This report explores two product launches in Indian automobile market in the year 2011. The India launches of the BMW X1 and Maruti Suzuki Kizashi are the perfect examples of contrasting product launches of the previous year. The research for the report is based on the current and previous year findings about the performance of these products in the Indian market. The major findings indicate that BMW X1 launch was characterized by excellent vision and the right marketing mix. However, the Maruti Suzuki Kizashi launch lacked the commitment from the company to excel in the luxury sedan segment in India.
BMW X1 has emerged a true pioneer and created a new growing automobile segment in the Indian market. Whereas, Kizashi is a product that shows promise but Maruti Suzuki needs to rethink its strategy for the premium sedan and SUV segments where it is struggling to make an impact. THE BMW X1 SUCCESS STORY BMW AG Bayerische Motoren Werke AG, popularly known as BMW was established in the year 1917 in Munich, Bavaria in Germany. The company started its business by manufacturing aircraft engines for the German army. The first car under BMW marque was created in 1928.
‘Sheer Driving Pleasure’- this is how BMW has been conquering the hearts of the automobile enthusiasts worldwide, as the BMW cars have lived up to the company motto since its inception. It doesn’t end here; the BMW group boasts other world class brands such as MINI and Rolls Royce. The presence of the group and its portfolio of brands have earned it the ninth place in Forbes list of World’s Most Powerful Brands (Forbes, April 2012). Apart from excellent engineering and clever marketing, what makes BMW special is their ability to adapt to the needs of the markets and the trends.
The BMW group employs over a 100,000 people and its global revenue in FY2011 was an impressive $95. 83 billion (Forbes, 2012). BMW India Much of BMW’s success in recent years can be attributed to their clever strategies in emerging markets. In the first quarter of 2011 BMW’s operating margin grew by a staggering 11. 9% (Financial Times, May 2011). “BMW is absolutely at the vanguard of a ‘new era’ for German profitability” says Max Warburton an analyst at Bernstein Research. Where are these profits coming from? The emerging markets like India, China and Turkey have contributed a lot to the impressive sales figures.
Sales in Asia rose by 53% to more than 90000 cars, a third more than what BMW sold in Germany (Financial Times, May 2011). In the 1990s and early 21st century, the luxury automobile segment was ruled by Daimler AG owned Mercedes Benz. It was in the year 2006; BMW invaded the luxury car market ruled by Mercedes Benz. In merely three years, BMW became the top seller of luxury cars in 2009. BMW India Private Limited is headquartered at Gurgaon, New Delhi. The manufacturing and assembly plant is located in Chennai, Tamil Nadu and is equipped to produce 11,000 cars a year in double shifts.
Dr Andreas Schaaf, President BMW India mentioned during an interview with The Business Line newspaper that considering the current demand from the Indian market BMW has plans to set up a second assembly facility. BMW India sold a total of 9371 cars in 2011. Most of these sales have come from one successful model – The BMW X1. (Financial Times, May 2011) BMW X1 The BMW X1 was launched in India in January 2011. The launch of the X1 created a whole new automobile segment in the Indian market. The model was launched as a ‘Compact Crossover SUV’.
The car was launched in petrol and diesel variants and was available in the price range INR 22 lakh to INR 30 lakh (USD 48400 to USD 66000). The X1 came with 2000cc petrol or a diesel engine with maximum power output ranging from 150PS to 176PS and a top speed of up to 218KMPH. These specifications were enough to attract automobile enthusiasts who longed for a SUV which would not burn a big hole in their pockets. The BMW X1 had experienced successful launches in the developed countries too when it was launched in 2009. But there was considerable risk in launching the car in Indian market.
The average Indian consumer is very price focussed and this reflects on the market segmentation also. Though the cars are segmented according to their type or utility, the real segmentation is based on price. The German luxury car makers sold about 30,000 cars yearly in India, whereas they sold 7. 2 lakh cars in China in 2011 (Economic Times, Mar 2012). The Indians saw the BMW X1 as an INR 22 lakh car. This is where the launch gets interesting. BMW had targeted the consumers which wanted to buy the BMW brand more than the car. The success of BMW’s strategy reflects in the X1’s sales figures.
Dr Andreas Schaff admitted that the X1 was launched to attract a whole new segment of young buyers to the BMW brand, “and then grow the brand with them, so when they upgrade to bigger and better cars, we will be there” (Business Today, Nov 2011). The BMW X1 was flooded with bookings on its launch. BMW sold a little less than 3000 X1s in 2011 which was a large percentage of their net sales of 9371 units (Business Today, Nov 2011). Personally, what I liked about the BMW X1 launch was BMW’s vision to create a completely new segment in the Indian automobile market.
The product connected well with the youth and also it was an attractive buy for consumers who desired to own a BMW. The X1 was marketed as a Compact SUV for Indian roads and traffic conditions. BMW used the usual means of promotion such as magazines, media and expos; but it was the product and the pricing that lured the buyers. However, BMW should expect to face competition from its cousins Audi and Mercedes Benz as their compact SUV models have been launched in India already. Moreover, Jaguar Land Rover (JLR) is a fast emerging player in India due to sentimental value associated to it as the Tata group has acquired it.
But the BMW X1 was one of the best launches of the Financial Year 2011. MARUTI SUZUKI KIZASHI – THE PERFECT ANTITHESIS OF A SUCCESSFUL PRODUCT LAUNCH MARUTI SUZUKI INDIA LIMITED The company began as Maruti Udyog Limited (MUL) in February 1981 as a government regulated enterprise. The company was founded to meet the growing needs in the passenger car market in those years. The Suzuki Motor Company of Japan foresaw India as a potential market for their products and acquired a 26% stake in the company. Suzuki agreed to provide their expertise in technology and management.
In 1992 Suzuki acquired a further stake in Maruti Udyog and took its share to 50% (Maruti Suzuki, Wiki). In 2007, Maruti Udyog Limited was renamed as Maruti Suzuki India Limited (MSIL) (Maruti Suzuki, Wiki). As of today Suzuki holds a majority stake of 54. 2% and the rest is owned by investors (Maruti Suzuki, Wiki). The company has produced over 10 million vehicles since 1983. MSIL currently holds 38% share in the Indian automobile market (Economic Times, Aug 2012). Maruti Suzuki has always been known as India’s low cost passenger vehicle provider.
The company has successfully launched many small to medium sized cars; it is also present in other segments like Multiple Utility Vehicle (MUV), Sedans and other variants. Moreover, Maruti Suzuki cashes on its presence throughout the country. It runs a dense network of service centres, authorized dealers of cars and spare parts. MSIL has always managed to get good sales on almost each of its launches because of the trust it enjoys of the common Indian consumer. However, it has been struggling to announce its presence in some segments such as luxury sedan and SUV.
The company wants to change its image of a small and medium size car maker by exploring other segments of the automobile market. Some launches have been excellent. For instance, Maruti Suzuki Ertiga, the company’s entry vehicle in the MUV segment. The car has done exceptionally well since its launch. In less than two quarters the car has clocked sales figures of 20,000 units already (Economic Times, August 2012). However, some of their launches have bombed out on the market such as the Grand Vitara and most recently the Maruti Suzuki Kizashi. THE KIZASHI DISASTER
The Maruti Suzuki Kizashi was launched in India in February 2011. The car was seen as MSIL’s attempt to come out of the ‘small car maker’ image. The car was sourced as a Completely Built Unit (CBU) by MSIL. It means that the car was made in Japan and imported in India as a ready unit. The car had already been launched in US and other developed markets. The car was pitted against the likes of Skoda Superb, Honda Accord, Volkswagen Passat and Toyota Camry. The Kizashi costs $25000 in US (INR 12-13 lakh) but when it lands in India the cost rises to INR 17-18 lakh (indianautosblog, July 2011).
The difference in the costs is due to import duties on CBUs in India. The import duty on CBUs in India is 110% whereas the duty on Completely Knocked Down (CKD) units is 40% (Economic Times, Mar 2011). It means that it is cheaper to import the engine and other parts individually and assemble the car in India. This is the strategy of other brands such as BMW, Audi, Mercedes and Volkswagen. The Kizashi as a product is perfect. Suzuki has brought in the perfect mix of engineering, style and features to ensure driving a Kizashi becomes a pleasure.
However, the company marketed the car as a class D vehicle or a luxury sedan. The advertisements show a chauffeur driven Kizashi and the media and press promotions marketed it as an executive class vehicle. For this classification the Kizashi comes at a very low price considering its competitor cars cost well above INR 20 lakh. Hence one may have concluded that the Kizashi should give its competitors a hard time. However, the sales figures since the launch tell a different story. The Maruti Suzuki India Limited website shows Kizashi’s September sales and a year on year (YoY) comparison.
Since the launch, the sales till September 2011 were 171 units. In 2012, the figure till September 2012 is merely 35 units. It means a decrease in sales by 79. 5% YoY. Why did the sales figures turn out to be so disappointing? According to me, the company failed to position the car in the right segment. The Indian consumer is very price conscious and hence an informed buyer. The price of Kizashi after import duties was lower than that of its competitors; something didn’t seem right about it. What if MSIL had assembled the car in India as a CKD?
The company would have been able to sell the car in INR 14-16 lakh. This would have positioned the car against competitors like Honda Civic, Chevrolet Cruze, Skoda Laura and Volkswagen Jetta. The Kizashi would have become an attractive buy in this case. However, this strategy would have demanded the company to invest into the body shop and assembly set-up for the car. Hence MSIL chose to play it safe and test the success of the car as a CBU first. The Kizashi failure has surely hampered MSIL’s image. Some might even have started questioning the company’s potential to enter into the premium segment.
However, I believe the product was excellent but the company strategy lacked conviction. In coming years if MSIL decides to invest in assembling the Kizashi in India, we might see a different outcome. But for now, the Maruti Suzuki Kizashi remains as one of the most unsuccessful launches in India. The cases of the BMW X1 and the Maruti Suzuki Kizashi were unique and there are some important lessons to be learned from the launches. Hence to conclude, here are some key success indicators and warnings of failure to consider before or while launching a product. SUCCESS INDICATORS
* Being a market segment pioneer is beneficial provided the product is launched with a definite vision to generate sales. The BMW X1 had the data from the launches in other developed and developing countries but India launch needed a vision * Pre-Launch market conditioning is essential to increase the excitement. The news of the X1 launch was out in the media months before the actual launch. Many people actually postponed their SUV buying plans to buy the X1. Many enthusiasts were ready to be on the waiting list after the car was flooded with bookings just to lay their hands on a BMW.
* Timing of the launch is absolutely crucial. Most of the automobile launches in India occur very close to the first quarter of the financial year (April-June). This is done with a view to gain immediate sales as buyers are keen to claim the maximum depreciation for the taxes for the following year. Sure enough, BMW X1 was launched in January. * Use the right combination of 7 Ps to provide the perfect marketing mix. For instance, the X1 did not need very aggressive promotion because it was strong in the rest of the essentials most prominently product and price. WARNINGS OF FAILURE
* The market might not be in ‘need’ of your product. The consumers did not need an overpriced D-segment car in India. Hence the Kizashi failed miserably. However, the Ertiga (MUV) launch as stated earlier was ‘needed’ by the market and is doing exceptionally well. * A major product launch cannot be done with lack of conviction. It is essential for the company to believe in the product. The Kizashi might well be declared by MSIL as a market testing attempt, but it has tarnished the company’s image and ability to venture into new market segments. MSIL experienced ‘the sales lag’ phenomenon.
* When a company is the segment leader, it should keep track of competitive threats. The BMW X1 launch was followed by the launches of Audi Q3 and recently Mercedes Benz B-Class. All these cars are equally good and drawing much attention. Sure enough BMW has announced a facelift model of the X1 in 2013. But the competitors will collectively take a chunk of the X1’s sales. Moreover, Audi is claiming to conquer the top spot in India by 2015. * Never overlook the information available to consumers for making preferences. MSIL underestimated the informed decision making of the Indian
consumer even when the company was launching their car in the premium segment. Indian consumers didn’t see any sense in paying more because the company was passing the cost of import duties directly to them. * Beware of competition from tie-ups or buy-outs between local companies and competitors. The German auto makers face stiff competition from Tata group acquired Jaguar Land Rover (JLR) in the luxury and SUV segment. JLR has started assembling the cars locally and competing strongly with the German companies by providing attractive price options. REFERENCES 1. Economic Times, Mar 2012 – http://articles.
economictimes. indiatimes. com/2012-03-25/news/31234294_1_luxury-car-audi-india-michael-perschke 2. Economic Times, August 2012 – http://articles. economictimes. indiatimes. com/2012-08-28/news/33450266_1_diesel-cars-petrol-and-diesel-diesel-engines 3. Business Today, Nov 2011 – http://businesstoday. intoday. in/story/bmw-x1-in-indian-market/1/19848. html 4. Financial Times, May 2012 – http://www. ft. com/intl/cms/s/0/743bd13c-7635-11e0-b4f7-00144feabdc0. html#axzz2AOVHiUq0 5. Forbes, April 2012 – http://www. forbes. com/companies/bmw-group/ 6. Maruti Suzuki Wiki – http://en. wikipedia. org/wiki/Maruti_Suzuki