalsi points out that Nexa outlets will soon have their own after-sales workshops. Of course, Maruti will be constrained by its parentage as Suzuki Motors is a small car specialist with a limited portfolio and relatively smaller global scale. Yet, its deep focus on India, understanding of its customers and its ability and agility to cater to them like no one else has more than compensated for all its handicaps. The question is will it be able to continue doing the same.
We realised that the youthfulness factor was missing in our cars. Our new launches address it well” RS Kalsi, executive director (marketing & sales), Maruti Suzuki
“A car is a high investment buy with a three to five year ownership period. For a good brand value, customers are willing to wait” Rakesh Srivastava, senior VP (sales) Hyundai Motors India Ltd