How Maruti Suzuki is able to maintain more than 40% market share in Passenger Car Segment from past 20+ Years

Introduction:

Maruti Suzuki India Limited (MSIL) which was founded by Govt of India to merge with Suzuki Motor Corporation of Japan for manufacturing & selling of passenger vehicles in India. MSIL is 15 years older than its current competitor Hyundai Motors India Limited which was founded in 1996 which gave MSIL an added advantage to occupy India along with its former competitors like Ambassador. Early incorporation and start of business helped MSIL to take early advantage of Liberalization that took place in 1991. This article explains factors which led to market penetration and dominance by MSIL for such a long period and does not speak about future plans / actions of MSIL:

Indicators of Market Dominance by MSIL: MSIL has been the market leader in passenger car market with more than 40% from more than 20 years. Following indicators confirm the dominance of market by MSIL:

1. Summary of Market Share in last 2 decades:

Below image & table summarizes market share of MSIL from past 20 Years:

Year Industry Sales Company Sales Market Share
2010 26,70,943 10,18,365 38.13%
2011 28,91,997 12,71,005 43.95%
2012 32,06,794 11,33,695 35.35%
2013 29,84,267 11,71,434 39.25%
2014 29,31,177 11,55,041 39.41%
2015 31,17,550 12,92,415 41.46%
2016 33,45,460 14,29,248 42.72%
2017 36,70,028 15,68,603 42.74%
2018 39,83,507 17,79,574 44.67%
2019 35,28,040 18,62,449 52.79%
2020 26,92,344 15,63,297 58.06%

2. Industry Vs Company Growth:

In 9 out of past 10 years (i.e., from FY 11 to FY 20), company has outperformed the market in terms of growth.

In FY 20, slow down of Auto sector has happened even before Covid outbreak due to BS-6 norms which were w.e.f. 01st April 2020. This has led to decrease in demand in Auto sector since everyone waited for buying new BS-6 vehicles which will be available from FY 21. Even in this year, company has outperformed market and recorded just 16% decline as against 23% decline in the market. Schemes introduced by FM like additional depreciation did not help the sector much. Unfortunately, Covid outbreak has dragged the slowdown in the industry into FY 21 also which was expected to be continued till the year end.

3. Company’s share in industry’s Most Selling Cars:

Out of top 15 models of the industry, 10 models were of MSIL followed by Hyundai having 4 models & Honda having occupying the last model in the list. Below image confirms the same:

4. Segment Leader in Most of the Product Markets:

In 2019, Out of 13 passenger vehicle segments, MSIL was leader in 8 segments having more than 50% share in 5 segments as shown below:

5. Other Positive Financial Attributes:

Automobile industry is a capital intensive industry which acts as a strong entry barrier. Requirement of huge capital may require for huge borrowings which in turn results in huge interest & principal payments. MSIL is a ‘Net Debt Free Company’ (Means debt of the company can be cleared at any time with available Cash & Cash Equivalents) which removes one of the major expenses namely interest which is more prevalent in the industry. This helped the company to generate positive operating cashflows which can be invested for expansion without any further cost. Expansion helped the company to give good return on capital employed. Summary of Financial position of last 12 years is displayed here:

6. Other Indicators:

– Shareholding pattern

Past 11 years data is displayed here. Decent promoter’s & FII’s holding, increasing Mutual Fund’s holding though cannot be blindly taken as positive attributes, but acts as supporting attributes since Mutual Funds & FIIs invest money only after due review about the company and it’s present & future policies.

– Regular dividend payout

As evidenced by above picture, MSIL was regular in paying dividends despite regular investment in R&D and expansion. This increased value for the company and increased goodwill of the company.

Factors led to Market Dominance by MSIL:

a. Selection of Country & Niche Market:

India is a country with heterogeneity of population in terms of income, needs & wants, way of life etc. MSIL has chosen Economic passenger car / price sensitive market in the country i.e., middle class & above middle-class segment which is more sensitive to price when it comes to luxuries like car. This segment occupies majority of the population who were customers of Auto sector and want a comfortable car in low price. This helped MSIL to obtain control over the market in terms of market share by volume.

b. Variety of Products Offered:

In the customer segment selected, MSIL has started providing various products to its customer in wide varieties in low price range to cater the needs of the large customer base. Below image provides the number of products offered by each company in the segment. Later, MSIL has started targeting customers of each segment so as to gain control over the market. Below image shows MSIL’s presence in almost all types of car segments available in the market which provides wide range of choices for the customers in limited price range:

c. Connectivity of Service Centers:

A customer willing to purchase a car will definitely look for a car with good connectivity of service centers so as to have better maintenance. Number of service centers of MSIL are more than that of all other competitors combined. Number of service centers of all major players are tabulated here:

Company No of Service Outlets
MSIL 3614
Hyundai 1121
Tata Motors 720
Mahindra 696
Honda 430
Renault 343
Toyota 146

Further, for FY ended 2019, MSIL has 1398 Support Vehicles which will work as a mini service outlet in places (especially villages) where it doesn’t have service outlets & 765 quick response vehicles (for road side repairs). Below image from Annual Report of MSIL for FY 19 evidences the same:

d. Merger with SPIL – Boom for Diesel Cars:

Suzuki Powertrain India Limited (SPIL) was the major supplier of diesel engines to MSIL. In order to become cost effective to face growing local competition, company has merged with SPIL which resulted in consolidation of the business of manufacturing engines, creating greater synergies between the businesses of both companies and their large asset base, and providing access to better financial resources. This has resulted in increase of sale of diesel vehicles by 62% and an increase in company’s share from 19.2% to 25.2% in 2012-13.

In some of the future models like Ertiga (Price of Petrol variant is Rs 5.89 Lakhs & Diesel Variant is Rs 7.30 Lakhs), company has planned to substantially increase price of diesel car to encourage petrol engine sales for better capacity utilization.

e. Wide Product Range & Related Synergies:

Product rage of MSIL is very wide including every aspect related to Auto sector and not just limited to just sale of passenger cars. Below screen from Company’s Annual Report of FY 19 specifies related businesses of the company.

All above products are related to passenger cars which ensures effective utilization of their capacity and gives economies of scale to the company and provides synergy to both main as well as related business.

Product Related Strategies of MSIL: Each product of MSIL is launched with different strategy to capture different niche of the market. Following discussion provides glimpse of product strategies of MSIL w.r.t. some revolutionary products:

1. MSIL 800:

MSIL 800 was introduced in 1983 which was the first product of MSIL but it still zips across Indian Roads even now which makes it one of the longest surviving automobile brands in the country. It was targeted for growing middle class & small families especially in urban areas. Tagline of MSIL 800 is “Change Your Life” itself says that it is not just a car but a way of life. It has created a revolution in the Indian Market since it requires minimum maintenance & gives greater efficiency. According to Jagdish Khattar (Former MD of MSIL), MSIL 800 is first ‘dream car’ and our gift for ‘middle class’ consumers who wanted to upgrade from a two-wheeler to a car.

Pricing Strategy of MSIL w.r.t. this car was different over the time:

– Initially, it has followed penetration pricing to penetrate the market with low price so as to ensure decent market share for the product.

– Later when Hyundai launched Santro with innovative features and grabbed market share, MSIL has applied competitive pricing for this product and also entered into several innovative schemes through JV with various finance companies to benefit the potential buyers with car loans to be repaid over a long period extending up to seven years.

– After some time, it has applied discount pricing strategy to grab major market share & to remain in the competition

– Before launching of Tata India in late 98 / early 99, MSIL has made sharp cut to the price so as to make it available in less than 2 Lakhs to maintain good major share even after the launching of Tata Indica.

2. Alto 800:

This car was introduced in the market considering the youth in the country. It has many additional features like Wave front design, fresh and spacious interiors, best in class mileage, easy drive and handling and safer drive etc. Its tagline “Let’s Go” communicates message to youths that let’s leave boredom behind with the all new MSIL Alto 800 and enjoy every moment of life. It delivers fifteen percent higher fuel efficiency, having more interior space, more leg and shoulder space, more headroom and modern design lines.

Initially it was priced under competitive pricing (i.e., pricing based on competitor’s similar products with price adjustment for change in features). Later it was changed to discounted pricing strategy.

3. Omni Van:

It was a multi-purpose vehicle with 5 different versions i.e., 5 Seater, 8 Seater, Cargo, Ambulance & LPG to cater needs of users of different segments. It is used as passenger car as well as goods carrier. Earlier the MSIL Omni was positioned and advertised as a van. Later, considering ongoing usage it was renamed Omni and repositioned as the most spacious car on the Indian road. Later, having found that customers had different proposition, MSIL has positioned as “A Small Car that is Big on Space”

4. Wagon R:

It is one of the successful brands from MSIL portfolio in the premium segment of compact cars. It was initially priced under parity pricing theory so as to ensure that price is placed considering the value of the product. MSIL has differentiated this car with Hyundai’s Santro saying this car is 7CM taller than Santro which facilitates people to get it easy in and out. Later, MSIL has changed the position of this car in the market to target middle or upper middle class families, who look for space and sound engineering, as well as buyers looking for a rational and performance-oriented vehicle by changing the pricing strategy to discounted pricing technique.

5. A-Star:

It is a fuel efficient car designed keeping in mind aspirations of the urban economy conscious customers who seek best in class fuel efficiency, lower emission and high performance along with style which is positioned in premium A2 segment & targeted towards urban young professionals. It has contemporary styling, dynamic handling and ride quality, best in class turning radius, power, flat torque and superior performance made A Star a popular choice especially amidst the youth.

Summary of other product pricing strategies is as under:

– When Hyundai launched Santro, MSIL has launched stripped version of Zen (AC Car) at Rs 2.95 Lakhs with parity pricing strategy

– MSIL Swift & Ritz were priced on Value pricing strategy – based on perceived value of the customer (ignoring cost). This makes the customer to feel like getting best car for the value of money spent

– SX4 Grand Vitara & Kizashi were designed for premium class customers and hence followed premium pricing to grab the attention of high profile customers

Other Strategies of MSIL:

a. Marketing Strategy:

– Strategy during Initial days

When ambassador was its competitor in initial days, strategy of the company was to offer a compact, modern and fuel-efficient car. Thereafter improving its operational efficiency by upgrading manufacturing using innovative manufacturing techniques, increasing capacity, using information technology in manufacturing, continuous eye on launching of new and innovative products at regular intervals along with venturing into other related businesses.

– Segmentation

Market segmentation is the vital step in marketing strategy. Considering the growing demand for passenger cars from various segments, MSIL offers cars for different segments- like the small, the less costly MSIL 800, MSIL Omni, the middle level MSIL Zen, Swift and the higher level Swift Dzire, SX4 to Sports Utility Vehicle Grand Vitara etc. Segmentation will differentiate the market and offers relevant product to concerned segment of the market and makes premium pricing buyers to feel like getting superior product / service

– transformation of industry

Policies adopted by MSIL in the area of marketing and sales was based on the Japanese experience but modified to suit Indian conditions. This has led to transformation of industry from being a sales-driven organization to a totally customer centric organization.

b. Advertising Strategy:

– Ad Campaigns

MSIL was very successful in advertising its brand & products to public in an innovative way – the list includes ad campaigns like “Kya karoon papa petrol khatam hi nahi hota” & “Kitna Deta hai” & “India comes home in MSIL” and “Rishton Mein hum Jeete hain”, “Jayenge aap jaha… payenge aap MSIL Service Station waha” and so on which became very successful.

Through its advertisement campaigns, MSIL has communicated about its brand, connectivity & price range etc.

– Sponsorships to various TV shows

“Dance India Dance” – a famous reality show on Zee TV was sponsored by MSIL & Title sponsor of Just Dance show which helped MSIL to promote its brand to various prospective customers.

– MSIL Colors of Youth

MSIL has conducted this mega show in 2012 that offer students a platform to showcase their Talent & Knowledge to the country at large. This event covered 150 colleges in 10 cities across the country. Famous actress Isha Koppikar and Subir Malik were the judges for those events. This was conducted keeping in mind the Youth – which could be current / future customers & to promote its brand among them

c. Sales Promotion Strategy: Following is glimpse of various schemes & strategies of MSIL over the time:

– Rural Markets:

MSIL has noted the increase in in rural per capita & way of spending of disposable income in advance and started following practices for capturing rural market due to which it was able to increase rural contribution to total sales from 3.5% in 2007 to 26% in 2012

In 2010 , MSIL has tie up with ITC’s e-Choupal and Hariyali Kisaan Bazaar of DCM Shriram Group for better penetration into the rural markets. Later it tried to influence the opinion leaders of the village (like Sarpanch) by taking them for factory visits. MSIL aggressively marketed its brand at rural sporting events to sales fairs (Grameen Mahotsav) to SMS campaign for Gram Panchayat Members.

“Video on Wheels” a campaign where villagers get to see the screening of MSIL ads while sitting in an air-conditioned environment created in the back of truck.

Likewise, it has also done the same for orange growers in Nagpur, Jute mill owners or mango growers in Bengal.

– Others:

2003 – To attract customers, MSIL launched attractive campaign like “Change Your Life”.

– It has also provided Vehicle Insurance at Just Rs 1.

– It also conducted various contests in which winners entitled to gifts worth Rs 5 Crore.

– Agreement with State Bank of Travancore & Alliance with Union Bank for low interest vehicle loans

2004 – Introduced Rs 2599 EMI offer for MSIL 800 also highlighted the aspirations of scooter owners who can upgrade to car which was a successful campaign

– Modified Rs 2599 EMI to Rs 2499 EMI with certain changes

– ‘Teacher Plus’ scheme in a tie up with SBI which is focused on teachers who were interested to buy a new car – Targeted for a niche market which was not specifically dealt by competitors

2009 – Strategic tie up with IndusInd Bank for easy vehicle loans

2011 – ‘Eeco Meal’ Collaborated with McDonalds – Family contest form and winner will get MSIL Eeco

– It had also launched various offers like ‘Khulja Sim-Sim offer’ thereby who will buy the MSIL car before declaring the budget will get assured gifts

– Announced various discounts & loan and exchange mela to its dealers who further announced various schemes for Doctors, ZPH Schools, Colleges, State bank employees, LIC employees, State and Central Govt employees, Chartered Accountants, Retired government employees & their wives etc.

d. Pricing Strategy:

MSIL caters its products to all segments and has a product offering at all price points which makes the entire market accessible to MSIL thereby increasing market share of the company. About 70 % business from repeat buyers since MSIL has formed strategy to provide option to every customer looking for up gradation in his car.

It has followed Kaizen Costing from beginning whereby looking for continuous improvement in production process to make the final product economical.

MSIL Finance tied-up with 37 finance partners such as SBI, HDFC, ICICI, Bank of Baroda etc. which had a pan India presence

– More products in short range – benefits

To customers – large set of options allow customers to save his money as there are more chances of availability of a model with features only required by customer and not loaded with unnecessary features which may be useless to a customer

To Company – specialize in a specific domain and hence to exploit economies of scale. This strategy could help businesses to expand rapidly and capture those untapped markets

e. Distribution Strategy:

MSIL has unique distribution system which gave it a distinctive competitive advantage. Before MSIL, other manufacturers used to send vehicles from the factory to any part of the country by road with a driver which used to disappoint buyers since they are not the ones who are first using the car.

MSIL established a wide network of Dealers, MSIL service zones etc. across the whole country, even in remote areas which helped it to become first company in making sure that the vehicles which leave the factory and will reach the show rooms as early as possible and in ‘factory fresh condition’ by taking orders It has also reduced the time gap between the manufacture of the car and its availability to the customer.

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