India, from
just 30000 passenger cars and utility vehicles about 30 years ago, currently absorbs
over 2.8 million passenger cars, utility vehicles and vans; a number set to increase
steadily, say, around 10 percent. In 2015-16, the total sales of passenger
cars, utility vehicles and vans increased by 7.24 percent to 2,789,678. Sales
of passenger cars increased by 7.87 percent to 2,025,479 units while the sales
of utility vehicles rose by 6.25 percent to 586,664 units and of vans by 3.58
percent to 177,535. The share of utility vehicles in total passenger cars,
utility vehicles and vans has reached a record 21 percent. The utility vehicle segment has become
diversified with multi utility vehicles (MUVs), sports utility vehicles (SUVs)
and crossover vehicles (COVs). With certain excise duty concessions for utility
vehicles less than 4 meter length, a new breed of compact SUVs has also
emerged. Typically MUVs are 7 to 8 seaters while compact SUVs are 5 seaters. UVs
are offered in both petrol and diesel versions; with diesel being the preferred
mode in this segment. However, the Delhi developments on emissions and
particulates, diesel has lost some sheen as the preferred option in this
segment.
In the utility
vehicle segment, Toyota with its Innova MUV remains a segment choice (against
other MUVs such as Mahindra Scorpio and Bolero, Ford Endeavour, Tata Safari and
Chevrolet Captiva) although a number of
other car manufacturers such as Renault, Nissan, Hyundai, Honda and Maruti have
succeeded in building new franchises around their sleeker and more compact
SUVs. Renault Duster and Nissan Terrano helped popularize this segment a few
years ago but Hyundai Cresta and Maruti S Cross and Vitara Brezza have represented
the recent challengers. The battle of utility vehicles is far from over. In the
space of a few days this month, Toyota has introduced Innova Crysta as a new
generation of MUV, phasing out the decade plus old Innova while Honda has just
introduced its new compact SUV titled BRV. With these two introductions, and
more in the offing from other manufacturers, the utility vehicle segment will
keep growing strong. Notwithstanding the Delhi troubles for diesel vehicles,
the utility vehicle segment will continue to grow. The Indian utility vehicle
segment offers five interesting and relevant principles to drive market growth
and market share growth, as discussed below.
New products make new markets
The first ever
(and the only) utility vehicle ever known to the Indian market was Mahindra
Jeep which was sold in a few numbers from the 1940s. Bajaj Tempo (now, Force
Motors) introduced a desi version of Jeep, Tempo Trax, in 1998 which was not a
great success. The first ignition in the utility vehicles market came when Tata
Motors introduced the elegantly designed (by the 1990s standards) Tata Safari
in 1998. Thereafter, Mahindra introduced its own designs such as Balero (2000)
and Scorpio (2002). The real impetus to the Indian vehicle market came when
Toyota introduced Innova, in 2004, as its successor to its first entry in 1998,
a boxy Qualis. The next revolution took place when Renault introduced its
sporty Duster in 2012 which caught people’s fancy as an urban SUV, an image
fortified by Nissan Terrano further. Thereafter, other manufacturers jumped
into the fray with sleek looking urban SUVs, including a steadfastly small car
and sedan oriented Maruti doing so (with Ertiga in 2012. S Cross in 2015 and
Vitara Brezza in 2016). Today, the utility vehicle, whether MUV or SUV, has
become the preferred family car or second car option.
The Indian
utility vehicle market which has grown from 2 percent of the passenger vehicle
market to 21 percent of the market is another endorsement of the business truth
that it is only new products that make new markets. The initial trepidation
that existing players have when a competitor launches a new product is actually
misplaced; as they themselves follow up the launches with their own similar or
new products, new market segments will be created and expanded. This is true of
utility vehicles as proven above, and would be true for any other segment or
business too. In fact, the more aggressive such new product entry is the better
it would be for market growth. Patanjali’s aggressive Ayurvedic product foray
in India, long considered the home of Ayurveda but traditionally dependent on
Western personal hygiene products, is bound to create a totally new market of
AFMCG (Ayrvedic Fast Moving Consumer Goods Industry). The Indian automobile
industry should logically look forward to utility vehicles more than doubling
in sales every five years, until they reach an equilibrium with sedan sales.
New themes make new products
Newly
introduced products will be perceived as new products only when they have
novelty. Thematic novelty is one of the brig drivers of new product acceptance.
In a utility vehicle scenario monopolized by World War vintage Jeep designs,
Tata Safari offered a fresh thematic breeze. In a utility vehicle design space
that was characterized by boxy exteriors and cramped interiors with low regard
to finish, Innova brought car-like comfort and quality to the space. In a
segment which catered to large families, Duster brought urbanism with easy navigation
of crowded urban drive as a new theme. Ford Ecosport (2013), Hyundai Creta
(2015), Maruti S Cross (2015) and Vitara Brezza (2016) and Mahindra TUV (2015),
KUV (2016) and Nuvo Sport (2016) brought youthfulness and sharpness to utility
space integrating more carlike features. At each turn of design philosophy,
thematic novelty helps establish new designs as new products.
There is never
an end of the road for novelty. Just as the customers would think that the
choice is between a 5 seater urban SUV and a 7 seater family MUV (if
spaciousness is desired in both options), Honda through its latest launch of
BRV brought in the concept of a relatively spacious 7 seater urban SUV to
commercialization. Through Innova Crysta, Toyota has tried to provide higher
power and torque as well as advanced features and finishes with additional
safety to family users. The challenge is to combine improvements in such a
manner that they stand out together for thematic novelty. The next level of
challenge is to bring in such novelty that would make an SUV, the first car
rather than the second car. For example, cars that have inbuilt arrangements
for child safety, including child car seats could be the next evolution to
cater to urban couples with small families.
Global style with local substance
Indian
automobile industry is unique because of the strong presence of both Indian and
foreign players. Companies such as Tata Motors and Mahindra & Mahindra have
gone global with JLR and Ssangyong acquisitions (2008 and 2011, respectively).
They have also continued their indigenous development efforts. Companies such
as Maruti, Hyundai, Ford, Honda and Toyota have been essentially global
companies with Indian presence; however, having seen the potential of Indian
market, they have started designing products for India with Indian engineers.
Despite having formidable global automotive engineering capability through JLR,
Tata Motors just went through a completely ‘lost decade’ by not accessing
modern global design thinking from its JLR engineering centres and persisting
with dated approaches from its Indian development centres. Despite having
strong global executive controls, Maruti, Hyundai and Honda have been able to
engineer India specific but globally stylish designs that have found quick
resonance with Indian customers. On the
other hand, some of the world’s largest automotive makers present in India such
as GM and VW failed to make the grade in the Indian market due to reluctance to
customize.
Indian
requirements are stringent as acknowledged by Renault Nissan global chief
Carlos Ghosn. In terms of durability, life expectation is almost perpetual
while in terms of style, expectations are contemporary. The real
differentiators for India are the requirements for high ground clearance and
low turning circle, coupled with spaciousness to meet Indian body
configurations. India also places considerable emphasis on fuel economy and low
lifecycle costs. What adds competitiveness is localization. An Indian made car
could cost a fraction of a similar imported car. Going forward, those
manufacturers who can combine global contemporary styling with Indian cost
competitiveness by working with Indian engineering teams would have a
significant competitive advantage. It is indeed gratifying that Renault Kwid,
Maruti Brezza, Hyundai Cresta and Honda BRV have been products of Indian
engineering, albeit with global guidance. After a decade long hiatus, it
appears that Tata Motors is also finding the right fusion of global and Indian
engineering as demonstrated by Zest and Tiago cars.
Segmentation drives share
The traditional
theory of market segmentation continues hold relevance in market share play.
The more a company is able to segment its markets perceptively, the more
dominant it can become in the overall market. From a time when utility vehicle
category itself was seen as one segment of the passenger car market, today the
utility vehicle category itself is seen as a total market with a few
sub-segments of its own. As a result, there
has been a complete rejig of the market share pecking order. In the early days
of the utility vehicle product expansion days, Tata led the duopoly with Mahindra.
Later it was Toyota with Innova that led the market share charts. Today, the
top five players are as follows (with market share percentages in the brackets):
Mahindra & Mahindra (38), Maruti Suzuki (16), Toyota (12), Hyundai (11) and
Ford (7). These five manufacturers have captured an overwhelming 94 percent of
the utility vehicle market, elbowing out the once market leader, Tata and
pushing down the subsequent leader, Toyota.
The above
statistics also illustrate how the SUVs of M&M and Ford (assumed at 70
percent of their UV sales), Hyundai and Maruti captured close to 70 percent of
the total UV market. More importantly, market segmentation and product engineering
geared to segmentation has propelled Maruti Suzuki and Hyundai, both
predominantly small car players, as the second and fourth largest players in the
utility vehicles market at 16 percent and 11 percent market shares respectively.
Segmentation and product introductions helped a traditional player like M&M
retain its market dominance. By the same token, it is also evident how Toyota
lost the game to an extent by refusing to play in the SUV segment despite the
existence of a sprightly RAV4 in its product range and several others in the
associated Daihatsu range. Interestingly, in the total UV space, M&M have 5
products, Maruti Suzuki 3, Toyota 2, Hyundai 2 and Ford 2 (overall, there are
over 60 SUV models, past and present!). Clearly, with others such as Honda
noticing the importance of thematic segmentation, there is still huge potential
for market share growth for late stage entrants.
It is never too late
The Indian
utility vehicle market provides a few important insights for leadership which has
the responsibility for corporate strategy, marketing and product decisions of a
company, usually the CXOs, CEO and boards of companies. Some insights are
evident from the above discussion and are not repeated. A few additional
insights are as follows. The larger and more global a company is, the greater
is the risk of skirting opportunities. Several companies that were covered in this
blog post would have triggered better market expansion and achieved better
market share for themselves had they made proactive and region-specific
decisions in a timely manner. Only two companies, M&M (in utility vehicle
segment) and Hyundai (in sedan segment) have demonstrated such decision making capability.
Secondly, customisation to local needs is not a concept that can be taken back
to global boards and executed in overseas design centres. Rather it is a
concept that needs local decision making, and local execution with local
engineers and with local validation.
While
timeliness makes a significant difference, it is never too late to make an
entry and score success and sustainability. While Toyota would have been so
high in the pecking order had it entered India along with Maruti such delayed
entry has not prevented the company from creating a niche for itself years
later. Similarly, Maruti would have had a great presence in the utility
vehicles segment had it entered in the segment along with Toyota but the delay
has not stopped it becoming the second largest player in the utility vehicles
segment even after a highly belated entry with the highly acclaimed Ertiga, S
Cross and Brezza. The same has been true of Hyundai Creta, and is likely to be
true with Honda BRV. Delayed market entry can be offset by innovative product engineering.
It is never too late to dominate markets with creative positioning of high
quality products with thematic novelty.
Posted by Dr CB
Rao on May 07, 2015
