Car Wars

The Economic Times - 10 July 2000

Maruti has had a lot of unsympathetic press lately, and the media post mortem of its strategy is not yet over. When Titan decimated HMT, the 'timekeeper of the nation', there was no editorial saying "Titans of industry can suddenly look like endangered species if the evolutionary tide of the market moves away from them"(Business Standard, July 5, 2000). The mechanical to quartz shift in the watch market definitely was an evolutionary tide, the like of which has not happened in the car market. Another evolutionary tide, the scooter segment of the two wheeler market collapsing, did not earn Bajaj Auto the screaming headline "market share hits an all time low" (Economic Times, June 24).

When Colgate's 60% plus market share was getting gobbled by Hindustan Lever, there was not much mention of "humbled giant" and "fall of the mighty". Incidentally, the outcome of that battle suggests that a fundamentally good company does fight back and early setbacks cannot be used to project final outcomes. Colgate still has half the market. When new entrant Whirlpool steadily gained refrigerator market share at the expense of the leader, it was said that the global experience was that the big three shared the market between them, so who can resist this evolutionary tide.

I suspect that the reason we attach so much importance to Maruti's performance is because Maruti to us is not merely a car manufacturer but a symbol of larger things. Its decline in profit is a symbol of the damage potential that the Government has, when it interferes in business. Its loss of market share symbolises national vulnerability. The best of modern India not being able to withstand assault from outsiders. But there is a need to put symbolism aside and assess what learnings there are, which can help the sectors in India that are yet to face the heat of competition.

Can any company reasonably aspire to hang on to incredibly high market shares, built during a period of virtual monopoly? My answer would be 'no'. Even political parties get voted out, despite running a good ship, merely because people want a change. I would say that if Maruti hangs on to 40 to 50 % of the market at the end of the next three years, it will have done a stellar job. Coke has less than half the market worldwide, and in markets with more quality competitors the market leader could have under 20%. The corollary usually is that increased competition drives up overall marketing activity leading to increased market sizes that offset drop in share. However in a market where growth is limited by affordability and driven mainly by rise in income or financing, this will be a long haul. So judgement based on monthly market share fluctuation isn't really worth very much. Maruti has the capability, going forward, to generate volumes from markets where competition cannot go. It has a natural advantage in the large second hand car market where most of the cars are its own; it is the only one that can drop price thresholds and mop up volumes from those large numbers of aspiring 'have somes'.

What else could Maruti have done to protect itself better? Should it have launched a whole slew of new models before competition hit, and covered all price points. That would have helped, but only a little, because the 'new wife' syndrome would still have tempted customers to buy newer options. Should it have proactively improved its product range continuously when it was still a monopoly? Yes in an ideal world, which monopolistic situations are not. However while Maruti may not have done its very best on this count, it certainly did better than market leaders in other industries (like tractors). It did not offer ancient technology and substandard service to customers, it did not stop with just one size to fit all needs, and it had a presence in all product segments where competition entered. Going forward, this isn't enough. Instead of besting competition at the product feature and price point game, Maruti must define a new race by ushering in the era of a consumer benefit segmented market, not a product feature and price segmented one.

What it definitely should have done to protect itself better was to use the first mover advantage and raise the bar on services and on brand values. This would have created emotional exit barriers for customers, and created a tougher battlefront for new entrants than the present one of product features and price. The Maruti brand had all the right brand values in its early years. It was seen as the challenger in a land of jaded champions. Its core values were modernity (new generation), and a whole new, never before set of consumer experiences (product and service) at comparable prices. It was the knight in shining armour liberating the consumer from the world of mediocrity. It fulfilled the novelty and status need, it represented the culture of a new India shedding its backwardness, and its relationship with younger richer customers was very empathetic. As the environment changed, Maruti did not reinvent its brand, and laid itself open to others doing a Maruti on them. It spent a lot of money on product feature advertising ("what do I give you "), but didn't do as well on building brand values ("what do I stand for') and relationships with customers. ("what do I mean to you")

Maruti's biggest competition buster is the impressive dealer network and infrastructure that it built over all these years. But dealers in a monopolistic situation tend to go a bit easy, and the bar on service didn't get raised high enough to create a huge value barrier for competition to scale. However when this network gets its act together - and it can, with concerted effort, because the fundamentals are strong - it will give competition a run for its money. The Chairman and CEO of Caterpillar had this to say, after the company "proved doomsayers on Wall Street, at business schools and in the press wrong" (about Caterpillar getting killed by Komatsu). "The biggest reason for Caterpillar's success (is) the tight working relationships we forged with our independent dealers to meet customers' needs. [When treated correctly] dealers can serve as sources of market information and intelligence, as proxies for customers, as consultants, and as problem solver. They can be more than a channel to customers and (provide them with a range of services like) advice on the selection and application of a product, financing, insurance, operator training, maintenance and repair and help in deciding when it makes economic sense to replace the machine."

Car Wars India is far from over. What we have seen is just a few opening battles: "After suffering some fearful losses in 5 of the 11 years from 1982 to 1992, Caterpillar rebounded financially with record profits and a return on equity in the mid to the high thirties". To rebound, Maruti will need to articulate a compelling brand vision and leverage its size, population and impressive distribution infrastructure to set new rules of the game and raise the bar even higher for its competitors.