Automobile industry- marketing mix
Content
CHAPTER I: INTRODUCTION
Hailed as ‘the industry of industries’ by Peter Drucker, the founding father of the
study of management, in 1946, the automobile industry had evolved continuously
with changing times from craft production in 1890s to mass production in 1910s to
lean production techniques in the 1970s. The prominent role played by the US till late
1990s had of late been cornered by the Japanese automakers. The global output from
the automobile industry touched 64.6 million vehicles in 2005, thereby retaining its
leadership in manufacturing activity, providing employment to one in seven people,
either directly or indirectly. This supply mainly catered to meet the demand from
households where the automobiles constituted the second largest expenditure item
next only to housing. Thus the global automobile industry dominated by Europe, US,
Japan, and of late by China and India, continued to have a significant influence on
economic development, international trade, foreign direct investment and
environmentfriendly practices.
The US automotive industry, the largest automobile manufacturer in the world,
witnessed the downward slide of the Big Three, viz., Ford Motor Company (Ford),
General Motors Corporation (GM) and DaimlerChrysler (DC) in market share
continuing unabated for the last 10 years. Toyota Motor Corporation (Toyota) seemed
all set to become the market leader by the end of 2006 (Ulrich, 2006). In the light of
rapidly rising healthcare costs and the heavy burden of legacy costs for retirees paid
by the Big Three as part of the settlement with the United Auto Workers, the Big
Three was losing out to Japanese and European automakers. Many strategic
interventions were initiated by the U.S automakers under the leadership of the Big
Three to trigger market growth. GM launched ‘Keep America Rolling’ campaign after
the 9/11 attacks with more emphasis on high incentives and low to zero interest rate
loans. Ford offered a free computer along with the purchase of Ford Focus vehicle.
An entrylevel passenger car was offered along with a high end Sport Utility Vehicle
(SUV). In 2004, the U.S automakers spent nearly US$ 60 billion in rebates and over
90% of the cars sold had some incentive. But Japanese players were also following
suit. In 2004, Toyota’s incentives reached a level of US$ 3100 per vehicle. Overall
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2006 marked the evolution of the New Six viz, Toyota, Honda, Nissan, GM, Ford and
DC, replacing the Big Three.
Japan accounted for 16.7% of the world automobile production in 2004. The Japanese
auto makers were the market leaders in the light vehicle market, selling 5.1 million
vehicles, an increase of 7% over 2003.
China, the fourth largest producer of motor vehicles, next to Germany was fast
emerging as the market of the future by providing cost effective export base for
meeting the demand from Asian markets. The presence of German automakers alone
in China had increased by 440% since 1990. China accounted for 3% of the total
international locations (722) of global auto makers in 1988. By 2004, this increased
to 7% of a total of 1959. Domestic manufacturers were the dominant players in
Chinese market. Despite government initiatives to control domestic demand by
tightening credit flow, the market boasted of sales of more than 2.7 million
commercial vehicles in 2004. The sales of passenger cars alone increased by 17%
over 2003 figures. With reports of highest growth in mobility in the world at 3% per
annum, further surge in demand was anticipated from Chinese market.
Riding on a wave of low interest rates and a booming economy , India made its mark
in the automobile sector in 2004, with sales figures exceeding more than 1 million in
the passenger car segment. Maruti Udyog was the market leader with a share of 51%,
followed by Hyundai Motor and Tata Motors. The sale of commercial vehicles
reached a total of 305,000 units; a record growth of 29% over 2003. Foreign auto
makers such as Mercedes Benz, Volkswagen Group, GM, Honda, Toyota, Ford, Fiat
and Mitsubishi were in the forefront of setting up their manufacturing units in India to
tap the growing demand.
In the environment front, the Kyoto Protocol, which came into force in February
2005, led to the emergence of a closed loop strategy encompassing production,
vehicle operation and recycling in the global automobile sector (VDA, 2005). Despite
fragmented views from different regions, automakers were in the forefront of
popularizing environmentfriendly initiatives.
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Genesis of the Automobile Industry
The genesis of the automobile industry dated back to 15th Century when the famous
Italian genius, Leonardo da Vinci suggested the possibilities for powerdriven
vehicles. Later in 17th Century, the famous English physicist Sir Isaac Newton
proposed the concept of a steam carriage which was brought to reality in the late 18 th
Century by French Army Captain Nicholas Joseph Cugnot. During the mid 1800s,
the attention had shifted to internalcombustion engines which were safer and easy to
operate than the steamdriven engines. The first successful version of the internal
combustion engine was built by JeanJoseph Etienne Lenoir in 185911. This model
was revised by a German shop clerk, Nikolaus August Otto in 1876 and hence came
to be known as the Otto engine. His compatriots Gottlieb Daimler and Karl Benz used
this model to build the first modern cars, which were launched in 1886. In the US,
George Baldwin Selden, made further improvements to the engine, by reducing its
weight thereby, making it compatible for light vehicles. The first automobile company
was founded in 1896 by Charles Edgar Duryea and his brother Frank and this
initiative paved the way for the emergence of an automobile industry.
The automobiles manufactured in the 1890s were called as ‘horseless carriages.’ This
marked the beginning of craft production as all the manufacturing was done by
craftsmen employed in metal and machine tool industries. Each car was tailormade to
suit the needs of wealthy customers. But this craftbased production structure
demanded skilled workers and resulted in very low production volume. By early 20 th
Century, the craftbased system was replaced by mass production techniques 12,
popularized by Henry Ford. In 191314, he upgraded the existing push and move
assembly line to a conveyor belt line, which reduced assembly time considerably. His
famous Model T was assembled in 93 minutes 13. The main advantage of mass
production technique over craftproduction was the ability to manufacture several
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products simultaneously rather than one at a time. The other features like inter
changeability of standard parts, standardized product design, and centralized
hierarchy of tasks helped to realize economies of scale. This increased labor
productivity by leaps and bounds but also brought about a reduction of skilled labors.
Each worker performed identical tasks using identical tools which were always kept
within handreach. It was found that the Ford assembler’s average task cycle declined
from 514 minutes in 1908 to 1.19 minutes with the introduction of moving assembly
line in 1913 (Sako, M). The enormous success of mass production resulted in the
global sector being dominated by the American car manufacturers. In 1955, North
America accounted for 75% of global motor vehicle production. The Big Three, Ford,
GM and Chrysler accounted for 95% of all American car sales.
In Europe, mass production was widely adopted in the 1950s through the initiatives of
Volkswagen, Renault and Fiat. But rather than production efficiency, the emphasis
was more on product differentiation and technical innovation (Sako, M). Their
product offerings included compact cars (VW Beetle), sporty cars (MG) and luxury
cars. Frontwheel drive, fuel injection, unitized bodies, and fivespeed transmissions
were some of their innovations in the technical front. Thus with focus on product
strategy, the European automobile industry contributed more than the US to the global
automobile production during 1960s and early 1970s.
Japanese automakers emerged as a force to reckon with in the global scenario with
the oil crisis in 1973, and subsequent price increases in 197914. The crisis had
resulted in a shift in consumer demand for energy efficient cars, a segment hitherto
dominated by the Japanese auto makers. By 1980s, the Japanese automakers were
benefited from the voluntary export restraints in the US and set up assembly plants
known as transplants within North America. Towards the latter half of 1990s Japanese
cars accounted for 40% of the total North American sales. In addition to cost savings
by way of cheap labor, they also initiated better manufacturing techniques such as the
Toyota Production System, developed by Taiichi Ohno in the 1960s and 1970s based
on lean production techniques in the 1980s.
Toyota Production System was built on two main principles namely, ‘JustInTimes’
production and ‘Jidoka.’ The underlying concept of the system was ‘Good Thinking
Mean Good Product.’ The approach helped to manage equipment, materials, and labor
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in the most efficient manner while ensuring a healthy and safe work environment.
JustInTime referred to the manufacturing and conveyance of only what is needed,
when it is needed, and in the manner needed. Jidoka referred to the ability to stop
production lines, by man or machine, in the event of problems such as equipment
malfunction, quality issues, or late work, thereby preventing the passing of defects,
helping to identify and correct problem areas using localization and isolation, building
quality to the production process.
Market Trends
Production Scenario
The global automobile industry, witnessing robust growth in the face of increased
global demand, produced around 263 million motor vehicles in 2013. The Asian
countries, mainly by Japan, China and India, registered a 9% increase in production
over last year, constituting 35.9% of the global production. In fact China and India
posted positive growth rate over 2012. With the opening up of EU markets, the share
of EU countries in global automobile production was expected to increase in the
coming years.
Industry Structure
In the automobile industry, transaction cost economics, and technology shifts
determined the structure (Sako, M). During the 1890s, craft production techniques led
to the formation of a horizontally disintegrated industry, completely devoid of
consolidation. Manufacturing units evolved in regions boasting of skilled labor. By
the middle of the 20th Century, automobile companies like Ford and GM brought
about consolidation in the industry. The companies themselves were vertically
integrated. The market was oligopolistic in nature. Huge production costs deterred
new firms from entering the market. GM emerged as the market leader, wielding high
influence over market prices. By 1920s, Ford perfected mass production techniques.
The company also took initiatives for a high degree of vertical integration by owning
its own steel mill and forging factory. Other players followed suit to achieve
substantial cost savings. The integration of Fisher Body by GM marked one such
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instance.
But contrary to the trend for vertical integration by the US automakers, Japanese
auto makers practiced ‘relational contracting (Sako, M).’ The practice of ‘JustIn
Time’ delivery as part of the lean production techniques gave rise to a healthy relation
between the assemblers and the suppliers of automobile components.
By 1980s the industry showed renewed signs of vertical disintegration. Chrysler
formed strategic tieups with suppliers for major components and in turn concentrated
only in designing, assembling and marketing. These initiatives helped Chrysler to
realize the highest average profit per vehicle amongst the Big Three. Ford and GM
started depending on Visteon and Delphi, respectively, for sourcing their components.
All the components of a car were outsourced to suppliers who offered lowest prices.
This increased the manufacturing capacity of the automakers and the industry was
soon saddled with overcapacity. In 1999, the global automobile industry had an
excess capacity of 20 million units.
To reap more profits, the automakers embarked on enhancing horizontal
concentration by forming alliances with global players. DC (DaimlerBenz, merged
with Chrysler of US in 1998 and became DC), a GermanUS merger entered into an
alliance with Mitsubishi to spread its operations over three continents. Ford purchased
Jaguar, Volvo and Mazda, and Renault’s equity stake in Nissan and Samsung for
wider reach. Thus the industry once again witnessed the emergence of oligopoly
market.
All the major players including the Big Three in the US, BMW, Volkswagen, Fiat and
other carmakers from Europe, Toyota, Nissan, Mitsubishi of Japan focused on
commercial exploitation of technological advancements with the aim of offering more
efficient automobiles to consumers. On one hand DC and BMW focused on luxury
vehicles while Fiat targeted diesel engines. The Japanese companies were striving for
better fuel efficiency and experimented with sleek and slender designs.
Towards the last quarter of the 20th century, globalization paved the way for
deregulation opening up the markets to foreign competition. The consumers stood to
gain with more variety to choose from at competitive prices. In order to stem the price
war most of the major companies from the US, Europe and Japan entered into
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alliances with companies from other regions of the world. In 1997, GM entered into a
5050 joint venture with Shanghai Automotive Industry Corporation (SAIC), a state
owned Chinese auto manufacturer to build a plant in China. In 1999, GM also
increased its equity in Japanese companies like Isuzu (raised its stake to 49%), Suzuki
(9.9% and later to 20%) and Fuji (20%). All these deals ran into multi billion dollars
and GM got access to advanced technologies owned by the Japanese companies. It
was widely opined that developing these technologies on its own would have cost GM
more money and time. GM’s alliance with SAIC helped it to gain access to the fast
growing Chinese market much before than any of its competitors.
In 2000, GM purchased a stake in Fiat with the option of buying the remaining shares
by 2007. But with falling fortunes, GM entered into a US$ 2 billion settlement to
cancel the deal in 2004. The only success story was the Renault/Nissan merger, with
both companies registering profits in 2004.
By 2005 mergers and acquisitions took a backseat in the automobile industry. DC
reduced its share in Mitsubishi from 37% to 14% by 2005. DC also divested its 10%
stake of Hyundai. DC was the only one among the Big Three registering increased
sales in the US market in 2005.
“The Big Three used to control 90 percent of the North American market.
Globalization has created eight nearequal competitors fighting for market share three
companies used to control.”
Dennis DesRosiers, President, DesRosiers Automotive Consultants Inc.
As for the MercedesBenz merger, the Mercedes section was reporting quality issues
resulting in customer complaints. Towards the end of 2005, consolidation activities
had brought GM’s effective share in the US market to 29.3%, Ford’s share to 21%
and DC’s to 14.3%.
Market Share of Leading Automakers in US
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Source: CSM Worldwide, McLaughlin, 2006.
Product Offerings
With increasing consumer awareness about the negative impact of automobile
emissions, automanufacturers were readily going for technological improvements,
thereby launching new products. These innovations were broadly classified under
engine modifications and improved transmissions.
Based on technological innovations, automanufacturers were offering a wide range
of products for consumers. A shift in consumer preference in favor of fueleffective
light trucks in comparison to passenger cars was noticed from 2001 onwards in the
US. Of late the demand was more for ‘crossover’ vehicles, which combined the best
features of passenger cars and SUVs. The foreign players in the US market first
offered these in 1997. Honda’s CRV, Mercedes’ MClass, Subaru’s Forester, and
Toyota’s RAV4 were some examples. Ford Escape, Pontiac Vibe, DC PT Cruiser,
Volvo Cross Country, and Subaru Baja soon followed this.
The sales figures of ‘crossover’ vehicles posted significant growth. From a meager
tally of 195,000 units in 2000, it had increased to 1.9 million units in 2004,
constituting 12% of total passenger vehicle sales.
Hybrid Electric Vehicles
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‘Green vehicles’ constituted another product range witnessing growing demand.
These vehicles offered lower emissions and better fuel economy. GM’s allbattery
EV1 and Honda’s EV Plus were the initial offerings in this category, which appeared
in the market in 1997. But even after concerted efforts only 1400 units could be sold
in the next five years. Studies proved that consumers were ready for environment
friendly vehicles as long as they were comfortable with operating economy, comfort,
performance, and price, especially in the light of government regulations like the
CAFÉ standards. Alternative fuel vehicles, which came under the category of ‘green
vehicles,’ also showed immense potential for future growth. As of 2005, more than 3
million alternative fuel vehicles were plying the road. The main challenge was in
developing adequate infrastructure to provide alternative fuels such as biofuel,
natural gas, and propane. VW GofTDi, Ford Taurua, Dodge Ram 1500 truck, Dodge
Stratus, Chrysler Setring, GM Sierra Chevrolet Tahoe, GMC Yukon, Chevrolet
Silverado, and Chevrolet Cavalier were some examples for vehicles plying on
alternative fuels.
These market situations paved the way for hybrid vehicles (Appendix 3). Japan was
the pioneer in developing a gas electric hybrid. The resulting product named Toyota
Prius was launched in 1997 in Japan. While US automakers were focusing on
hydrogen fuel cell engines, Japanese automakers prepared to enter the US market.
Honda Insight was the first hybrid launched in the US. This was on December 1999
and was priced at US$ 19570. But due to small power backup the product failed to
catch up in the market. Honda also launched a remodeled version of Honda Insight,
namely Honda Civic in 2002. By 2003, nearly 2000 units of Honda Civic were being
sold per month. In 2004, Honda launched the first hybrid with a V6 engine, viz,
Accord sedan, and a fuel economy of 37 mpg in highway and 29 mpg in city. By
December 2004, Honda hybrid sales jumped to a total of 74, 608 units.
Toyota also made significant gains from hybrid sales. In 2000, Toyota Prius, priced at
US$ 19995 entered the US market. The product had a fuel economy of 55 mpg and
recorded sales totaling 20, 000 units in 2002. A higher version was launched in 2003
which sold 25, 000 units. In 2004, there was an increase of 119 percent in the sales
figures (54, 000 units).
Ford and GM also entered the hybrid scenario by 2004, but had lost the headstart to
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Japanese automakers. DC on the meantime concentrated on clean diesel technology
and came up with Dodge Ram pick up truck in 2004. Advanced engine and emission
control strategies and use of ultralow sulfur fuel contributed to making the diesel a
clean fuel. Ford Mondeao TDCi, BMW 530d and 740d sedan, Liberty jeep, Mercedes
E320 CDi, Volkswagen Passat TDi, AudiA8 TDi,Chevrolet Duramax, Ford Focus
TDCi
CHAPTER II: MARKETING MIX
A Marketing mix is the division of groups to make a particular product by pricing,
product, branding, place, and quality. Although some Day1 marketers have added
other P's, such as personnel, packaging and physical evidence, the fundamentals of
marketing typically identifies the four P's of the marketing mix as referring to:
"Marketing Mix" is set of correlated tools that work together to achieve company's
objectives, they are: product, price, promotion, place.
The set of controllable tactical marketing tools, product, price,place and promotion
that the firm blends to produce the response it wants in the target market:
Product A tangible object or an intangible service that is mass produced or
manufactured on a large scale with a specific volume of units. Intangible
products are often service based like the tourism industry & the hotel industry.
Typical examples of a mass produced tangible object are the motor car and the
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disposable razor. A less obvious but ubiquitous mass produced service is a
computer operating system.
Price – The price is the amount a customer pays for the product. It is
determined by a number of factors including market share, competition,
material costs, product identity and the customer's perceived value of the
product. The business may increase or decrease the price of product if other
stores have the same product.
Place – Place represents the location where a product can be purchased. It is
often referred to as the distribution channel. It can include any physical store
as well as virtual stores on the Internet.
Promotion – Promotion represents all of the communications that a marketer
may use in the marketplace. Promotion has four distinct elements
advertising, public relations, word of mouth and point of sale. A certain
amount of crossover occurs when promotion uses the four principal elements
together, which is common in film promotion. Advertising covers any
communication that is paid for, from television and cinema commercials, radio
and Internet adverts through print media and billboards. One of the most
notable means of promotion today is the Promotional Product, as in useful
items distributed to targeted audiences with no obligation attached. This
category has grown each year for the past decade while most other forms have
suffered. It is the only form of advertising that targets all five senses and has
the recipient thanking the giver. Public relations are where the communication
is not directly paid for and includes press releases, sponsorship deals,
exhibitions, conferences, seminars or trade fairs and events. Word of mouth is
any apparently informal communication about the product by ordinary
individuals, satisfied customers or people specifically engaged to create word
of mouth momentum. Sales staff often plays an important role in word of
mouth and Public Relations
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PRODUCT
MARUTI SWIFT
Europe, Algeria, Egypt and Indonesia.
European Styling. Japanese Engineering. DreamLike Handling.
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The new Swift is a generation different from Suzuki design. Styled with a clear sense
of muscularity, its oneandahalf box, aggressive form makes for a look of stability, a
sense that it is packed with energy and ready to deliver a dynamic
drive. Its solid look is complemented by an equally rooted road presence and class
defining ride quality. New chassis systems allow for the front suspension lower arms,
steering, gear box and rear engine mounting to be attached to a suspension frame. You
get lower road noise, and a greater feeling of stability as you sail over our roads with
feathertouch ease.
TATA INDICA
US, Europe and South East Asia.
Though a late entrant, the Indica quickly established itself as the benchmark for the
segment. By offering exciting features, the car changed the rules of the category in
Space, Power, Style, Safety and Economy for international market. The Indica
ensured a pleasant ride and handling experience as it had features like wide large
tyres, generous leg room and independent front and rear suspension. It developed a
new segment of diesel small cars along with its petrol offering. The luggage space
was also the best in its class.
The rigid 980 kgs steel body of the car was rigorously tested at India's first and only
crash test facility. A collapsible steering wheel, impact absorbing bumpers, anti
submarine seats, crumple zones and side impact beams are just a few of the features
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that make the Indica one of the safest cars on the roads today. Savings are ensured
with the fuelefficient 1.4L diesel engine, while the 1.4L petrol engine is optimized
for performance.
Indica features for international market:
Collapsible steering column
Sideimpact beam
Energyabsorbing crumple zones in the front
Antisubmarine seats
Childsafety locks on rear doors
Laminated front and rear windshield glass
SCORPIO
Europe, India and USA.
Rational benefits: World class vehicle, good looks, car like comfort, great value
Emotional benefits: Ownership experience of thrill, excitement and power
Relational benefits: Young modern, premium, city companion / extension of lifestyle.
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PACKAGING
Since product is a car, packaging might not be of much importance. Cars usually
don’t come in a box. However, since Santro is made for students and older, they have
decided to make a big box, free of all charges, if the car is a gift for someone’s
birthday. Santro is a good choice as a “first” car; parents can easily buy it as a gift for
their young teenagers/students.
LABELING
No labelling, however for curious users, there will be a small brochure about the
“ingredients” car parts, so they can see how exactly the car works, and what and
where the different parts are from.
PRODUCT SUPPORT SERVICES
As for product support services, there are 3 things to know: Assess the value of
current services and obtain ideas for new services. Assess the cost of providing the
extra services and putting together a package of services that delights the customers
and yields profits for the company. All these, are already applied to Santro if we look
at Augmented Product, which I wrote about earlier. Customers would be delighted
about those extra services, and might tell friends about them and in the end make
more profit for the company.
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PRICE
MARUTI SWIFT
After launching cars for the masses since so many years, India’s largest automobile
manufacturer is now targeting the premium segment with their latest model from the
Suzuki’s stable. Pricing of this premium hatchback is start from Rs.4 lakh. This price
range would practically rip apart Hyundai’s offering in Getz, which is priced at a
much higher tag of Rs. 4.5 lakh. Both the companies are known for their value based
offerings and Maruti with their extensive service network and brand reputation for
making reliable cars should get the customer’s nod over their competition. The cost of
Swift in Europe is starting from 1.2 Manual 13,590 €.
TATA INDICA
Tata Motors adopted a competitive pricing strategy for Indica in the global market.
Prices were fixed on the basis of the norms prevailing in the international market.
Also the prices offered by their competitors like Toyota, Ford, Fiat, were kept in mind
while deciding the prices. In india it costed around 34L.
SCORPIO
Pricing Strategy: to be a premium brand yet
having universal appeal .Scorpio was to compete with the midsize cars like Hyundai
Accent, Ford Ikon, Opel Corsa, Maruti Suzuki Esteem on the one side and UVs like
Toyota Quails, Tata Safari and the Tata Sumo on the other. Scorpio adopted the
penetrative pricing strategy positioned in the psychological price barrier of Rs. 5 7
Lakhs. In Europe, it costed around 15,590 €. In Japan, it costed around 14,300 €.
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PROMOTION
MARUTI SWIFT
When Maruti Udyog launched the Swift, the automotive industry was agog with
expectation that the car had the makings of a real winner. Three versions were
launched with the base variant carrying a retail tag of Rs 3.85 lakh, exshowroom,
New Delhi, and this aggressive pricing only reinforced this feeling.
Event Organized By Maruti to Promote Swift
Fever FM and Maruti Suzuki Swift organize a Night
Rally for Delhiites
In a cooperative marketing initiative, Fever FM and
Maruti Suzuki Swift came together to organize a Night
Rally in Delhi. The Swift Night Life Rally was organized for the Swift Life Club. The
brand tied up with the station to extend the experience to the people who were unable
to participate in the activity.
HONDA
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At 8:10pm on May 30th last year,
Channel 4 aired the first 'live
advert' in British television history.
It was an advert for Honda and it
filled an entire ad break. TV cut
live to an aeroplane flying
somewhere Spain with 15
skydivers inside waiting for the signal. They had a camera on another plane flying
alongside and one of the skydivers had a camera strapped on, so then someone cut
between them live. After Come Dine With Me got to it's first ad break they jumped.
As they fell towards the ground from 10,000 feet up they steered themselves into the
letters H O N D and A before pulling for their parachutes and drifting to the ground.
HYUNDAI
The UAE's firstever Motor Souq event brought together car enthusiasts with some of
the latest models from Mitsubishi, Nissan and Hyundai that have yet to hit the market.
Interested customers connect directly with representatives from auto companies.
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Print Ads
Daily advertisements in leading newspapers and
magazines are used to promote the product.
Leaflets at the initial stage are distributed at
railway stations, malls, college areas and various
other locations.
Workshops and Seminars
Workshops and seminars are held in colleges and big corporate to make people aware
about the companies past performance and product features, its affordability and
usage, vast distribution network.
Banners, neon signs
Hoardings, banners, neon signs are displayed at clubs,
discs, outside theatres, highways and shops to promote its
brand car.
Booklets and pamphlets
Booklets are kept at car showrooms, retail battery outlets, etc for the customer to read.
These booklets provide information about its company; the products offered which
suits the customers need accordingly.
TOYOTA COROLLA
The Promotion for Toyota Corolla consists of a blend of activities making its
Promotion Mix. Its Promotion Mix consists of almost all the possible techniques of
Promotion used for any other product. Some of the major elements of Promotion Mix
of Toyota Corolla are listed as under:
Advertising
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It uses many different techniques of
Advertisement as a part of its Advertising
Strategy.
Most of the Print Ads of Toyota Corolla are
individually targeted at one of these factors such
as Comfort, Performance, Styling, Power, Leg
Room, Design, and Driving Pleasure. One most
common feature of almost all the Ads is that in every Advertisement, the fact that it is
the World’s Largest Selling Car and its presence across 160 countries is present. This
is done to because the company wants to differentiate the product in terms of its
Reliability that it is an entrusted brand of 30 Million people across the globe. The fact
that it is present in 160 countries proves that it is a Global Car.
There are 3 TV Commercials of this Car in India. The Commercials show that this
Car is targeted mainly at the Indian youth and young Executive. It has been positioned
as a little sportier which is the main reason that it is for young people and is also like
by them too.
GENERAL ATTACK STRATEGY
FRONTAL ATTACK: the attacker matches its opponent’s product, advertising, price
and distribution.
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In this advertisement BMW is using frontal attack strategy against its biggest
competitor AUDI
AUDI is replying the BMW advertisement
Along with AUDI and BMW, SUBARU and BENTLEY are using frontal attack
strategy against each other’s products.
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The Brochures, Posters/Leaflets are such designed that shows that Corolla is a car for
people who demand Performance, Style, Power and Sheer Driving Pleasure. The car
being a perfect combination of these factors makes it a huge success across its
segment.
The Other Sources of Advertisement include Bill Boards, Display Signs, POP,
Displays, Symbol/Logo. The company does the Advertising of Corolla by displaying
Bill Boards and Display Signs at various target places where it feels that prospective
buyer will come across it. At the showroom also, there are huge amount of Point Of
Purchase Displays and also Symbols/Logo which add to it.
One of the major sources of Sales Promotion is Trade Fairs like AUTO EXPO,
MOTOR SHOW etc. The company used to take part in these types of fairs and used it
for its Sales Promotion. But now the trend is shifting because the company thinks that
if they want to launch a product on a National
Level, then there is no need for such kind of
shows as now there are various other powerful
sources of media available to them. Moreover
the cost spent on these kinds of fairs was not
justified. So therefore the company is now keeping away from fairs. In 1999 Toyota
last time participant at the RAC rally in Britain.
Some other Sales Promotion technique used by the company is the Festival Season
Offers it introduces in the market at the time of Diwali, New Year, Christmas,
Navratri etc to boost short term sales.
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PERSONAL SELLING
Personal Selling largely takes place at the Dealers’ End. The way the customer is
attended depends mainly on the Dealer as he acts as an interface between the
company and the Consumer.
The various cases in which Personal Selling takes place is Individual Sales, Corporate
Sales, Sales Presentations, Fair and trade Shows. Mostly in case of Individual Sales
the Customer goes to the showroom and takes a look at the product. There he is
attended to by the Sales Personnel of the Dealership. Sometimes the Senior Sales
Executive has to make Sales Presentation to Corporate Buyers. Personal Selling is
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also practiced at Trade Fairs and Auto Shows wherein the Company appointed Sales
Personnel attend prospective customers and also book their orders.
DIRECT MARKETING
In the case of Direct Marketing the Company Officials directly contact the
Prospective buyers with the information available through various sources. For
example in case of Road Shows, Trade Fairs, Auto shows etc. Sometimes the existing
customers also provide references of prospective buyers such as their friends or
relatives.
TATA INDICA
‘More car per car’ is the
famous tagline
of this product. The Indica’s
positioning has
remained consistent with the
brand's offering
in an increasingly competitive market. The Indica is now synonymous with the word
‘More, by encapsulating the inherent product strengths and marrying them with the
customer trait of desiring ‘More’. A promotion strategy for Indica v2 in international
market is more or less same as that
of the Indian market. Media innovations
have been a key to the success of the
Indica.
Tata at 29th Bangkok
International Motor Show 2008
The positioning was strengthened with the
successful launch of the Indica V2, which
assumed the leadership position in the year
of its launch.
24
The Indica v2 was launched in the
international market only through the press
medium, with three diesel versions and a
petrol version, and this campaign shattered
many automobile advertising myths. The
car was launched without any television
advertising, but through highimpact
newspaper ads, dominating the medium
and delivering the desired impact. Headlines such as ‘You’ll never have to suffer a
small car again’ assisted customers in distinguishing between their old choices and the
Indica. This, in effect, placed the Indica on the pedestal of leadership, set to change
the rules of the game.
A recent campaign for the Indica V2 has helped in building the product on the rational
platform and adds an emotional layer. Anchored on the insight ‘It’s only human to
want more’, the campaign revolves around interesting candid moments in the daily
lives of normal everyday people who desire more; be it a boy wanting the other boy’s
bigger lollipop, or a baby crying when her parents stop driving her around in the
Indica V2. The latest campaign moves to the ‘Even more car per car’ positioning.
PLACE
MARUTI SWIFT
25
The car manufacturing company, called Maruti Suzuki Automobiles India Limited, is
a joint venture between Maruti Udyog and Suzuki Motor Corporation holding a 70
per cent and 30 per cent stake respectively.
The Rs1, 524.2 crore plant has a capacity to roll out 1 lakh cars per year with a
capacity to scale up to 2.5 lakh units per annum. The car manufacturing plant will
begin commercial production by the end of 2006.
The engine and the transmission plant has owned by Suzuki Power train India Limited
in which Suzuki Motor Corporation would hold 51 per cent stake and Maruti Udyog
holding the balance. The ultimate total plant capacity is three lakh diesel engines.
However, the initial production is 1lakh diesel engines, 20,000 petrol engines and 1.4
lakh transmission assemblies.
TATA INDICA
Tata automobile group have a very large distribution network all over the world. Tata
Indica v2 is exported and assembled in many countries. South Africa has an
assembling unit for consumer vehicles. Other places where the company’s products
(Tata Indica) are exported and in some assembled also are mentioned below:
Africa : Algeria , Angola , Ethiopia , Ghana , Kenya , Mauritius , Sudan ,
Uganda , South Africa , Senegal etc.
Europe: Greece, Hungary, Italy, Malta, Portugal, Spain,
Switzerland, UK and Ireland.
CIS: Belarus, Russia, Ukraine.
Asia: Bangladesh, Malaysia, SriLanka, Nepal, Bhutan.
Australia continent
PEOPLE
26
There are various types of people in any Organization. The various types of people in
case of Toyota can be classified as Customers, Sales Executives, Society,
Government, Competitors, and Media.
The most important out of these is our Customers. A customer can be any person who
purchases the product; he may or may not use that product for himself. A consumer is
one who actually uses the product himself. For example a father purchases Corolla for
his son. In this case the father will be the Customer and son will be the Consumer.
The main people involved in the purchase decision of the car are the Family
Members. In a recent study conducted, it was found out that these days children play a
major role in deciding which car to buy for the family. The company has to seriously
take into consideration all these factors. Also the factors that whether one uses the car
for travelling, office, shopping or family/personal etc.
As this car falls into a segment where price range is between 911 Lacs, so the
company has to target those people who not only have the ability to spend that much
amount of money but are also willing to spend that much amount of money. Data
regarding the purchasing power of different classes of people is also very necessary.
Customers’ tastes and preferences have to be taken into consideration.
Next comes the Sales Executives who deal with the final customers and finish the
sales call. The Sales Executives play a major role. As the people of the organization
they are a window through which the customers interact with the company. They have
to be trained properly through customized modules designed especially for them
taking into consideration the various factors.
PHYSICAL EVIDENCE
27
Displaying physically the product creates the Physical Evidence. Along with that
creating an atmosphere for the customers where in they feel the presence of product.
Toyota creates a powerful physical evidence for its customers through its Showrooms,
Hoardings, Logo etc. All the showrooms are designed on a common platform. The
interiors of all the showrooms across India are the same. A team of Professionals in
this field creates the designs for the same. The designs are prepared very carefully
keeping into consideration various factors such as customers’ tastes and preferences,
likes and dislikes etc. You will always find a Toyota showroom having the Toyota
Bill Board outside with white base and red foreground. This creates a physical
presence and people can feel the product.
SHOWROOM INTERIOR AND EXTERIOR
28
PROCESS
The various processes involved in getting available the product from the manufacturer
to the end consumer are to be efficiently performed by the company. The processes
start when the customer is contacted by the Sales Personnel of the Dealership or the
customer contacts the Dealership if he is interested to buy a Corolla. The data
regarding the various customers can be had from various sources of data available
through different agencies which specialize in providing data. After the call is made,
an appointment is fixed. The Sales Executive prepares for the meet. He collects all the
possible information which would be needed for the meeting i.e. data about the
customer, details about the car, maximum permissible discount structure, finance
options, delivery terms, free accessories which will be provided to the customer.
The sales personnel will find out that what is the present vehicle used by the
customer, his present buying power, satisfaction level, seriousness in buying etc.
Along with that he will also find out his exact needs, desired level of satisfaction,
lifestyle patterns etc. Sales personnel also ask certain questions through which he
comes to know about the various factors he wants to know. He asks both open as well
as closed ended questions. With the help of these questions, he can come to know the
various reasons due to which he is buying that car. These can be Performance, Safety,
Comfort, Driving Pleasure, Appearance etc.
These processes either lead to completion of sales call or sometimes unfortunately
leads to unsuccessful sales call which could not be competed.
29
CHAPTER III: PORTER’S FIVE FORCES AND SWOT
ANALYSIS
Porter’s Five Forces
Globalization had indeed left its impact on the automobile industry. Now foreign auto
dealers were facing lesser restrictions to operate in overseas markets. Michael E.
Porter in his book “Techniques for analyzing industries and competitors” dealt with
five competitive forces that shaped all industries. This helped to analyze the intensity
of competition which had an impact on the profitability of an industry.
The US automobile industry was considered as a force to reckon with from the days
of craft production and hence would serve as a standard use case to identify Porter’s
five forces. With low level of entry barriers, the Big was facing increasing
competition from foreign players like Toyota and Honda.
The relationship among Porter’s five forces in the US automobile industry, detailed
below clearly proved its’ competitive nature.
1. Threat of New Entrants
The existing loyalty to major brands, incentives for using a particular buyer,
higher fixed costs, scarcity of resources, high costs of switching companies, and
government regulations constituted the barriers to entry which in turn reduced the
competition in an industry. The success of foreign car manufacturers like the
Honda Motor Co. had disproved the general belief that the Big Three were
invincible. The only factors expected to retard the growing significance of foreign
auto dealers were the loyalty to American made vehicles and the aftersale
services offered.
2. Power of Suppliers
The presence of very few suppliers of a particular product, and the absence of any
30
substitutes for the product supplied reflected the pressure exerted by the supplier.
Sometimes the product was extremely important to the automaker and the
alternatives proved to be very costly. In such cases the suppliers were in a better
position to dictate terms. A lot of suppliers depended on automakers to buy their
products. But if the automaker decided to change suppliers it would badly affect
the supplier’s role in auto manufacturing.
3. Power of Buyers
Small number of buyers, purchases of large volumes, prevalence of alternative
options, and price sensitive customers were some of the factors that determined
the extent of influence of the buyers in any industry. American consumers were
driven towards foreign cars mainly because most of the automakers sourced their
key autoparts from different suppliers. But this raised doubts on the reliability of
the vehicle itself.
4. Availability of Substitutes
If substitutes were available offering similar services, the likelihood of buyers
switching over to another competitor depended mainly on the cost. The cost of the
automobiles along with their operating costs was driving customers to look for
alternative transportation options. The rising gasoline price was bound to
influence the buyers.
5. Competitive Rivalry
The presence of many players of about the same size, little differentiation between
competitors, and a very mature industry with very little growth was the features of
a highly competitive industry. Higher the competition in the industry lower would
be the profit margin. To remain ahead in competition, automakers were tempted
to offer value added services to the customers incurring more costs. Easy finance
options and long term warranties were offered to lure the customers. But these
measures cut into the profit margins.
31
Thus the US automobile industry in the face of global competition from foreign firms
was offering better deals to cater to diverse needs of customers.
SWOT Analysis
An analysis of the fortunes of Ford, a global leader in the automotive industry based
in Michigan, wielding significant influence since the inception of global automobile
industry, would serve as a classic example to diagnose the strengths, weaknesses,
opportunities and threats existing for automakers.
Strengths
• Ford owned a vast array of brand names, which had world wide recognition and
respect. Ford, Lincoln, Mercury, Mazda, Volvo, Jaguar, LandRover, Aston Martin
were the famous vehicle brand names owned by the company. Ford Credit, Genuine
Parts & Service and Motorcraft were its’ automotive service brands.
• Huge size of the business operations allowed Ford to reap the benefits of economies
of scale. As of 2005, Ford’s distribution network spread over 200 markets across six
continents, supported by an employee base totaling 300,000 and 108 plants
worldwide.
• Business diversification initiatives of past decades helped Ford to focus on financing
sector in addition to manufacturing, with the help of its subsidiaries. Most of the
vehicles sold to dealers and distributors were financed by Ford Credit at wholesale
rate. The diverse product line was another positive outcome of business
diversification. As of 2005, Ford was the second biggest player in US with a total
market share of 18.2%. In Europe, the market share stood at 10.8%.
Weakness
Ford’s large size could pose serious impediment to its efforts to adjust to the
dynamics of global automobile market. Unlike its Japanese counterparts, Ford had to
ride on heavy incentives to boost sales of models, which failed to catch the attention
32
of consumers. Financial constraints prevented Ford from channeling investments
towards the manufacture of new models. Failure to control plant capacity also cut
down the profit margin.
Opportunities
The opening up of Asian markets, wherein lied the potential for growth in commercial
vehicle sales, offered a big opportunity to Ford in the near future. The big size and
extended global reach, which some identified as a weakness, was helping Ford to
become a major player in these markets. Meanwhile in the US, consumers in the
higher income category were expected to spend more on highend models more
frequently. The growing trend in energy prices23 was paving the way for a huge
market for full and medium sized SUVs and hybrid vehicles with better fuel economy.
Despite losing the first mover advantage to Japanese automakers, Ford was making
headway in this growing market. And in order to leverage on its brand image, efforts
were on to differentiate brand identities to the potential consumers. By this initiative,
Ford was trying to cut down its incentives. To check capacity issues, Ford made plans
to close 10 plants and 30,000 jobs by 2008. Its ultimate aim was to boost capacity
utilization to 95% from the current level of 72%.
Threats
The main threat to Ford’s market dominance came from Japanese automakers,
particularly Toyota, whose products were of high quality. Ford was losing out
customers, who went for higher quality vehicles from Japanese automakers, despite
absence of incentives. The negative ratings given by most of the credit rating agencies
in 2005 also demanded attention as the decision reflected concerns over Ford’s cash
flow and profitability, declining market share, excess industry capacity, industry
pricing pressure and rising health care costs.
33
CHAPTER IV: CONCLUSION
The US automotive industry, the largest automobile manufacturer in the world,
witnessed the downward slide of the Big Three, viz., Ford Motor Company (Ford),
General Motors Corporation (GM) and DaimlerChrysler (DC) in market share
continuing unabated for the last 10 years. Toyota Motor Corporation (Toyota) became
the market leader by the end of 2006. In the light of rapidly rising healthcare costs and
the heavy burden of legacy costs for retirees paid by the Big Three as part of the
settlement with the United Auto Workers, the Big Three was losing out to Japanese
and European automakers. Many strategic interventions were initiated by the U.S
automakers under the leadership of the Big Three to trigger market growth.
India’s expedition to become a global auto-manufacturing hub could be seriously
challenged by its inability to uphold its low-cost production base. A survey conducted
by the research, KPMG firm reveals that the Indian auto component manufacturers
are increasingly becoming skeptical about sustaining the low-cost base as overheads
including labour costs and complex tax regime are constantly rising.
Indian auto businesses will only flourish if they boost investments in automation. In
the longer term, cost advantage will only be retained if Indian capital can be used to
develop low-cost automation in manufacturing. This is the way to preserve our low
cost.
Global auto majors are also cynical about India’s low cost manufacturing base. India
taxation remains a big disadvantage. This is not about tax rates it is just about
34
unnecessary complexity. But some companies also believe there is scope for reducing
the cost of doing business.
BIBLOGRAPHY
TOYOTA OFFICIAL SITE
MARUTI OFFICIAL SITE
TATA OFFICIAL SITE
HYUNDAI OFFICIAL SITE
AUTO INDIA MAGAZINE
AUTODRIVE MAGAZINE
BBC NEWS SITE
INSIDETIME.COM
35
Hailed as ‘the industry of industries’ by Peter Drucker, the founding father of the
study of management, in 1946, the automobile industry had evolved continuously
with changing times from craft production in 1890s to mass production in 1910s to
lean production techniques in the 1970s. The prominent role played by the US till late
1990s had of late been cornered by the Japanese automakers. The global output from
the automobile industry touched 64.6 million vehicles in 2005, thereby retaining its
leadership in manufacturing activity, providing employment to one in seven people,
either directly or indirectly. This supply mainly catered to meet the demand from
households where the automobiles constituted the second largest expenditure item
next only to housing. Thus the global automobile industry dominated by Europe, US,
Japan, and of late by China and India, continued to have a significant influence on
economic development, international trade, foreign direct investment and
environmentfriendly practices.
The US automotive industry, the largest automobile manufacturer in the world,
witnessed the downward slide of the Big Three, viz., Ford Motor Company (Ford),
General Motors Corporation (GM) and DaimlerChrysler (DC) in market share
continuing unabated for the last 10 years. Toyota Motor Corporation (Toyota) seemed
all set to become the market leader by the end of 2006 (Ulrich, 2006). In the light of
rapidly rising healthcare costs and the heavy burden of legacy costs for retirees paid
by the Big Three as part of the settlement with the United Auto Workers, the Big
Three was losing out to Japanese and European automakers. Many strategic
interventions were initiated by the U.S automakers under the leadership of the Big
Three to trigger market growth. GM launched ‘Keep America Rolling’ campaign after
the 9/11 attacks with more emphasis on high incentives and low to zero interest rate
loans. Ford offered a free computer along with the purchase of Ford Focus vehicle.
An entrylevel passenger car was offered along with a high end Sport Utility Vehicle
(SUV). In 2004, the U.S automakers spent nearly US$ 60 billion in rebates and over
90% of the cars sold had some incentive. But Japanese players were also following
suit. In 2004, Toyota’s incentives reached a level of US$ 3100 per vehicle. Overall
1
2006 marked the evolution of the New Six viz, Toyota, Honda, Nissan, GM, Ford and
DC, replacing the Big Three.
Japan accounted for 16.7% of the world automobile production in 2004. The Japanese
auto makers were the market leaders in the light vehicle market, selling 5.1 million
vehicles, an increase of 7% over 2003.
China, the fourth largest producer of motor vehicles, next to Germany was fast
emerging as the market of the future by providing cost effective export base for
meeting the demand from Asian markets. The presence of German automakers alone
in China had increased by 440% since 1990. China accounted for 3% of the total
international locations (722) of global auto makers in 1988. By 2004, this increased
to 7% of a total of 1959. Domestic manufacturers were the dominant players in
Chinese market. Despite government initiatives to control domestic demand by
tightening credit flow, the market boasted of sales of more than 2.7 million
commercial vehicles in 2004. The sales of passenger cars alone increased by 17%
over 2003 figures. With reports of highest growth in mobility in the world at 3% per
annum, further surge in demand was anticipated from Chinese market.
Riding on a wave of low interest rates and a booming economy , India made its mark
in the automobile sector in 2004, with sales figures exceeding more than 1 million in
the passenger car segment. Maruti Udyog was the market leader with a share of 51%,
followed by Hyundai Motor and Tata Motors. The sale of commercial vehicles
reached a total of 305,000 units; a record growth of 29% over 2003. Foreign auto
makers such as Mercedes Benz, Volkswagen Group, GM, Honda, Toyota, Ford, Fiat
and Mitsubishi were in the forefront of setting up their manufacturing units in India to
tap the growing demand.
In the environment front, the Kyoto Protocol, which came into force in February
2005, led to the emergence of a closed loop strategy encompassing production,
vehicle operation and recycling in the global automobile sector (VDA, 2005). Despite
fragmented views from different regions, automakers were in the forefront of
popularizing environmentfriendly initiatives.
2
Genesis of the Automobile Industry
The genesis of the automobile industry dated back to 15th Century when the famous
Italian genius, Leonardo da Vinci suggested the possibilities for powerdriven
vehicles. Later in 17th Century, the famous English physicist Sir Isaac Newton
proposed the concept of a steam carriage which was brought to reality in the late 18 th
Century by French Army Captain Nicholas Joseph Cugnot. During the mid 1800s,
the attention had shifted to internalcombustion engines which were safer and easy to
operate than the steamdriven engines. The first successful version of the internal
combustion engine was built by JeanJoseph Etienne Lenoir in 185911. This model
was revised by a German shop clerk, Nikolaus August Otto in 1876 and hence came
to be known as the Otto engine. His compatriots Gottlieb Daimler and Karl Benz used
this model to build the first modern cars, which were launched in 1886. In the US,
George Baldwin Selden, made further improvements to the engine, by reducing its
weight thereby, making it compatible for light vehicles. The first automobile company
was founded in 1896 by Charles Edgar Duryea and his brother Frank and this
initiative paved the way for the emergence of an automobile industry.
The automobiles manufactured in the 1890s were called as ‘horseless carriages.’ This
marked the beginning of craft production as all the manufacturing was done by
craftsmen employed in metal and machine tool industries. Each car was tailormade to
suit the needs of wealthy customers. But this craftbased production structure
demanded skilled workers and resulted in very low production volume. By early 20 th
Century, the craftbased system was replaced by mass production techniques 12,
popularized by Henry Ford. In 191314, he upgraded the existing push and move
assembly line to a conveyor belt line, which reduced assembly time considerably. His
famous Model T was assembled in 93 minutes 13. The main advantage of mass
production technique over craftproduction was the ability to manufacture several
3
products simultaneously rather than one at a time. The other features like inter
changeability of standard parts, standardized product design, and centralized
hierarchy of tasks helped to realize economies of scale. This increased labor
productivity by leaps and bounds but also brought about a reduction of skilled labors.
Each worker performed identical tasks using identical tools which were always kept
within handreach. It was found that the Ford assembler’s average task cycle declined
from 514 minutes in 1908 to 1.19 minutes with the introduction of moving assembly
line in 1913 (Sako, M). The enormous success of mass production resulted in the
global sector being dominated by the American car manufacturers. In 1955, North
America accounted for 75% of global motor vehicle production. The Big Three, Ford,
GM and Chrysler accounted for 95% of all American car sales.
In Europe, mass production was widely adopted in the 1950s through the initiatives of
Volkswagen, Renault and Fiat. But rather than production efficiency, the emphasis
was more on product differentiation and technical innovation (Sako, M). Their
product offerings included compact cars (VW Beetle), sporty cars (MG) and luxury
cars. Frontwheel drive, fuel injection, unitized bodies, and fivespeed transmissions
were some of their innovations in the technical front. Thus with focus on product
strategy, the European automobile industry contributed more than the US to the global
automobile production during 1960s and early 1970s.
Japanese automakers emerged as a force to reckon with in the global scenario with
the oil crisis in 1973, and subsequent price increases in 197914. The crisis had
resulted in a shift in consumer demand for energy efficient cars, a segment hitherto
dominated by the Japanese auto makers. By 1980s, the Japanese automakers were
benefited from the voluntary export restraints in the US and set up assembly plants
known as transplants within North America. Towards the latter half of 1990s Japanese
cars accounted for 40% of the total North American sales. In addition to cost savings
by way of cheap labor, they also initiated better manufacturing techniques such as the
Toyota Production System, developed by Taiichi Ohno in the 1960s and 1970s based
on lean production techniques in the 1980s.
Toyota Production System was built on two main principles namely, ‘JustInTimes’
production and ‘Jidoka.’ The underlying concept of the system was ‘Good Thinking
Mean Good Product.’ The approach helped to manage equipment, materials, and labor
4
in the most efficient manner while ensuring a healthy and safe work environment.
JustInTime referred to the manufacturing and conveyance of only what is needed,
when it is needed, and in the manner needed. Jidoka referred to the ability to stop
production lines, by man or machine, in the event of problems such as equipment
malfunction, quality issues, or late work, thereby preventing the passing of defects,
helping to identify and correct problem areas using localization and isolation, building
quality to the production process.
Market Trends
Production Scenario
The global automobile industry, witnessing robust growth in the face of increased
global demand, produced around 263 million motor vehicles in 2013. The Asian
countries, mainly by Japan, China and India, registered a 9% increase in production
over last year, constituting 35.9% of the global production. In fact China and India
posted positive growth rate over 2012. With the opening up of EU markets, the share
of EU countries in global automobile production was expected to increase in the
coming years.
Industry Structure
In the automobile industry, transaction cost economics, and technology shifts
determined the structure (Sako, M). During the 1890s, craft production techniques led
to the formation of a horizontally disintegrated industry, completely devoid of
consolidation. Manufacturing units evolved in regions boasting of skilled labor. By
the middle of the 20th Century, automobile companies like Ford and GM brought
about consolidation in the industry. The companies themselves were vertically
integrated. The market was oligopolistic in nature. Huge production costs deterred
new firms from entering the market. GM emerged as the market leader, wielding high
influence over market prices. By 1920s, Ford perfected mass production techniques.
The company also took initiatives for a high degree of vertical integration by owning
its own steel mill and forging factory. Other players followed suit to achieve
substantial cost savings. The integration of Fisher Body by GM marked one such
5
instance.
But contrary to the trend for vertical integration by the US automakers, Japanese
auto makers practiced ‘relational contracting (Sako, M).’ The practice of ‘JustIn
Time’ delivery as part of the lean production techniques gave rise to a healthy relation
between the assemblers and the suppliers of automobile components.
By 1980s the industry showed renewed signs of vertical disintegration. Chrysler
formed strategic tieups with suppliers for major components and in turn concentrated
only in designing, assembling and marketing. These initiatives helped Chrysler to
realize the highest average profit per vehicle amongst the Big Three. Ford and GM
started depending on Visteon and Delphi, respectively, for sourcing their components.
All the components of a car were outsourced to suppliers who offered lowest prices.
This increased the manufacturing capacity of the automakers and the industry was
soon saddled with overcapacity. In 1999, the global automobile industry had an
excess capacity of 20 million units.
To reap more profits, the automakers embarked on enhancing horizontal
concentration by forming alliances with global players. DC (DaimlerBenz, merged
with Chrysler of US in 1998 and became DC), a GermanUS merger entered into an
alliance with Mitsubishi to spread its operations over three continents. Ford purchased
Jaguar, Volvo and Mazda, and Renault’s equity stake in Nissan and Samsung for
wider reach. Thus the industry once again witnessed the emergence of oligopoly
market.
All the major players including the Big Three in the US, BMW, Volkswagen, Fiat and
other carmakers from Europe, Toyota, Nissan, Mitsubishi of Japan focused on
commercial exploitation of technological advancements with the aim of offering more
efficient automobiles to consumers. On one hand DC and BMW focused on luxury
vehicles while Fiat targeted diesel engines. The Japanese companies were striving for
better fuel efficiency and experimented with sleek and slender designs.
Towards the last quarter of the 20th century, globalization paved the way for
deregulation opening up the markets to foreign competition. The consumers stood to
gain with more variety to choose from at competitive prices. In order to stem the price
war most of the major companies from the US, Europe and Japan entered into
6
alliances with companies from other regions of the world. In 1997, GM entered into a
5050 joint venture with Shanghai Automotive Industry Corporation (SAIC), a state
owned Chinese auto manufacturer to build a plant in China. In 1999, GM also
increased its equity in Japanese companies like Isuzu (raised its stake to 49%), Suzuki
(9.9% and later to 20%) and Fuji (20%). All these deals ran into multi billion dollars
and GM got access to advanced technologies owned by the Japanese companies. It
was widely opined that developing these technologies on its own would have cost GM
more money and time. GM’s alliance with SAIC helped it to gain access to the fast
growing Chinese market much before than any of its competitors.
In 2000, GM purchased a stake in Fiat with the option of buying the remaining shares
by 2007. But with falling fortunes, GM entered into a US$ 2 billion settlement to
cancel the deal in 2004. The only success story was the Renault/Nissan merger, with
both companies registering profits in 2004.
By 2005 mergers and acquisitions took a backseat in the automobile industry. DC
reduced its share in Mitsubishi from 37% to 14% by 2005. DC also divested its 10%
stake of Hyundai. DC was the only one among the Big Three registering increased
sales in the US market in 2005.
“The Big Three used to control 90 percent of the North American market.
Globalization has created eight nearequal competitors fighting for market share three
companies used to control.”
Dennis DesRosiers, President, DesRosiers Automotive Consultants Inc.
As for the MercedesBenz merger, the Mercedes section was reporting quality issues
resulting in customer complaints. Towards the end of 2005, consolidation activities
had brought GM’s effective share in the US market to 29.3%, Ford’s share to 21%
and DC’s to 14.3%.
Market Share of Leading Automakers in US
7
Source: CSM Worldwide, McLaughlin, 2006.
Product Offerings
With increasing consumer awareness about the negative impact of automobile
emissions, automanufacturers were readily going for technological improvements,
thereby launching new products. These innovations were broadly classified under
engine modifications and improved transmissions.
Based on technological innovations, automanufacturers were offering a wide range
of products for consumers. A shift in consumer preference in favor of fueleffective
light trucks in comparison to passenger cars was noticed from 2001 onwards in the
US. Of late the demand was more for ‘crossover’ vehicles, which combined the best
features of passenger cars and SUVs. The foreign players in the US market first
offered these in 1997. Honda’s CRV, Mercedes’ MClass, Subaru’s Forester, and
Toyota’s RAV4 were some examples. Ford Escape, Pontiac Vibe, DC PT Cruiser,
Volvo Cross Country, and Subaru Baja soon followed this.
The sales figures of ‘crossover’ vehicles posted significant growth. From a meager
tally of 195,000 units in 2000, it had increased to 1.9 million units in 2004,
constituting 12% of total passenger vehicle sales.
Hybrid Electric Vehicles
8
‘Green vehicles’ constituted another product range witnessing growing demand.
These vehicles offered lower emissions and better fuel economy. GM’s allbattery
EV1 and Honda’s EV Plus were the initial offerings in this category, which appeared
in the market in 1997. But even after concerted efforts only 1400 units could be sold
in the next five years. Studies proved that consumers were ready for environment
friendly vehicles as long as they were comfortable with operating economy, comfort,
performance, and price, especially in the light of government regulations like the
CAFÉ standards. Alternative fuel vehicles, which came under the category of ‘green
vehicles,’ also showed immense potential for future growth. As of 2005, more than 3
million alternative fuel vehicles were plying the road. The main challenge was in
developing adequate infrastructure to provide alternative fuels such as biofuel,
natural gas, and propane. VW GofTDi, Ford Taurua, Dodge Ram 1500 truck, Dodge
Stratus, Chrysler Setring, GM Sierra Chevrolet Tahoe, GMC Yukon, Chevrolet
Silverado, and Chevrolet Cavalier were some examples for vehicles plying on
alternative fuels.
These market situations paved the way for hybrid vehicles (Appendix 3). Japan was
the pioneer in developing a gas electric hybrid. The resulting product named Toyota
Prius was launched in 1997 in Japan. While US automakers were focusing on
hydrogen fuel cell engines, Japanese automakers prepared to enter the US market.
Honda Insight was the first hybrid launched in the US. This was on December 1999
and was priced at US$ 19570. But due to small power backup the product failed to
catch up in the market. Honda also launched a remodeled version of Honda Insight,
namely Honda Civic in 2002. By 2003, nearly 2000 units of Honda Civic were being
sold per month. In 2004, Honda launched the first hybrid with a V6 engine, viz,
Accord sedan, and a fuel economy of 37 mpg in highway and 29 mpg in city. By
December 2004, Honda hybrid sales jumped to a total of 74, 608 units.
Toyota also made significant gains from hybrid sales. In 2000, Toyota Prius, priced at
US$ 19995 entered the US market. The product had a fuel economy of 55 mpg and
recorded sales totaling 20, 000 units in 2002. A higher version was launched in 2003
which sold 25, 000 units. In 2004, there was an increase of 119 percent in the sales
figures (54, 000 units).
Ford and GM also entered the hybrid scenario by 2004, but had lost the headstart to
9
Japanese automakers. DC on the meantime concentrated on clean diesel technology
and came up with Dodge Ram pick up truck in 2004. Advanced engine and emission
control strategies and use of ultralow sulfur fuel contributed to making the diesel a
clean fuel. Ford Mondeao TDCi, BMW 530d and 740d sedan, Liberty jeep, Mercedes
E320 CDi, Volkswagen Passat TDi, AudiA8 TDi,Chevrolet Duramax, Ford Focus
TDCi
CHAPTER II: MARKETING MIX
A Marketing mix is the division of groups to make a particular product by pricing,
product, branding, place, and quality. Although some Day1 marketers have added
other P's, such as personnel, packaging and physical evidence, the fundamentals of
marketing typically identifies the four P's of the marketing mix as referring to:
"Marketing Mix" is set of correlated tools that work together to achieve company's
objectives, they are: product, price, promotion, place.
The set of controllable tactical marketing tools, product, price,place and promotion
that the firm blends to produce the response it wants in the target market:
Product A tangible object or an intangible service that is mass produced or
manufactured on a large scale with a specific volume of units. Intangible
products are often service based like the tourism industry & the hotel industry.
Typical examples of a mass produced tangible object are the motor car and the
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disposable razor. A less obvious but ubiquitous mass produced service is a
computer operating system.
Price – The price is the amount a customer pays for the product. It is
determined by a number of factors including market share, competition,
material costs, product identity and the customer's perceived value of the
product. The business may increase or decrease the price of product if other
stores have the same product.
Place – Place represents the location where a product can be purchased. It is
often referred to as the distribution channel. It can include any physical store
as well as virtual stores on the Internet.
Promotion – Promotion represents all of the communications that a marketer
may use in the marketplace. Promotion has four distinct elements
advertising, public relations, word of mouth and point of sale. A certain
amount of crossover occurs when promotion uses the four principal elements
together, which is common in film promotion. Advertising covers any
communication that is paid for, from television and cinema commercials, radio
and Internet adverts through print media and billboards. One of the most
notable means of promotion today is the Promotional Product, as in useful
items distributed to targeted audiences with no obligation attached. This
category has grown each year for the past decade while most other forms have
suffered. It is the only form of advertising that targets all five senses and has
the recipient thanking the giver. Public relations are where the communication
is not directly paid for and includes press releases, sponsorship deals,
exhibitions, conferences, seminars or trade fairs and events. Word of mouth is
any apparently informal communication about the product by ordinary
individuals, satisfied customers or people specifically engaged to create word
of mouth momentum. Sales staff often plays an important role in word of
mouth and Public Relations
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PRODUCT
MARUTI SWIFT
Europe, Algeria, Egypt and Indonesia.
European Styling. Japanese Engineering. DreamLike Handling.
12
The new Swift is a generation different from Suzuki design. Styled with a clear sense
of muscularity, its oneandahalf box, aggressive form makes for a look of stability, a
sense that it is packed with energy and ready to deliver a dynamic
drive. Its solid look is complemented by an equally rooted road presence and class
defining ride quality. New chassis systems allow for the front suspension lower arms,
steering, gear box and rear engine mounting to be attached to a suspension frame. You
get lower road noise, and a greater feeling of stability as you sail over our roads with
feathertouch ease.
TATA INDICA
US, Europe and South East Asia.
Though a late entrant, the Indica quickly established itself as the benchmark for the
segment. By offering exciting features, the car changed the rules of the category in
Space, Power, Style, Safety and Economy for international market. The Indica
ensured a pleasant ride and handling experience as it had features like wide large
tyres, generous leg room and independent front and rear suspension. It developed a
new segment of diesel small cars along with its petrol offering. The luggage space
was also the best in its class.
The rigid 980 kgs steel body of the car was rigorously tested at India's first and only
crash test facility. A collapsible steering wheel, impact absorbing bumpers, anti
submarine seats, crumple zones and side impact beams are just a few of the features
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that make the Indica one of the safest cars on the roads today. Savings are ensured
with the fuelefficient 1.4L diesel engine, while the 1.4L petrol engine is optimized
for performance.
Indica features for international market:
Collapsible steering column
Sideimpact beam
Energyabsorbing crumple zones in the front
Antisubmarine seats
Childsafety locks on rear doors
Laminated front and rear windshield glass
SCORPIO
Europe, India and USA.
Rational benefits: World class vehicle, good looks, car like comfort, great value
Emotional benefits: Ownership experience of thrill, excitement and power
Relational benefits: Young modern, premium, city companion / extension of lifestyle.
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PACKAGING
Since product is a car, packaging might not be of much importance. Cars usually
don’t come in a box. However, since Santro is made for students and older, they have
decided to make a big box, free of all charges, if the car is a gift for someone’s
birthday. Santro is a good choice as a “first” car; parents can easily buy it as a gift for
their young teenagers/students.
LABELING
No labelling, however for curious users, there will be a small brochure about the
“ingredients” car parts, so they can see how exactly the car works, and what and
where the different parts are from.
PRODUCT SUPPORT SERVICES
As for product support services, there are 3 things to know: Assess the value of
current services and obtain ideas for new services. Assess the cost of providing the
extra services and putting together a package of services that delights the customers
and yields profits for the company. All these, are already applied to Santro if we look
at Augmented Product, which I wrote about earlier. Customers would be delighted
about those extra services, and might tell friends about them and in the end make
more profit for the company.
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PRICE
MARUTI SWIFT
After launching cars for the masses since so many years, India’s largest automobile
manufacturer is now targeting the premium segment with their latest model from the
Suzuki’s stable. Pricing of this premium hatchback is start from Rs.4 lakh. This price
range would practically rip apart Hyundai’s offering in Getz, which is priced at a
much higher tag of Rs. 4.5 lakh. Both the companies are known for their value based
offerings and Maruti with their extensive service network and brand reputation for
making reliable cars should get the customer’s nod over their competition. The cost of
Swift in Europe is starting from 1.2 Manual 13,590 €.
TATA INDICA
Tata Motors adopted a competitive pricing strategy for Indica in the global market.
Prices were fixed on the basis of the norms prevailing in the international market.
Also the prices offered by their competitors like Toyota, Ford, Fiat, were kept in mind
while deciding the prices. In india it costed around 34L.
SCORPIO
Pricing Strategy: to be a premium brand yet
having universal appeal .Scorpio was to compete with the midsize cars like Hyundai
Accent, Ford Ikon, Opel Corsa, Maruti Suzuki Esteem on the one side and UVs like
Toyota Quails, Tata Safari and the Tata Sumo on the other. Scorpio adopted the
penetrative pricing strategy positioned in the psychological price barrier of Rs. 5 7
Lakhs. In Europe, it costed around 15,590 €. In Japan, it costed around 14,300 €.
16
PROMOTION
MARUTI SWIFT
When Maruti Udyog launched the Swift, the automotive industry was agog with
expectation that the car had the makings of a real winner. Three versions were
launched with the base variant carrying a retail tag of Rs 3.85 lakh, exshowroom,
New Delhi, and this aggressive pricing only reinforced this feeling.
Event Organized By Maruti to Promote Swift
Fever FM and Maruti Suzuki Swift organize a Night
Rally for Delhiites
In a cooperative marketing initiative, Fever FM and
Maruti Suzuki Swift came together to organize a Night
Rally in Delhi. The Swift Night Life Rally was organized for the Swift Life Club. The
brand tied up with the station to extend the experience to the people who were unable
to participate in the activity.
HONDA
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At 8:10pm on May 30th last year,
Channel 4 aired the first 'live
advert' in British television history.
It was an advert for Honda and it
filled an entire ad break. TV cut
live to an aeroplane flying
somewhere Spain with 15
skydivers inside waiting for the signal. They had a camera on another plane flying
alongside and one of the skydivers had a camera strapped on, so then someone cut
between them live. After Come Dine With Me got to it's first ad break they jumped.
As they fell towards the ground from 10,000 feet up they steered themselves into the
letters H O N D and A before pulling for their parachutes and drifting to the ground.
HYUNDAI
The UAE's firstever Motor Souq event brought together car enthusiasts with some of
the latest models from Mitsubishi, Nissan and Hyundai that have yet to hit the market.
Interested customers connect directly with representatives from auto companies.
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Print Ads
Daily advertisements in leading newspapers and
magazines are used to promote the product.
Leaflets at the initial stage are distributed at
railway stations, malls, college areas and various
other locations.
Workshops and Seminars
Workshops and seminars are held in colleges and big corporate to make people aware
about the companies past performance and product features, its affordability and
usage, vast distribution network.
Banners, neon signs
Hoardings, banners, neon signs are displayed at clubs,
discs, outside theatres, highways and shops to promote its
brand car.
Booklets and pamphlets
Booklets are kept at car showrooms, retail battery outlets, etc for the customer to read.
These booklets provide information about its company; the products offered which
suits the customers need accordingly.
TOYOTA COROLLA
The Promotion for Toyota Corolla consists of a blend of activities making its
Promotion Mix. Its Promotion Mix consists of almost all the possible techniques of
Promotion used for any other product. Some of the major elements of Promotion Mix
of Toyota Corolla are listed as under:
Advertising
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It uses many different techniques of
Advertisement as a part of its Advertising
Strategy.
Most of the Print Ads of Toyota Corolla are
individually targeted at one of these factors such
as Comfort, Performance, Styling, Power, Leg
Room, Design, and Driving Pleasure. One most
common feature of almost all the Ads is that in every Advertisement, the fact that it is
the World’s Largest Selling Car and its presence across 160 countries is present. This
is done to because the company wants to differentiate the product in terms of its
Reliability that it is an entrusted brand of 30 Million people across the globe. The fact
that it is present in 160 countries proves that it is a Global Car.
There are 3 TV Commercials of this Car in India. The Commercials show that this
Car is targeted mainly at the Indian youth and young Executive. It has been positioned
as a little sportier which is the main reason that it is for young people and is also like
by them too.
GENERAL ATTACK STRATEGY
FRONTAL ATTACK: the attacker matches its opponent’s product, advertising, price
and distribution.
20
In this advertisement BMW is using frontal attack strategy against its biggest
competitor AUDI
AUDI is replying the BMW advertisement
Along with AUDI and BMW, SUBARU and BENTLEY are using frontal attack
strategy against each other’s products.
21
The Brochures, Posters/Leaflets are such designed that shows that Corolla is a car for
people who demand Performance, Style, Power and Sheer Driving Pleasure. The car
being a perfect combination of these factors makes it a huge success across its
segment.
The Other Sources of Advertisement include Bill Boards, Display Signs, POP,
Displays, Symbol/Logo. The company does the Advertising of Corolla by displaying
Bill Boards and Display Signs at various target places where it feels that prospective
buyer will come across it. At the showroom also, there are huge amount of Point Of
Purchase Displays and also Symbols/Logo which add to it.
One of the major sources of Sales Promotion is Trade Fairs like AUTO EXPO,
MOTOR SHOW etc. The company used to take part in these types of fairs and used it
for its Sales Promotion. But now the trend is shifting because the company thinks that
if they want to launch a product on a National
Level, then there is no need for such kind of
shows as now there are various other powerful
sources of media available to them. Moreover
the cost spent on these kinds of fairs was not
justified. So therefore the company is now keeping away from fairs. In 1999 Toyota
last time participant at the RAC rally in Britain.
Some other Sales Promotion technique used by the company is the Festival Season
Offers it introduces in the market at the time of Diwali, New Year, Christmas,
Navratri etc to boost short term sales.
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PERSONAL SELLING
Personal Selling largely takes place at the Dealers’ End. The way the customer is
attended depends mainly on the Dealer as he acts as an interface between the
company and the Consumer.
The various cases in which Personal Selling takes place is Individual Sales, Corporate
Sales, Sales Presentations, Fair and trade Shows. Mostly in case of Individual Sales
the Customer goes to the showroom and takes a look at the product. There he is
attended to by the Sales Personnel of the Dealership. Sometimes the Senior Sales
Executive has to make Sales Presentation to Corporate Buyers. Personal Selling is
23
also practiced at Trade Fairs and Auto Shows wherein the Company appointed Sales
Personnel attend prospective customers and also book their orders.
DIRECT MARKETING
In the case of Direct Marketing the Company Officials directly contact the
Prospective buyers with the information available through various sources. For
example in case of Road Shows, Trade Fairs, Auto shows etc. Sometimes the existing
customers also provide references of prospective buyers such as their friends or
relatives.
TATA INDICA
‘More car per car’ is the
famous tagline
of this product. The Indica’s
positioning has
remained consistent with the
brand's offering
in an increasingly competitive market. The Indica is now synonymous with the word
‘More, by encapsulating the inherent product strengths and marrying them with the
customer trait of desiring ‘More’. A promotion strategy for Indica v2 in international
market is more or less same as that
of the Indian market. Media innovations
have been a key to the success of the
Indica.
Tata at 29th Bangkok
International Motor Show 2008
The positioning was strengthened with the
successful launch of the Indica V2, which
assumed the leadership position in the year
of its launch.
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The Indica v2 was launched in the
international market only through the press
medium, with three diesel versions and a
petrol version, and this campaign shattered
many automobile advertising myths. The
car was launched without any television
advertising, but through highimpact
newspaper ads, dominating the medium
and delivering the desired impact. Headlines such as ‘You’ll never have to suffer a
small car again’ assisted customers in distinguishing between their old choices and the
Indica. This, in effect, placed the Indica on the pedestal of leadership, set to change
the rules of the game.
A recent campaign for the Indica V2 has helped in building the product on the rational
platform and adds an emotional layer. Anchored on the insight ‘It’s only human to
want more’, the campaign revolves around interesting candid moments in the daily
lives of normal everyday people who desire more; be it a boy wanting the other boy’s
bigger lollipop, or a baby crying when her parents stop driving her around in the
Indica V2. The latest campaign moves to the ‘Even more car per car’ positioning.
PLACE
MARUTI SWIFT
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The car manufacturing company, called Maruti Suzuki Automobiles India Limited, is
a joint venture between Maruti Udyog and Suzuki Motor Corporation holding a 70
per cent and 30 per cent stake respectively.
The Rs1, 524.2 crore plant has a capacity to roll out 1 lakh cars per year with a
capacity to scale up to 2.5 lakh units per annum. The car manufacturing plant will
begin commercial production by the end of 2006.
The engine and the transmission plant has owned by Suzuki Power train India Limited
in which Suzuki Motor Corporation would hold 51 per cent stake and Maruti Udyog
holding the balance. The ultimate total plant capacity is three lakh diesel engines.
However, the initial production is 1lakh diesel engines, 20,000 petrol engines and 1.4
lakh transmission assemblies.
TATA INDICA
Tata automobile group have a very large distribution network all over the world. Tata
Indica v2 is exported and assembled in many countries. South Africa has an
assembling unit for consumer vehicles. Other places where the company’s products
(Tata Indica) are exported and in some assembled also are mentioned below:
Africa : Algeria , Angola , Ethiopia , Ghana , Kenya , Mauritius , Sudan ,
Uganda , South Africa , Senegal etc.
Europe: Greece, Hungary, Italy, Malta, Portugal, Spain,
Switzerland, UK and Ireland.
CIS: Belarus, Russia, Ukraine.
Asia: Bangladesh, Malaysia, SriLanka, Nepal, Bhutan.
Australia continent
PEOPLE
26
There are various types of people in any Organization. The various types of people in
case of Toyota can be classified as Customers, Sales Executives, Society,
Government, Competitors, and Media.
The most important out of these is our Customers. A customer can be any person who
purchases the product; he may or may not use that product for himself. A consumer is
one who actually uses the product himself. For example a father purchases Corolla for
his son. In this case the father will be the Customer and son will be the Consumer.
The main people involved in the purchase decision of the car are the Family
Members. In a recent study conducted, it was found out that these days children play a
major role in deciding which car to buy for the family. The company has to seriously
take into consideration all these factors. Also the factors that whether one uses the car
for travelling, office, shopping or family/personal etc.
As this car falls into a segment where price range is between 911 Lacs, so the
company has to target those people who not only have the ability to spend that much
amount of money but are also willing to spend that much amount of money. Data
regarding the purchasing power of different classes of people is also very necessary.
Customers’ tastes and preferences have to be taken into consideration.
Next comes the Sales Executives who deal with the final customers and finish the
sales call. The Sales Executives play a major role. As the people of the organization
they are a window through which the customers interact with the company. They have
to be trained properly through customized modules designed especially for them
taking into consideration the various factors.
PHYSICAL EVIDENCE
27
Displaying physically the product creates the Physical Evidence. Along with that
creating an atmosphere for the customers where in they feel the presence of product.
Toyota creates a powerful physical evidence for its customers through its Showrooms,
Hoardings, Logo etc. All the showrooms are designed on a common platform. The
interiors of all the showrooms across India are the same. A team of Professionals in
this field creates the designs for the same. The designs are prepared very carefully
keeping into consideration various factors such as customers’ tastes and preferences,
likes and dislikes etc. You will always find a Toyota showroom having the Toyota
Bill Board outside with white base and red foreground. This creates a physical
presence and people can feel the product.
SHOWROOM INTERIOR AND EXTERIOR
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PROCESS
The various processes involved in getting available the product from the manufacturer
to the end consumer are to be efficiently performed by the company. The processes
start when the customer is contacted by the Sales Personnel of the Dealership or the
customer contacts the Dealership if he is interested to buy a Corolla. The data
regarding the various customers can be had from various sources of data available
through different agencies which specialize in providing data. After the call is made,
an appointment is fixed. The Sales Executive prepares for the meet. He collects all the
possible information which would be needed for the meeting i.e. data about the
customer, details about the car, maximum permissible discount structure, finance
options, delivery terms, free accessories which will be provided to the customer.
The sales personnel will find out that what is the present vehicle used by the
customer, his present buying power, satisfaction level, seriousness in buying etc.
Along with that he will also find out his exact needs, desired level of satisfaction,
lifestyle patterns etc. Sales personnel also ask certain questions through which he
comes to know about the various factors he wants to know. He asks both open as well
as closed ended questions. With the help of these questions, he can come to know the
various reasons due to which he is buying that car. These can be Performance, Safety,
Comfort, Driving Pleasure, Appearance etc.
These processes either lead to completion of sales call or sometimes unfortunately
leads to unsuccessful sales call which could not be competed.
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CHAPTER III: PORTER’S FIVE FORCES AND SWOT
ANALYSIS
Porter’s Five Forces
Globalization had indeed left its impact on the automobile industry. Now foreign auto
dealers were facing lesser restrictions to operate in overseas markets. Michael E.
Porter in his book “Techniques for analyzing industries and competitors” dealt with
five competitive forces that shaped all industries. This helped to analyze the intensity
of competition which had an impact on the profitability of an industry.
The US automobile industry was considered as a force to reckon with from the days
of craft production and hence would serve as a standard use case to identify Porter’s
five forces. With low level of entry barriers, the Big was facing increasing
competition from foreign players like Toyota and Honda.
The relationship among Porter’s five forces in the US automobile industry, detailed
below clearly proved its’ competitive nature.
1. Threat of New Entrants
The existing loyalty to major brands, incentives for using a particular buyer,
higher fixed costs, scarcity of resources, high costs of switching companies, and
government regulations constituted the barriers to entry which in turn reduced the
competition in an industry. The success of foreign car manufacturers like the
Honda Motor Co. had disproved the general belief that the Big Three were
invincible. The only factors expected to retard the growing significance of foreign
auto dealers were the loyalty to American made vehicles and the aftersale
services offered.
2. Power of Suppliers
The presence of very few suppliers of a particular product, and the absence of any
30
substitutes for the product supplied reflected the pressure exerted by the supplier.
Sometimes the product was extremely important to the automaker and the
alternatives proved to be very costly. In such cases the suppliers were in a better
position to dictate terms. A lot of suppliers depended on automakers to buy their
products. But if the automaker decided to change suppliers it would badly affect
the supplier’s role in auto manufacturing.
3. Power of Buyers
Small number of buyers, purchases of large volumes, prevalence of alternative
options, and price sensitive customers were some of the factors that determined
the extent of influence of the buyers in any industry. American consumers were
driven towards foreign cars mainly because most of the automakers sourced their
key autoparts from different suppliers. But this raised doubts on the reliability of
the vehicle itself.
4. Availability of Substitutes
If substitutes were available offering similar services, the likelihood of buyers
switching over to another competitor depended mainly on the cost. The cost of the
automobiles along with their operating costs was driving customers to look for
alternative transportation options. The rising gasoline price was bound to
influence the buyers.
5. Competitive Rivalry
The presence of many players of about the same size, little differentiation between
competitors, and a very mature industry with very little growth was the features of
a highly competitive industry. Higher the competition in the industry lower would
be the profit margin. To remain ahead in competition, automakers were tempted
to offer value added services to the customers incurring more costs. Easy finance
options and long term warranties were offered to lure the customers. But these
measures cut into the profit margins.
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Thus the US automobile industry in the face of global competition from foreign firms
was offering better deals to cater to diverse needs of customers.
SWOT Analysis
An analysis of the fortunes of Ford, a global leader in the automotive industry based
in Michigan, wielding significant influence since the inception of global automobile
industry, would serve as a classic example to diagnose the strengths, weaknesses,
opportunities and threats existing for automakers.
Strengths
• Ford owned a vast array of brand names, which had world wide recognition and
respect. Ford, Lincoln, Mercury, Mazda, Volvo, Jaguar, LandRover, Aston Martin
were the famous vehicle brand names owned by the company. Ford Credit, Genuine
Parts & Service and Motorcraft were its’ automotive service brands.
• Huge size of the business operations allowed Ford to reap the benefits of economies
of scale. As of 2005, Ford’s distribution network spread over 200 markets across six
continents, supported by an employee base totaling 300,000 and 108 plants
worldwide.
• Business diversification initiatives of past decades helped Ford to focus on financing
sector in addition to manufacturing, with the help of its subsidiaries. Most of the
vehicles sold to dealers and distributors were financed by Ford Credit at wholesale
rate. The diverse product line was another positive outcome of business
diversification. As of 2005, Ford was the second biggest player in US with a total
market share of 18.2%. In Europe, the market share stood at 10.8%.
Weakness
Ford’s large size could pose serious impediment to its efforts to adjust to the
dynamics of global automobile market. Unlike its Japanese counterparts, Ford had to
ride on heavy incentives to boost sales of models, which failed to catch the attention
32
of consumers. Financial constraints prevented Ford from channeling investments
towards the manufacture of new models. Failure to control plant capacity also cut
down the profit margin.
Opportunities
The opening up of Asian markets, wherein lied the potential for growth in commercial
vehicle sales, offered a big opportunity to Ford in the near future. The big size and
extended global reach, which some identified as a weakness, was helping Ford to
become a major player in these markets. Meanwhile in the US, consumers in the
higher income category were expected to spend more on highend models more
frequently. The growing trend in energy prices23 was paving the way for a huge
market for full and medium sized SUVs and hybrid vehicles with better fuel economy.
Despite losing the first mover advantage to Japanese automakers, Ford was making
headway in this growing market. And in order to leverage on its brand image, efforts
were on to differentiate brand identities to the potential consumers. By this initiative,
Ford was trying to cut down its incentives. To check capacity issues, Ford made plans
to close 10 plants and 30,000 jobs by 2008. Its ultimate aim was to boost capacity
utilization to 95% from the current level of 72%.
Threats
The main threat to Ford’s market dominance came from Japanese automakers,
particularly Toyota, whose products were of high quality. Ford was losing out
customers, who went for higher quality vehicles from Japanese automakers, despite
absence of incentives. The negative ratings given by most of the credit rating agencies
in 2005 also demanded attention as the decision reflected concerns over Ford’s cash
flow and profitability, declining market share, excess industry capacity, industry
pricing pressure and rising health care costs.
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CHAPTER IV: CONCLUSION
The US automotive industry, the largest automobile manufacturer in the world,
witnessed the downward slide of the Big Three, viz., Ford Motor Company (Ford),
General Motors Corporation (GM) and DaimlerChrysler (DC) in market share
continuing unabated for the last 10 years. Toyota Motor Corporation (Toyota) became
the market leader by the end of 2006. In the light of rapidly rising healthcare costs and
the heavy burden of legacy costs for retirees paid by the Big Three as part of the
settlement with the United Auto Workers, the Big Three was losing out to Japanese
and European automakers. Many strategic interventions were initiated by the U.S
automakers under the leadership of the Big Three to trigger market growth.
India’s expedition to become a global auto-manufacturing hub could be seriously
challenged by its inability to uphold its low-cost production base. A survey conducted
by the research, KPMG firm reveals that the Indian auto component manufacturers
are increasingly becoming skeptical about sustaining the low-cost base as overheads
including labour costs and complex tax regime are constantly rising.
Indian auto businesses will only flourish if they boost investments in automation. In
the longer term, cost advantage will only be retained if Indian capital can be used to
develop low-cost automation in manufacturing. This is the way to preserve our low
cost.
Global auto majors are also cynical about India’s low cost manufacturing base. India
taxation remains a big disadvantage. This is not about tax rates it is just about
34
unnecessary complexity. But some companies also believe there is scope for reducing
the cost of doing business.
BIBLOGRAPHY
TOYOTA OFFICIAL SITE
MARUTI OFFICIAL SITE
TATA OFFICIAL SITE
HYUNDAI OFFICIAL SITE
AUTO INDIA MAGAZINE
AUTODRIVE MAGAZINE
BBC NEWS SITE
INSIDETIME.COM
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