Marketing case study Hyundai Maruti PDF

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MKTG/313 IBS C e nte r for Ma na g e m e nt Re se a rc h

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Hyund a i Ind ia : An A b le C ha lle ng e r to Ma ruti Suzuki? This c ase wa s w ritte n b y A dapa Sriniva sa Rao , und e r the dire c tio n o f De b ap ratim Purkay astha, IBS Hyd e ra b a d. It w a s c o m p ile d fro m p ub lishe d so urc e s, a nd is inte nd e d to b e use d a s a b a sis fo r c la ss d isc ussio n ra the r tha n to illustra te e ithe r e ffe c tive o r ine ffe c tive ha ndling o f a m a na g e m e nt situa tio n.

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 2014, IBS Center for Management Research. All rights reserved. To order copies, call +91 9640901313 or write to IBS Center for Management Research (ICMR), IFHE Campus, Donthanapally, Sankarapally Road, Hyderabad 501 203, Andhra Pradesh, India or email: [email protected]

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Hyundai India: An Able Challenger to Maruti Suzuki?

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“The slowing market for passenger vehicles is worrying, but the market will eventually revive and get back to its growth trajectory. There is no doubt on the future growth potential of this market… It took us 15 years to produce and sell 5 million cars; the next 5 million cars may be sold in the next 5-8 years itself. Apart from exporting cars, we are clear that the Indian market will grow and we will grow with market or may be faster than the market by investing in new capacities and launching new cars.”1 – Bo Shin Seo, MD and CEO of Hyundai Motor India Limited in October, 2013.

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“Hyundai India had built a great foundation. At No. 2, it was the only company that could have been a true rival to Maruti. They have failed to build on it.”2 – Deepesh Rathore, MD, IHS Automotivea, in December 2012.

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The new ‘Grand i10’ launched by Hyundai Motor India Limited (HMIL) in September, 2013, got 10,000 bookings within 20 days of its launch. The Grand i10 was the first small car from HMIL launched with a diesel engine and was well received in the market. Some other higher priced cars from the stable of HMIL like the Hyundai Elantra and Fluidic Verna launched in India in 2011 and 2012, too, were a big hit and overtook the market leaders in their respective segments, the Toyota Motor Corporation’sb (Toyota) Corolla and Honda Motor Company, Limited’s c (Honda) City in sales. The success of such high priced models boosted the image of HMIL from being a manufacturer of small, affordable cars to that of an automobile giant which could produce bigger and more sophisticated cars. Slowly but steadily, Hyundai started to emerge as a leader in most of the segments of the Indian automobile industry.

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HMIL, a wholly owned subsidiary of the South Korean automaker Hyundai Motor Company, followed a unique strategy of offering stylishly designed feature cars with affordable price tags. According to industry observers, the market leader in the Indian automobile market, Maruti Suzuki India Limitedd (Maruti Suzuki), followed a value for money approach where fuel efficiency and good after sales service were given importance over style and features. Other top global automobile companies which launched their products in India failed to garner a good market share due, in part, to their inability to understand the Indian market. HMIL used this gap for reasonably priced cars with good features in the market to build a good brand image for its cars in India. Its

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IHS Automotive, headquartered in Engelwood, Colorado, USA, is a leading automobile consulting firm which gives strategic advisory and transaction services to its clients. Toyota Motor Corporation, headquartered in Toyota City , Aichi, Japan, is one of the top automobile companies in the world. It entered India in 1997. As of early 2014, it offered the Corolla, Innova, Etios, Fortuner, and Camry brands in India. Honda Motor Company, Limited, headquartered in Minato, Tokyo, Japan, is a leading manufacturer of automobiles and motorbikes in the world. It entered India in 1995. As of early 2014, it offered theBrio, Amaze, City, and CR-V brands in India. Maruti Suzuki India Limited, New Delhi, India is the top automobile manufacturer in India. It is a subsidiary of the Japanese automobile manufacturer Suzuki Motor Corporation. 1

Hyundai India: An Able Challenger to Maruti Suzuki?

globally acclaimed ‘Fluidic Sculpture’ design inspired by nature gave its latest car launches an attractive look. Many analysts opined that the unique ‘Fluidic Sculpture’ design gave HMIL an edge over its competitors. Rather than just focusing on the top end of the market, HMIL also released a mini car called Eon in 2011 to challenge the dominance of Maruti Suzuki’s Alto in a crucial segment which gave volumes. Featuring advanced styling, the Eon offered more features and better fuel efficiency than Maruti suzuki’s Alto. Despite not overtaking the Alto immediately, Eon’s sales showed a steady increase. With an eye on attracting tech savvy younger customers, HMIL started to make extensive use of the social media and even launched a mobile app which aimed at increasing its engagement with its customers. By the year 2013, HMIL had sold five million cars in India and emerged as a serious contender to the top slot in the Indian automobile market.3 Commenting on the occasion of reaching the milestone, Bo Shin Seo (Seo), MD and CEO of HMIL, said, “The five millionth car roll-out is an important milestone and a symbol of Hyundai's long-term commitment to the Indian market. We will continue to focus our efforts in the Indian automobile industry through investments and world-class products.”4

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Despite the success of its various launches, Hyundai still trailed the market leader Maruti Suzuki in the most lucrative mini car segment (A and B1 segments) in India. HMIL’s overall market share too started falling on account of increasing competition from other players in the market. HMIL’s competitors released utility vehicles like mini SUVs and mini MUVs which were increasingly being preferred by Indian customers. HMIL’s entry into the lucrative utility vehicle market was not successful as many of its models ended up being failures. The Indian automobile market too was experiencing a downturn due to the problems faced by the economy like high inflation and interest rates. But Seo remained optimistic about HMIL’s position in the Indian market and lined up a slew of launches to further increase its market share. “The message from the headquarters is to make Hyundai the most loved brand in the country. We have been one of the fastest growing brands and we are likely to post the highest ever market share this year [2013]. The aim is to be the segment leader or be a strong challenger to the segment leader,”5 he said. One of the factors working in favor of Hyundai was that many small car users were upgrading to higher priced cars where Maruti Suzuki did not have a significant presence.

BACKGROUND NOTE

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Soon after India became independent, the Government of India (GOI) decided to keep the Indian automobile industry protected. Foreign companies were not allowed to operate in the country. The only way that foreign automobile companies could have a presence in the country was by entering into joint ventures with the local companies. As a result of this policy, the Indian automobile market had just a few models to offer for a long time after independence – the ‘Ambassador’ from Hindustan Motors and some ‘Fiat’ models marketed in India by Premier Automobiles. Restrictions on foreign collaboration made it difficult for Indian automobile companies to improve their technology. Cars were priced high but were of inferior quality. In the 1980s, GOI changed its policy and tied up with the Japanese automobile company Suzuki to introduce an affordable small car in India. A joint venture between GOI and Suzuki, Maruti Udyog Limited (Maruti Suzuki India Limited), started manufacturing and selling the mini car ‘Maruti 800’in 1983.

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After economic reforms were introduced in the early 1990s, GOI de-licensed the automobile industry and allowed the entry of both domestic and foreign manufacturers to start their operations. By the late 1990s, several foreign manufacturers like Ford Motor Companye, General Motors Company, LLCf (GM), Toyota Motors, and Honda Motors entered the Indian automobile market. e

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Ford Motor Company, headquartered in Dearborn, Michigan, USA, is a leading American automobile manufacturer. It entered India in 1995. As of early 2014, it offered the Figo, Endeavour, Fiesta, and Ecosport brands in India. General Motors, LLC, headquartered in Detroit, Michigan, USA, is a leading automobile manufacturer in the world which makes cars under 10 different brand names. It entered India in 1995, As of early 2014, it offered the Optra, Tavera, Aveo, Spark, Captiva, Beat, Cruze, Forester, and Sail brands in India. 2

Hyundai India: An Able Challenger to Maruti Suzuki?

Hyundai Motors Company (HMC) of Korea too entered the Indian market in 1996 and set up its subsidiary called Hyundai Motors India Limited (HMIL). HMIL set up its manufacturing unit, a first for a foreign automobile company in India, and introduced its first car, the ‘Santro’. Its manufacturing facility was set up at Irrungattukottai near Chennai, in the South Indian state of Tamil Nadu, at a cost of US$614 million. The facility had an initial capacity to produce 120,000 cars and 130,000 engine transmission units per annum. Initially, HMIL wanted to first introduce a medium sized sized sedan, the Accent, in the Indian market. However, it later opted for a small car, the Santro, as a market study it commissioned found that there was a lot of demand for small cars which was not completely met by Maruti Suzuki. Contrary to the opinion among industry analysts that it might not be able to compete with the small cars of Maruti Suzuki, the Santro was well received in the market and went on to become a big hit. It overtook the segment leader at that time, Maruti Suzuki’s Zen, and sold a record 75,000 vehicles between April 1999 and March 2000. The success of the Santro made HMIL the second biggest automobile company in India. Analysts attributed the success of the Santro to the company’s excellent understanding of the market and its ability to respond quickly to changing trends. The Santro’s success was attributed also to HMIL’s innovative marketing strategies. HMIL conducted an extensive market survey before it started its operations in India. This gave it a very good understanding of the needs of the Indian customers. Many other foreign car manufacturers like Ford and Adam Opel AGg (Opel) which entered the Indian market at that time released their old and globally successful models like Ford Escort and Opel Astra into the market. These models were not suitable for Indian market conditions and were quickly rejected by the customers.

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Hyundai later introduced many other car models in both the hatchback (Getz) and sedan (Accent, Verna, Elantra, and Sonata) segments in the Indian market. However, it was not all plain sailing for HMIL in the Indian market. Some of its models failed. While entry level sedans like the Accent and Verna were received well, upmarket models like the Getz, Elantra, and Sonata flopped in the market.. SUV models like the Terracan too failed to attract customers. One of the main reasons cited by analysts for these failures was that HMIL had committed the same mistake committed by other foreign players of introducing foreign models directly into the Indian market without undertaking a proper market study. Many of these high-end models were not affordable to Indian customers and were not customized to suit the Indian conditions. HMIL later withdrew many of these models and focused on some of its best selling models.

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Some of HMIL’s models, however, did well and the demand for them went up over the years. In order to cater to the increasing demand, HMIL set up a second manufacturing plant in 2008 at Chennai with an additional capacity of 330,000 units per annum.6 This second plant improved HMIL’s total installed production capacity to 600,000 units per annum.In the year 2007, HMIL set up a research and development center in the South Indian city of Hyderabad. The key objective of setting up the R&D unit was to make India the hub for developing and manufacturing its small cars sold globally.7 Over the years, HMIL also made India its export hub. It started exporting to 120 countries across the globe and some of its models like the i20 were exclusively made in India. By March 2012, HMIL had exported a total of 1.5 million units and remained the top automobile exporter in India for seven years in a row. 8 For the year 2012, HMIL’s revenues stood at Rs. 256 billion — an increase of 1 percent from the Rs. 254 billion recorded in 2011. 9

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ON A MARCH With the incomes of the Indian middle class customers rising, the Indian automobile sector exapaned from 2005 to 2013. The sales of passenger vehicles increased from 1,549,882 units in 2007-08 to 2,686,429 units in 2012-13 (Refer to Exhibit I for trends of automobile sales in India). The gross revenues of the Indian automobile manufacturers increased from US$ 30.5 million for g

Adam Opel AG, headquartered in Russelsheim, Germany was a leading automobile manufacturer and a subsidiary of the American General Motors Group. 3

Hyundai India: An Able Challenger to Maruti Suzuki?

the year 2007 to US$ 58.6 million for the year 2011 and recorded a compounded annual growth rate (CAGR) of 17.7 percent (Refer to Exhibit II for a chart of Indian automobile manufacturers’ revenues from 2007 to 2011). HMIL followed a unique business model to expand its share in the booming market for passenger vehicles in India. The market leader in the Indian automobile market, Maruti Suzuki, had traditionally followed a strict value for money approach for the cars it sold in the Indian market. Though offering decent features, good fuel efficiency, and reliable after sales service for a reasonable price, its cars lacked the chic element. As Suzuki followed the strategy of strictly focusing on producing small and fuel efficient cars globally, its cars did not have a uniform design language like other global car majors did. The market image of Maruti Suzuki had always been staid; there was no focus on features and design sophistication. This was the area on which HMIL focused after the success of its early models created a good corporate image for the Hyundai brand in India. Even though Hyundai did not have a luxury brand like Volkswagen’sh Audi and Honda’s Acura, its vehicles were well known for their design refinement. Hyundai globally followed a unique design language for its cars called ‘Fluidic Sculpture’ i which gave a unique uniform look to all its models and a sophisticated image to its cars. In a market like India with a traditional liking for good looking products, Hyundai’s cars became a big draw for rich and upper middle class customers.

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From being strictly value conscious, the Indian automobile market began to emerge as a market which gave importance to features and expensive models like SUVs. Hyundai’s models like the i10, i20, and Elantra were loaded with the latest features like Bluetooth, rear parking cameras, push button start, and cruise control. Many of the features till then, had not been available in the lower end models sold in the Indian market.. HMIL started to introduce both low priced and high priced models to expand its product line in the market. In the year 2011, it launched a mini car called the Hyundai Eon to challenge the dominance of Maruti Suzuki in the small car segment, which accounted for 25 percent of the total car sales in India.10 Commenting on the launch of the Eon, HMIL’s then Managing Director and CEO, HW Park, said, “Eon has been specifically built keeping in mind the varied Indian conditions and special requirements of the customers here. It will further expand our market share in the fast-growing small car segment in the Indian market.”11

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Maruti Suzuki got a big chunk of its sales from its mini car range like the Alto and Wagon R. With the Eon, HMIL hoped to attract younger customers who were buying their first cars and lower middle class families who could not afford bigger cars. Based on the same Fluidic Sculpture design, the Eon offered better styling and lots of features like airbags and inbuilt premium music systems which were a first for the segment. With the Eon, HMIL offered more value to customers in the form of better fuel efficiency for a slightly higher price than the Alto. The Eon was jointly designed by Hyundai’s R&D units in Hyderabad and Namyang (South Korea). It was successful and started to give good competition to the Maruti Suzuki’s Alto. For the month of December 2013, the sales of the Eon were 5,428 units while the sales of Alto were 23,823.12 Though there was still a wide gap between the two models, the difference was attributed by industry observers to the trust that the Alto brand had built up over a long time.

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TARGETING THE TOP END OF THE MARKET

In 2011, HMIL launched a new variant of its mid-level sedan the Verna called as the ‘Fluidic Verna’.13 The first version of the Verna which was launched in the Indian market in the year 2006 did not do well as it featured an outdated design. The new Fluidic Verna boasted of luxury interiors, sophisticated technology, and premium appeal. HMIL launched the Fluidic Verna in 10 h

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Volkswagen, headquartered in Wolfsburg, Germany, is the third biggest automobile manufacturer in the world and the biggest automobile company in Germany. It entered India in 2007. As of early 2014, it offered the Polo, Vento, Jetta, Passat, Beetle, Phaeton, and Touareg brands in India. Fluidic Sculpture, a new design philosophy introduced by Hyundai for its cars in 2010, embodies a dynamic form execution based on the curves seen in nature. 4

Hyundai India: An Able Challenger to Maruti Suzuki?

design trims with 3 engine options to choose from. As the Indian automobile market was becoming more and more feature driven, HMIL added a host of new features which had not been available in that segment till then. The new Verna was an instant hit in the market and emerged as the segment leader, overtaking the Honda’s City and Volkswagen’s Vento sedans. As Fluidic Verna was available in both the petrol and diesel versions, it easily overtook Honda City which was only available with a petrol engine. Within a year of its launch, the Fluidic Verna had garnered a 29 percent share in the mid-size sedan market.14 HMIL scored another major victory over its rivals with the re-launch of its Executive compact sedan, the Elantra, in August 2012 (Refer to Exhibit III for passenger car segments in India).15 The Elantra had been launched first in the Indian automobile market a decade earlier (in 2004) but it was later discontinued in 2007 due to poor sales.16 Though rated one of the best in its class, analysts said that the Elantra was ahead of its times and was not affordable to many Indian customers. In the early 2000s, the few customers who could afford higher priced compact cars preferred more renowned brands like the Toyota Corolla. HMIL’s image as a maker of small cars was another reason for the poor reception to the Elantra in the early 2000s. However, by the year 2012, HMIL wanted to cash on in its new Fluidic Sculpture design philosophy which had proved to be successful with the launch of the Fluidic Verna and it relaunched the Elantra. Immediately after its release in 2012, the Elantra emerged as the s...