Pricing Strategy Report - Group 5 - Maruti Baleno
Pricing Strategy Report - Group 5 - Maruti Baleno
Pricing Strategy Report - Group 5 - Maruti Baleno
TABLE OF CONTENTS
INTRODUCTION ............................................................................................................................................. 3 Why does a Product Fail?.......................................................................................................................... 3 Maruti Baleno: The Product, the Price, and the Positioning .................................................................... 6 THE LAUNCH ................................................................................................................................................. 7 THE COMPETITORS ....................................................................................................................................... 8 THE TVC: Analysis .......................................................................................................................................... 9 Maruti Suzuki Baleno: Pricing & Positioning ................................................................................................. 9 MARUTI BALENO- THE CAR ......................................................................................................................... 10 THE INITIAL PRICING APPROACH ................................................................................................................ 10 THE MARUTI ADVANTAGE .......................................................................................................................... 11 THE RESPONSE FROM THE MARKET ........................................................................................................... 11 MISMATCH IN PRICING AND POSITIONING ................................................................................................ 12 MARUTI RESPONDS..................................................................................................................................... 13 ENTRY OF SX4 : A COMPARISON ................................................................................................................. 14 FACTORS THAT SHOULD HAVE BEEN CONSIDERED .................................................................................... 15 DIFFERENTIATION ................................................................................................................................... 15 RELEVANCE ............................................................................................................................................. 15 ESTEEM ................................................................................................................................................... 15 TECHNOLOGY .......................................................................................................................................... 16 WHAT COULD HAVE WORKED IN BALENOS FAVOR................................................................................... 16 AN ALTERNATIVE PRICING AND POSITIONING STRATEGY .......................................................................... 16 NEW PRICING APPROACH ........................................................................................................................... 17 PRODUCT REPOSITIONING PROPOSAL ....................................................................................................... 18 CONCLUSION............................................................................................................................................... 18 REFERENCES ................................................................................................................................................ 19
INTRODUCTION
Why does a Product Fail?
The reasons for a product to fail can be many , it could be due to manufacturing problems , it could be because of supply chain issues ,it can also fail because of the way it is distributed or promoted or even if the strategy for the product is wrong in the first place. However the group understands that though these are major factors that can lead to a downfall of any product, but there are 3 major reasons why a product usually fails. We have coined the term 3Ps Model (no reference to Kotlers 4Ps) for this particular framework. Basically what we feel is that if a product can satisfy this framework it is guaranteed to be a sure shot success. The framework is as follows:
Product
Price
Positioning
Product
It is a tangible good or an intangible service that is mass produced or manufactured on a large scale with a specific volume of units. Intangible products are service based like the tourism industry & the hotel industry or codes-based products like cell phone load and credits. Typical examples of a mass produced tangible object are the motor car and the disposable razor. A less obvious but ubiquitous mass produced service is a computer operating system. Packaging also needs to be taken into consideration. Every product is
subject to a life-cycle including a growth phase followed by an eventual period of decline as the product approaches market saturation. To retain its competitiveness in the market, product differentiation is required and is one of the strategies to differentiate a product from its competitors
Price
The price is the amount a customer pays for the product. The business may increase or decrease the price of product if other stores have the same product. Price is the only element that involves revenue rather than expense, so its impact can be dramatic. Pricing not only highlights the importance of strategies but also conveys it to the customer in a way he can understand.
The successful producer of an article sells it for more than it costs him to produce - that's his profit. The customer buys it because it is worth more to him than he pays for it - that's his profit. No one can long make a profit producing anything unless the customer makes a profit using it. - Samuel Pettengill, US Congressman, 1930's
Positioning
Positioning has come to mean the process by which marketers try to create an image or identity in the minds of their target market for its product, brand, or organization. Pricing and Positioning go hand in hand, there needs to be an optimum balance between the two. Once this balance fails the product is bound for Failure.
Generally, the product positioning process involves: 1. Defining the market in which the product or brand will compete (who the relevant buyers are) 2. Identifying the attributes (also called dimensions) that define the product 'space'
3. Collecting information from a sample of customers about their perceptions of each product on the relevant attributes 4. Determine each product's share of mind 5. Determine each product's current location in the product space 6. Determine the target market's preferred combination of attributes (referred to as an ideal vector) 7. Examine the fit between:
8. Interest and started a conversation, you'll know you're on the right track.
Product
Price
Positioning
5
Price
Priced at points close to the competitors, Baleno was priced at an ex showroom price of 8 Lacs which was too pricey at that point of time. It was one of the costliest car in its segment and Maruti known for its value for money component didnt go down too well with the customers
Positioning
Is your product or service unique, better, economical, profitable (for the market), or does it have other distinctive criteria that will differentiate it from the many other products and services available? These points of differentiation must be important and valued by your customers (for example, being marketed as an economical product in a luxury goods market would be a significant positioning mistake or vice versa).
Positioning your product needs to be focused on delivering a valued and distinctive product to a specific market and delivering in a way that customers accept (that's the hearts and minds part of the equation). Good product positioning will make it easy for
your intended customers to define why they want to buy the product (they will see the unique benefits).
THE LAUNCH
The Baleno was launched in 1999 when the market was booming and the Indian Auto Industry was growing at 20% CAGR. This also attracted a lot of foreign players into the market, notably Opel ,Mistubishi , Honda and Ford. It was targeted as a Mid-Size luxury sedan , It was an upgrade on Marutis super successful esteem that had dominated the sedan market for a long time. Maruti wanted to target middle aged businessmen and executives with the Baleno. Another reason for launching the Baleno was the declining market share of Maruti with the advent of foreign players in the market and also a glorious opportunity in capturing an untapped and rising segment in the ever growing Indian auto industry.
WHEN
In 1999 A time when foreign players had started making their presence felt.
Segment: Mid Size Luxury FOR WHOM Target: Middle Aged Business Executives
WHY
THE COMPETITORS
MISTUBUSHI LANCER
Price - 7.22lacs Engine 1.4 L Petrol engine @109bhp Origin Janpanese Car
OPEL ASTRA
Price - 6.77-8.64 lacs Engine 1.4 L Petrol engine @90bhp Origin German Car
HONDA CITY
Price - 7.57lacs Engine 1.4 L Petrol engine @100bhp Origin Janpanese Car
FORD ESCORT
Price - 6.69lacs Engine 1.5 L Petrol engine @95bhp Origin American Car
Some of the important product features were: 1) It had a mileage claim of 12kmpl, which was decent and competitive with the segment mileage. 2) According to industry experts it had the most technologically advanced engine 3) It had a turning radius of 4.9m, the best in its segment. 4) The only flipside to this product was lowest power capability in the segment of 94bhp@6000 rpm. However this was a very minor competitive disadvantage as this is a very small issue in terms of customer preference for a car.
Produ ct
Cost
Price
Value
Custo mers
11
Baleno was targeted at middle aged business executives doing well in life. Now, from a consumer behavior research report that we referenced online, we gathered that the people in this target segment value sophistication, reliability, status, and exclusivity while making the car purchase decision. Even the price point at which Baleno operated was associated with luxury and sophistication. However the message communicated by Maruti in their television commercials and print advertisements was something else altogether. The TVCs and the print advertisements positioned the car as something meant for frequent fliers. This was a subtle comparison of the car with an airplane and the emphasis was on speed and superior performance of the car. The other positioning statement that they had coined initially of the car being an owners pride was relegated to the background, and thus the wrong message was being communicated to the target group. Famous magazines and newspapers gave prominent space to their frequent fliers ad campaign and thus the spread of an incompatible message was quite quick and widespread.
12
The customers reacted by preferring to purchase imported cars in the same segment that promised to deliver what they looked for i.e. exclusivity and style. Thus Maruti Baleno, despite being a good product, lost out to its foreign competitors owing to a confused communication strategy which was unaligned with their pricing strategy and the segment of customers they were looking to cater.
MARUTI RESPONDS
After waiting four five long years, Maruti finally decided to revitalize the scene in late 2004, when they reduced the prices for Baleno drastically (to the tune of 25%). From a price band of Rs 7.6-Rs 8.6 Lacs they dropped to the Rs 5.6-6.5 Lacs one. This reduction in prices was also complemented by feature enhancement. They made the value proposition more lucrative for the customers by adding technologically advanced features like automated rear view mirrors, Power Alarms, and Climate Control Systems. This was truly a last ditch effort by Maruti to save Baleno from extinction. In fact by the time this move was made, they had already started working on the replacement offering for the upper C segment (which soon came to the market as SX4). Once again they went wrong as they did not change the positioning and the communication strategy with the change in prices. They continued to target the car at the middle aged business executives, and continued to sell on the proposition that it offered luxury and exclusivity. Not surprisingly, this last ditch effort of theirs failed, and the car was soon phased out.
13
Variant
Price Launch)
(At
SX4 was positioned with a catchy statement-Men are back which communicated that the car was macho, sturdy, powerful, energetic, and aggressive. The car was targeted at young achievers and ambitious young executives who were looking for a car that reflected style, performance, and luxury. The launch was successful with the car selling more than 3500 units in the first three months.
14
RELEVANCE
TECHNOLOGY
DIFFERENTIATION
Maruti Baleno was launched with the motive of making Marutis presence felt in premium segment high end sedan market, after its success over almost two decades in small car segment and appreciation of its Esteem model as well. But the product offered to customer could not differentiate well from the offerings by the competitors who were leaving no stone unturned to establish their hold in Indian markets. This variant had attributes comparable to others in the segment, hence no distinguishable looks was observed by the customers, who opted their value for money mindset to purchase cars from other players at similar prices with enhanced utility and features.
RELEVANCE
This car do catered to a segment with many options due to competitors trying to capture the market that space with their offerings too. Thus overall the segment became way too cluttered. Moreover, this car wasnt catering to any specific need that establishes its customer base away from the leader in the category Lancer.
ESTEEM
When a player is entering such a segment like entry level sedan, the positioning of its customers/ potential buyers is very specific. The conscious buyer is looking for luxury and style statement; a few buyers are the ones who are switching from small segment cars to these entries level sedans.
15
But these cars as Positioning was made, does not evoke ESTEEM in the buyer. Also, mismatch with the Price was a major reason for failure of this product.
TECHNOLOGY
As per reports observed on various automobile forums and sites, this car was having an advanced and Superior engine performance, but low power specification as such. Also, at high speeds the car was reported to stumble, an unusual characteristic observed in the segment. Thus, pricing premium for technology on offer wasnt a win-win battle for Maruti Baleno, as potential customers and even the loyalists were upset by the reviews offered by car experts on the vehicle performance.
16
Customer
Value
Price
Cost
Product
Complete analysis of customers and the perception of the value offered should hadbeen done.
17
CONCLUSION
Wrong Combination of Pricing & Positioning led to the failure of Baleno: The Company had been consistently, reducing prices to gain market share in the Indian market, while keeping its positioning of it being a mid size luxury car, the same. Once the car fell out from the price bracket of this car category it was no longer perceived by the people in generlia as a luxury car, which led to lower perceived value of the car by the people
Tweaking any one of Pricing & Positioning will not help in such cases: As discussed in the previous point, by slashing the prices continuously , Maruti could no longer justify Baleno's image as a luxury car which clearly indicates that your pricing and the positioning of the product should be in sync with each other in order to ensure the sustainability of the product
18
Changes in the Combination of all components required to sustain the idea: The alternate pricing and repositioning strategy suggested by us looks at striking a perfect chord between the three vital components- Price, Positioning and Target group. After comprehensively analyzing the entire case, we inferred that an overall make-over was required for all the components, in order to avoid a mis-match among these components and so that they reinforce each other.
REFERENCES
Brand Audit Report Passenger Sedan- Deutsche Consultants Maruti Case Study: MARUTI UDYOG LIMITED Managing competition successfully Marketing Management, Philip Kotler Pricing Strategy (Power Point Slides by Dr. Anshu Jalora)
19