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CHAPTER III

LITERATURE REVIEW

3.1 Introduction

To summarize the relationship that once existed between producers and

consumers let us go to what Mr. Ford said, “You can have any colour of Model T you

like as long as it is black”. True, nobody made any commercial sense in it because it

would not have cost him anything more to offer the car in different colours. Take a

psychological perspective and you gather that what Mr. Ford was really saying was

that he has it in his power to give you a car in any colour your heart desires but he is

going to withhold the fulfilment of that desire. Instead you can have the colour he

wants you to have and no other”.1 He does sound a harsh and punitive parent and it is

so and he could afford to be that because in spite of mass production, the demand

exceeded supply during the period of Model T domination. Hence, the producers

treated the consumers as one big undifferentiated market. They dismissed the needs of

different groups or segments as irrelevant and completely ignored the personal likings

of individuals. This production orientation i.e. the domination of producer over

consumer had been prophesized by Adam Smith as early as in 1779. He said that

production and not consumption is the ultimate end and object of all industry and

commerce.

3.2 The Marketing Concept

During the 1950’s a different concept called ‘the marketing concept’

challenged the production orientation. The new perspective made the producers to

shift their focus form selling whatever they could make, to making whatever they

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could sell. The producers were compelled to identify the needs, wants and preferences

of consumers to satisfy them better. For that reason the modern business gurus urge

the producers to stay so close to consumers as they were prior to the industrial

revolution of the eighteenth century. By that way, the consumers could make their

needs and preferences known directly to the producers and ensure customized

products.2 As stated by Kotler (2003)

3 the aim of modern marketing should be to

understand the consumers so well that the product or service fits and sells itself. His

opinion is that an ideal marketing effort should result in a consumer who is ready to

buy. According to Parasuraman and Colby (2001)4 this line of argument goes beyond

the traditional marketing theories that focus on the four Ps – the Product, Price, Place

and Promotion- that are dominated by a production orientation and hence are not

suitable to a competitive atmosphere. In a competitive environment a producer who

has not identified the requirements of the customer cannot achieve sustainable

competitive advantage because of the proliferation of similar competitive product

offerings, the almost instantaneous imitation of price based promotions of the

company by competitors and the increasing demand for superior service from

consumers. This indicates that marketing success stems from serving consumers well;

not from just selling to them. As a final point, Storbacka, et al. (1995)5 underlines that

unlike the traditional orientation of how to acquire consumers or how to create a

transaction the modern marketing approach should be oriented towards protecting the

existing customer base.

Automobile offerings consist of a tangible good accompanied by many related

services. As indicated by Peck (1995)6 motor industry could predict little growth in

the profit margins due to market maturity, recession and global over capacity. For that

62

reason, the motor manufacturers and their dealers need to understand that it is the

after sales and peripheral services, spares and accessories which will remain their

main source of profit. The delineation between manufacturing and services has been

breaking down for sometime now and service quality has become a principal device

for building consumer loyalty and a principal means of differentiation. It is important

to understand that one does not stop from being a consumer after a delivery or sale.7

The relationship built by the manufacturer or dealer can make the consumer’s

ownership experience delightful and keep them so happy that they not only keep

coming back but also enthusiastically recommend the firm to others.8 Data on

automobile brand choice show a high correlation between being highly satisfied with

the last brand bought and the intention to buy the brand again. Referring to a survey

Kotler (2003)9 states that 75% of the Toyota buyers were highly satisfied and almost

75% of them intend to buy a Toyota again. Similarly 35% of Chevrolet buyers were

highly satisfied and almost all of them intend to buy a Chevrolet again. Therefore,

Kotler asserts, “A business must be viewed as a customer satisfying process, and not

as a goods producing process”.10

3.3 Factors that explain Consumer Satisfaction

The factors that contribute to consumer satisfaction could broadly be classified

into product related variables, sales activity related variables and after sales

variables.11

3.3.1 The Product Related Variables

For many consumers a car is more than just a means of transportation or a

status symbol; it lets them pack more into their life; discover places and share

63

moments together. They are in search of a car that never says ‘no’, whatever

is the need of the hour or whatever is their desire.12

Thus, the closer a product

corresponds to the needs and wishes of the consumers, the more the

consumers will demand it. Therefore, a company’s success is decided on how

well it manages to offer the best quality product to the consumer. It is not

about being good or bad it is about how good you are. When confronted with

a question ‘what is actually the goal of an automobile company?’ Koster

(1994)13

the former Vice President for Quality Assurance at Mercedes- Benz

remarked that it is to build good quality vehicles. However, producing good

quality vehicles alone is not enough. In this context Iacocca (1985)14

the

former president, Chrysler Motors noticed that the manufacturers normally

build a car first and then search for consumers. On the other hand, he advised

them to take the other way round so that they can be in a position to identify

the market and be able to ‘tailor a new product for a hungry new market’.

Thus, the product policy of an automobile company should cover a wide area,

such as product range, new product development, branding, pricing, design

and style, model changes etc. to reach the consumers effectively.

3.3.1.1 Product- Range

Not every one can be satisfied with a single product. Therefore, the

marketers divide the market into distinct groups or segment of buyers who

might prefer or require varying product and service mixes.15

This process

of segmentation allows the marketers to allocate corporate resources (the

funds and work force) more efficiently to relatively smaller groups of

consumers than if the whole market were a target.16

Differing with this line

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of argument, Mr. Henry Ford, who was the largest producer of

automobiles in the world maintained that the idea of product

differentiation had no place in a market where the low priced Model T cars

offered cost competition. The standardisation in product and tremendous

routinisation in production methods and tasks largely reduced the

requirement of skilled labour and ensured progressive reduction in the cost

of Model T cars to such an extent that anybody who could afford to save a

dollar a day for a year could own a Model T car. The slogan was “one day,

one dollar, one year, one Ford”.17

This being the background, Alfred P.

Sloan of the GM decided that competing Model T cars on cost with a

single model would not produce any result. Instead, he adopted a multi-

product strategy that segmented the market according to a price pyramid.

He positioned Chevrolet at the bottom, slightly high priced than the Model

T as the car offered more features and came in variety of colours, then

Pontiac (formerly Oakland) Oldsmobile, Buick and Cadillac into an

ascending hierarchy of cost and quality. His slogan was “a car for every

purse and purpose”.18

This strategy helped the GM to serve the consumers

not only through the lifecycle of the car but also throughout the lives of a

number of consumers because they could find a suitable replacement of

their old cars within the company itself. This product policy of the GM

was so successful that in no time the Ford Motor Company irretrievably

lost its pioneer position as the world’s largest automobile manufacturer to

General Motors.19

The success of GM caused the manufacturers to notice a

fundamental change in the market. They realized that with better roads and

increased per capita income the Model T advantage, i.e. durability and

65

lower price lost its importance and the consumers were beginning to get a

taste of cars with cosmetic features and creature comforts.20

3.3.1.1.1 The Indian Scenario

Following the de-licensing of the automobile industry in 1993 the

consumers in India also began to get a taste of cars with cosmetic

features and creature comforts. The Indian auto industry has crossed

the two-model (Ambassador and Fiat) era and now it is in the pink of

health with many players and slew of models in sales. Nevertheless,

we should not be swayed away from the truth that our choice of

models is so limited that we have only circa seventy models including

a sprinkle of high-end imports compared to consumers in Europe,

America and Japan or in other matured markets who have a wide range

of models to choose from - circa four hundred. No other million strong

markets are having such a limited model range. This lack of depth and

variety is best illustrated in the diesel car segment where Tata Indica

enjoys a virtual monopoly. It seems that the foreign carmakers

operating in India are sceptical on the success of models, if introduced.

However, the performance of luxury models like Optra, Corolla and

Octavia proved the sceptics wrong. The Indian consumers are fully

capable of making their choices. Therefore, the manufacturers should

let the consumers decide the fate of models.21

It is true that competition

can cause a decline in the leader’s market share but competitive brands

can stimulate interest in the category.22

This is best evident in the

66

SUVs market in India where new additions not only intensified

competition but also served to expand the market.23

3.3.1.2 Product - Development and Innovation

During the 1920’s Henry Ford committed the mistake of turning his back

toward the trends in the market to loose his position as market leader, to

Alfred P. Sloan. History repeated during the 1970’s when American

manufactures could not effectively respond towards a small car trend that

began in 1969. Instead of making small cars they opted to sell aggressively

whatever they happened to be making - the lower quality, less innovative

cars. However, their hard sell tactics proved wrong and it resulted only in

disgruntled and disloyal consumers. In less than five years, the shift of

American consumers towards small Japanese cars became obvious.24

This

again underlines the fact that in order to keep the consumers satisfied and

loyal car manufacturers have to invest much to develop innovative

products.

New products are the engines of growth to many firms. They generate

future profitability, prevent obsolescence of firm’s product line and can

increase a brand’s price premium.25

The automobile industry is full of

bright ideas. Moreover, the engineers are always on the lookout for

technologies within the industry as well as across other industries seeking

new ways to perform old functions and ways to give automobiles new

capabilities. Albeit, the energy shocks and air quality mandates could be

illustrated as key reasons for technological advances, three other

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conditions could also be identified to explain the causes of innovations.

The first condition occurs when dramatic changes in the operating

environment demand new design approaches though consumers are

reasonably content with a familiar product. Here the designers alter the car

only under the skin and inside the engine compartment so that the car can

be made available without the consumers noticing a major change.26

The

second condition to innovation occur when superior manufacturing

systems reduce cost and price of the car and intense competition motivates

the automobile manufactures with technical orientation to compete each

other and other industrial sectors for the limited resources to add value to

their products. The auto manufacturers as such are not interested in selling

a low cost car and would rather sell an expensive car if the higher price

were the resultant of additional features and options and not of

manufacturing costs.27

The third condition for innovation is due to the fact that automobile

manufacturers are always willing to borrow exogenous developments in

new technologies that offer new capabilities to cars such as entertainment

or high performance communication etc. as they fear that their competitors

may offer them first or the consumers may consume them elsewhere

leaving fewer resources for auto consumption. Moreover, the automobile

industry could never resist the adoption of a truly epochal innovation such

as the microprocessor even in the absence of operating environmental

changes or intense competition.28

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3.3.1.3 Product - Design and Styling

A good design strategy is based on factors relating to how appropriate

technology is integrated within products to meet the needs of the market

place. It effectively lays down parameters that determine the nature of the

product being developed. Thus, a good design strategy addresses not only

how the product will appear and be configured but also how it relates to

the environment, the user and other products.29

According to Dr. Darlie O.

Koshy Executive Director NID “an automobile is a consummate example

of every thing coming together well. Car designer incorporates aesthetics,

technology and mobility dynamics”.30

Without restraint, the intellectual

challenge of new technologies creates fads in the industry as something

novel does to an individual. Therefore, it is not surprising that the car

designers strive to find applications for them in the vehicle, even where the

greatest ingenuity is required to discern the true need. A car designer

incorporates new technologies into the vehicle with the key objective to

change the very nature of the individual systems and to improve its overall

performance. However, he/she should never forget that the cost of the

development of a car is such that the concept must have sufficient staying

power in the market to return its investment cost also. Hence, no car

designer can casually introduce a new technology overnight in harmony

with consumer’s fads or government fiats; instead he/she must be a

visionary and sober in his/her attitude towards new technologies. A car

designer shall consider four segments of consumers. The first segment

consists of ‘utilitarian consumers’ who look for a vehicle that perform

such functions as off road operations. These consumers provide initial

69

market test for such concepts as four -wheel drive for passenger cars. The

‘performance–minded’ consumers belong to the second category. They

desire a vehicle with great performance in acceleration, handling and

braking. They provide initial market test for braking systems, fuel

injection, turbo charging etc. In the third segment the ‘economy – minded’

consumers become the pioneer consumers for diesel cars to reduce the

operating costs. Finally, the wealthy adventurous and technophiles ‘luxury

consumers’ would pay practically any price for the first generation model

and help create excitement for new features and would even help to

establish the car model.31

3.3.1.3.1 The Indian Scenario

India has a long way to go before she can claim to be an auto-design

country. Indian designers should follow the role model of western

designers who have shown the courage, the aesthetics and sensitivity in

experiments to develop new car models- even the small cars -into

globally successful brands. The vision and sobriety of people

designing the Rupee One Lakh car at the Tata Motors32

and the

students of NID who are engaged in a Pune based Conex Avio Auto

Project signal that a bright future is ahead for car designing in India.33

3.3.1.4 Branding

The word brand originated and made its way into Anglo- Saxon from the

Old Norse “brandr” meaning to burn. The early farmer distinguished his

livestock from the other by burning an ownership mark on the body of the

70

cattle. Later with the development of trade, buyers would use these burn

marks or brands to distinguish between cattle belonging to farmers of good

reputation so that they can ensure quality of their purchase.34

The ancient

utility of a brand as a guide to one’s choice still remains unchallenged and

Ries and Ries (2003)35

asserts that the branding is nothing but the process

of differentiating your cow from all other cattle on the range, even if all

cattle of the range looks alike. According to the theory of ‘conspicuous

consumption’36

proposed by Thorstein Veblen in 1899 consumers

purchase things not out of need but in order to allow others to see what

they have purchased. For instance, consumers who purchase cars from

Dailmer Chrysler India paying an amount of circa -forty five to sixty lakhs

rupees and consumers who purchase cars from Ford India paying an

amount of circa five to seven lakhs rupees virtually enjoy the same

functional utility of an automobile. However, the social meaning derived

from and the social status attached to the consumers of both brands is

separated by a chasm. Eminent authors in marketing psychology such as

Foxall and Gold Smith (1994),37

Ries and Ries (2003)38

and Ind (2004)39

have suggested that a brand’s image is a mental representation that it

evoked in the consumer’s mind. Although, a brand is related to a physical

product or service, it in itself is immaterial. Thus, the brand is a mental

model that exists only in the mind of the consumer who has the power to

begin, sustain or terminate their relationship with the brand.40

Therefore,

the life of a brand is controlled not by the company but by the consumer. A

best quality car need not be the best selling car. This does not mean that a

buyer will not look for quality when they buy a car; on the other hand it

71

means that the perception of quality resides in the mind of the buyer. Most

cars in a similar price category are more or less alike technically but show

difference only in design and style. The major distinction in which the

consumers are interested in is the vague, subtle, overall feeling of

personality that makes a car say a Ford different from another car say a

Chevrolet.

3.3.1.4.1 Branding – Automobiles versus FMCG Products

Unlike in the case of FMCG products the automobile branding is a

complex one. FMCG products are normally sold based on the sub-

brand (the product) and not based on parent–brand (the company). For

instance, when we buy soap we ask for say a ‘Lux’ not ‘Hindustan

Lever Lux’. However, with automobiles there is a natural association

with both parent and sub – brand and we ask for say a ‘Tata Indica’ or

‘Maruti Esteem’ or a ‘Skoda Octavia’ or a ‘Ford Ikon’41

3.3.1.4.2 Branding – Country of Origin - Effect

As stated by Habul (1996)42

information on country of origin is yet

another variable that can influence the brand image of new

automobiles. This is underlined when the Japanese carmakers

confronted no teething troubles to establish rapport with consumers at

what time they made their foray into the Indian arena. This may be

because the Indian consumers who are exposed to the Japanese

electronic items associated the phrase ‘made in Japan’ with quality,

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durability and being trust worthy.43

In addition, according to some

researchers the name of a car can also influence its brand image.

3.3.1.4.3 Branding – Impact of a Name

According to Shakespeare “That which we call a rose by any other

name would smell as sweet”. The Juliet principle suggests that names

do not have any intrinsic meaning with effective marketing and any

nonsense name could be made to work with the product.44

For

example, consider the name ‘Toyoda’ that means ‘Abundant Rice

Field’ in Japanese. When the family decided to enter into the

automobile business it was felt that the name ‘Toyoda’ was not

suitable to the industry. Therefore, in search of a new name a public

contest was held in 1936, which drew circa twenty seven thousand

suggestions. Among which the name ‘Toyota’ that has no meaning in

Japanese was selected.45

Quite the opposite, Keller, et al. (1998)46

indicates that no one can overlook the impact of brand names to

enhance the brand awareness and/or help create a favourable brand

image particularly for a newly introduced product. Besides, the Joyce

principle that holds the phonetic symbolism suggests that certain

sounds have an inherent meaning to speakers of a given language.47

The two product launchings of FMC can defend this line of reasoning.

The first car the ‘Edsel’ launched in 1957 to this day has become

synonymous with fiascos of monumental proportions. The other car the

‘Mustang’ launched in 1962 emerged as the most successful new car

model introduced up to that time. It is true that a plethora of factors

73

decided the fate of these cars but the position of ‘name’ is not on the

bottom of the list. Consumers associated Edsel on a negative side with

pretzel, diesel and hard sell. Whilst the Mustang named not for the

horse but for the Second World War fighter plane thought to have ‘the

excitement of wild open spaces and was American as hell’ was a huge

success. However, this does not mean that cars should come with

exciting names to succeed. Then again names like Buick or Olds

Mobile or Chrysler or Ford are hardly exciting.48

Car names could come from real people, places, animals, birds, insects,

trees, things, zodiac signs or even from gods in mythology.49

The

manufactures may some times go for fanciful names. One of the

obvious sources of fanciful names is an alpha – numeric brand name

such as Maruti 800 or BMW 425.50

Further, to justify the aural aspects

of a brand name normally the car manufactures choose short, two or

three syllable names that roll easily off the tongue and have easy recall.

The names like Accord, Innova, Indica, Santro or Baleno along with

many other names justify this rule of thump.51

To sum up, we can say

that when all other factors are equal the brand with the better name will

come out on top.52

3.3.1.5 Pricing of Automobiles

Pricing strategies would be the main artillery for companies to fight car

wars when the competition enters into the market. Omar (1997)53

points

out that it is not sufficient to see that competition comes only from

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‘companies that make things similar to what we make’. He says that a

broader perspective is required to understand real competition. He points

out that when a person is about to purchase a new car he/she considers not

only the other brands that are available in the market but also all other

transportation systems to arrive at a decision. This means that the people

may consider not purchasing a new car at all but to make use of any one or

more of the other systems to satiate his transportation needs. Hence, while

formulating the pricing strategies the car manufacturers must have a clear

idea on how and why the consumers prefer cars the way they do. They

should also try to understand on what functionalities the consumers would

insist on in relation to the offering of competitors. Finally, deciding on a

price that the market will accept submits the biggest challenge to

manufacturers.54

Usually the consumers accept high prices as an indicator of high quality.

Like wise, higher quality cars are perceived to have higher prices than they

actually deserve. However, if any alternative information is available on

quality, the price becomes a less significant indicator of quality but in the

absence of any such information the price will act as a signal of quality.55

Pre-emptive and disciplined pricing policies are always reasonable but

they are not always urgent. Normally the manufacturers do not undertake

difficult tasks, if they are avoidable. Nevertheless, even a minor error in

the pricing strategies could cause a major drain in the return on the

manufacturer’s investment. The discipline imposed on pricing policies

may be painful but are rewarding.56

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3.3.2 Sales Activity Related Variables

The consumers satisfy their basic need for freedom and mobility first by

acquiring a car that meets his utility and then by maintaining it legally,

physically, and mechanically. Thus, acquisition and the maintenance are the

most important elements of auto mobility but currently they are sold

separately.57

The manufacturers support the acquisition process of people through

advertisements in order to reduce their search costs, through discounts and

incentives to ease their financial burden, by arranging for trade – ins to dispose

their existing cars, by arranging for suitable financial support, and finally by

arranging a dealer to provide a one – stop – shop for their motorisation needs.

3.3.2.1 Automobile Advertisements

“Advertising is in an odd position. Its extreme protagonists claim that it

has extraordinary powers and its severest critics believe them”.58

Advertisements originated in Babylonia, Egypt about three thousand years

ago. The first advertisements were for the return of runaway slaves. The

ancient Greeks used advertising to campaign election. The media was

‘town criers’. Professionalism came to advertising in 1841 when Volney B

Palmer established an advertising agency in Philadelphia USA. In 1904,

Mr. Datta Ram established the first advertising agency in India.59

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A rule that remains unchallenged over centuries is that the pattern of

advertisements generally followed the pattern of trade. Prior to the

industrial revolution, trade was a local affair and hence advertisements

were confined to the display of signboards outside the shop. The industrial

revolution, the progresses in the sea transport and the advent of railways

made trade a national and international affair. The advertisements followed

this pattern and began to appear in national and international media. Thus,

by the time the car had made its debut advertisements had become an

accepted norm.60

On July 3rd

1902, the ‘Life’ magazine published the first automobile

advertisement. The advertisement given by the Haynes–Apperson

Company of Kokoma, Indiana, USA was simple and direct. The

automobile featured was a ‘Surrey’ carrying four persons. The second

advertisement was also published in the ‘Life’ magazine on November

13th 1902. By 1909, magazines began publishing colour advertisements.61

However, many pioneer automobile manufactures had failed to keep up

with progress in advertising. As a result, all automobile advertisements

before 1920 and most before 1930 featured technical discussions

appropriate to a new technology but did not attempt to prove that auto

mobility was exciting. By the middle of 1920’s automobile marketing was

no longer just a matter of convincing people to buy a car or to buy one car

over another. It was increasingly a matter of convincing people to replace

their original car even if it still functioned adequately. At this juncture,

77

Alfred P. Sloan brought fashion into the market and deliberately explored

design and advertising for profit.62

Cook (2001)63

recalls that in a survey 248 American adults were requested

to rank items on a continuum between ‘self’ and ‘not self’. The men

ranked cars higher than any other products as ‘self’, whereas the women

ranked perfumes as ‘self’ over other products. The former ranked higher

for the subjects than their own bodily organs or religion. As a result, the

perception ‘a woman is her perfume; a man is his car’ was coined and the

advertisers began to project the car as an expensive necessity to express

self and sexuality. What’s more, the car advertisers made it a tradition to

target men. The British Motor Manufactures of 1950’s believed that young

women with as little clothing on as possible sell cars. Apparently, they

over looked the undeniable fact that, most men- who performs the bulk of

car purchases- will be looking at the women and not the car.64

Most of the

car advertisements projected men as lovers, husbands, fathers, loners,

technical experts, great status seekers and responsible guardians of planet

and ecology while the women are usually portrayed as decoration.65

However, the advertisers could never fail to notice the fact that the hands

that once only rocked the cradle, now holds the steering wheel and enough

of the family budget to influence car-buying trends. Therefore, even in the

1920s the advertisers used to say, “While men buy cars, women choose

them”. They used to watch if the women liked the car, so that they could

easily persuade the men to purchase it.66

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3.3.2.1.1 Impact of Comparative Advertisements

At present, the motorcar advertisers increasingly make use of

comparative advertisements to project the brand’s advantage over the

other. The mention of competitive brand names is effective to capture

the selective attention of viewers. Comparative advertisements are

lauded for being more aggressive and factual in its approach. They are

more appealing to such consumers who are better informed of the

product characteristics, but the opinion of researchers on the

effectiveness of comparative advertising is equivocal. Kinra and

Prasad (1990)67

indicate that comparative and non-comparative forms

of advertising are equally relevant to the consumers since they provide

information on the advertised brands. Consumers perceive non –

comparative advertising as more likable, less offensive more

interesting and having more brand recall and comparative

advertisements are more effective when the amount of information is

kept within moderate limits. The authors conclude that generally

explicit comparative advertisements are not as rewarding as non-

comparative advertisements. However, the opinion of Grewal, et al.

(1997)68

differs from the observation of Kinra and Prasad. According

to them comparative advertisements, evoke lower source believability

and less positive attitude toward the advertisement; nevertheless, they

are more effective in information processing and building favourable

brand attitudes. Therefore, such advertisements are comparatively

more effective to elicit greater attention to the advertisement message

and brand awareness than the non-comparative advertisements.

79

Anyhow, the equivocal opinions do not seem to deter the automobile

advertisers from using comparative advertising in their promotional

mix.69

3.3.2.1.2 Celebrity Endorsements in Automobile Advertising

Recently, a number of car advertisements are coming as celebrity

endorsements in spite of the equivocal research findings on the ability

of celebrities to generate actual purchase behaviour. The motorcar

advertisers believe that celebrities enhance the marginal value of

advertising expenditure and create brand equity by means of

‘secondary association’ of a celebrity with a brand.70

Moreover, they

expect that the advertising campaigns using celebrities can have a

better economic advantage over the campaigns using relatively

unknown personalities.71

The ability of celebrities in creating a brand

image is best illustrated in the case of Britain’s small car the ‘Mini’.72

During the 1950’s the perception of the consumer durables including

cars were ‘bigger and better’. Therefore, the car advertisements of the

fifties were designed to give an improved look even to a small car.

The men and women featured in the car advertisements gave an

appearance that they are royal personalities and would use the car only

to attend a royal like function. This was the scenario when Sir.

Alexander Arnold Constantine Issogonis designed the Britain’s small

car the ‘Mini’ to become a working person’s car, carrying a working

person’s price. His philosophy was that ‘Mini’ should genuinely be a

‘people’s’ car. Therefore, the first ‘Mini’ advertisements emphasized

80

on low cost and running economy though Mini was not really the

cheapest car in Britain at that time. However, in a class conscious

market where purchasing a car is a matter of belonging to upper social

strata, the ‘Mini’ became a sore–thumb way of announcing that the

owner of the car belongs to the working class and hence poor.

Everything changed and ‘Mini’ became socially acceptable when Her

Majesty the Queen Elizabeth II took a ride in ‘Mini’ in Windsor Park.

Her sister Princess Margaret and the Princess’s husband Lord Snow

Don became famous ‘Mini’ fans. After that, London’s smart set, the

film stars and the aristocracy followed the Royal family and adopted

‘Mini’ as the perfect car. “Once the car was established, it didn’t

matter if you came out of Buckingham palace in a ‘Mini’ – that was

your car. But, if you came out in a Ford or something like that, that

was the chauffeur’s car”.73

The Mini no doubt became an icon of great

success.

Studies of Agarwal and Kamakura (1955)74

and Erdogan, et al.

(2001)75

have shown that the match between the celebrity and the

brand is determined by the degree of perceived fitness between the

brand and the celebrity image. Besides, according to Pathak and Singh

(2004)76

the consumers show a desire to identify themselves with

celebrities. Hence, managers should be prudent to select appropriate

brand ambassadors for the product who has the ability to enhance the

value of investments in advertising.

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3.3.2.1.3 Favoured Media of Automobile Advertisers

The car advertisers in India prefer the print media to any other media.77

Among the print media, the newspapers are the favourites of car

advertisers. The wide reach and daily periodicity of newspapers

compared to magazine and other periodicals offer immediacy and

better impact to advertising campaigns. Moreover, newspapers have

greater or rather a unique ability to take up the role of product

detailing–a most vital part of automobile communication.78

In contrast

to their opinion Renganathan (2005)79

identifies auto magazines as the

primary source of information. Newspapers, according to him occupy

the second position. All the same, the car advertisers pitch their high

decibel, high spending promotional affairs across different media to

ensure maximum returns. Next to print media, the television and the

Internet are the most preferred options. The Internet allows the

prospect to make cost comparisons and interactions with other users in

addition to providing information about the product and the dealer

network. Therefore, by the time these prospective consumers visit the

show room they will be having all the information about the product

and the services. Contrary to some criticisms, these consumers are not

a hindrance to the dealers. Such consumers are already interested in

buying the car when they visit the dealer. Therefore, the sales

executives need not waste time on them, as they do with people who

are idly interested.80

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3.3.2.1.4 The Contemporary Automobile Advertisements

The motorcar advertisers have taken up all the aspects of sporting life

and sophisticated leisure travel such as the romance of an open road,

picnics, camping, expensive suburban homes, the family and anything

else to ooze an overall impression of an endless public holiday.81

With

the help of modern technology, computer could create any image so

photo realistic that it is difficult to distinguish what is shot on film and

what computers generate. Therefore, with technology the advertisers

could overcome a number of hurdles such as inadequate sunlight, litter,

unwanted crowds, or the trouble of ferrying around expensive cars and

people to exotic locations and so on.82

In the light of the developments

in technology, it seems that the modern car advertisers are very

reluctant to set aside the ‘rules’ laid down by their pioneers. Just like

modern cars modern car advertisements also resemble each other. They

still hold on to the same long angle shot of tire holding the road, the

same long and winding road, the same rear profile, the same interior

shot showing the steering wheel as if such an item were a unique

luxury in modern cars. This is a crude overview, but the market could

consider leaving some specific ‘rules’ behind which the advertisers

feel they must adhere to or perish.83

3.3.2.1.5 Significance of Automobile Advertisements

Advertisements create not only a desire to buy but also add value to the

brand in the minds of the consumers. Here the question is not what the

brand is at a transactional level but what it can be made to appear in

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the minds of the consumers.

For instance, the Saturn cars were

presented as something more than just another low priced car made in

USA. It was not another essentially generic commodity within a

competitive set. It was rather a different kind of company with a

different kind of car. All these words contributed a lot to build the

brand image of the car. Thus, advertisements have the potential to

reorganize the way in which the consumer perceives and appreciates

the brand. Advertising and other marketing communication generally

may not cause a consumer to buy a particular brand on his next

purchase but it can make a brand seem at least as acceptable as the

brand the consumer is already familiar with. Therefore, the challenge

for advertising is to find ways and means to build an enduring

perceptual representation of the brand as one that is acceptable and

desirable in the minds of consumers.84

3.3.2.2 Promotional Incentives

The general attitude in the automobile industry is that new car prices fixed

by the manufacturers are seldom changed over a period. This practice has

created price rigidity in the industry. However, it is not possible for the

manufactures and the dealers to hold on to these suggested prices through

out the period if they want to survive in a competitive environment.85

Therefore, in order to overcome this hurdle they make use of sales

incentive programmes. The Indian manufacturers at present are making use

of promotional incentives, especially during festive seasons to withstand

the aggressive competition.86

The incentive programmes have the effect of

84

lowering the cost per car but at the same time leave the suggested price of

the manufactures unchanged. The incentives such as discounts, gifts,

rebates, etc. are promotional tools that reduce the consumer’s perceived

risk associated with trying a new, less familiar product for the first time or

repurchasing a product sooner than they may have originally planned.

Such programmes are useful to clear the accumulated inventory. Further

promotional incentives serve to stimulate consumer interest in the segment

when advertised.87

According to Munger and Grewal (2001),88

the format of promotional

incentives influence a variety of perceptions related to the attractiveness of

the promotions even when the total amount involved in the program

remains constant. Their study shows that an unbundled format of several

segregated discounts was perceived more favourable than a bundled

format of discounts aggregated into large amount even though bundling or

unbundling did not significantly affect the price acceptability or value

perception. Though, the consumers are likely to perceive a price reduction

as a gain when they compare the reduced sale price against the original

price, the study reveals that consumers perceive some thing given for free

more favourably, than the promotions that involved rebates and are likely

to be more effective than a standard discount.

However, incentive programmes are not free from criticism. Such

programmes are mainly criticized on the ground that the sales they bring

are not always ‘conquest sales’ but are accelerated purchases or

85

‘borrowing from future’. This means that those buyers who would have

purchased the product several months later are purchasing it now because

of the incentives. Many a times negative response rates were observed

after the promotions come to an end. 89

Further, the increased sales may be

cannibalistic in the sense that they may have been taken from other brands

of the same company. For example, a consumer who prefers a Maruti

Wagon R may choose to buy a Maruti Zen if the company is promoting

Zen now. Neither of these situations is helpful to manufactures since the

consumer was ultimately going to purchase a car from them paying the full

price. What's more, the incentives will have the effect of reducing prices

and reduced prices are often associated with lower quality. Therefore,

novice consumers who have no alternative source to make quality

judgments are likely to draw unfavourable inferences of the brand. Further,

consumers who purchase a brand on a deal are more likely to attribute

their behaviour to the deal rather than to the brand than a consumer who

has purchased the brand at full price. Besides, counter measures of

competitors who anticipate repeat promotion, changes in quality of deal,

consumer apathy and exhaustion of deal prone consumers can prevent the

incentive programmes from attracting special attention and producing a

predictable pattern of success. Therefore, we can conclude that though

there appears to be a niche among which incentive may be successful, it

shall not be used on a wholesale basis or frequently.90

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3.3.2.3 Automobile Financing, Trade-ins and Planned Obsolescence

After the First World War, there was a tremendous increase in the demand

for cars to such an extent that the manufactures found it difficult to

produce enough cars to meet the rising demand. Even then, the

manufactures were acutely aware of the fact that a saturation point for

automobiles did exist because the number of people who could afford cars

and the amount of money they could pay for them are limited though such

a limit was not a fixed limit. Saturation point is that point at which the

number of cars in use could stop growing and all further sales would be

replacement sales. The USA had expected such a situation in 1920 but the

instalment sales and trade-ins prevented it.91

According to Alfred P. Sloan

the instalment selling, used car trade-in, the annual model and the closed

body are the elements that transformed the car market.92

3.3.2.3.1 Automobile Financing

The pioneer manufactures positioned the car as an expensive luxury

item for the pleasure of the rich at sport and play93

. However, much

before 1920, sensing a saturation point in the affluent market, the

automobile manufactures began to encourage the less affluent people

to become automobile owners through the extension of consumer

instalment credit. The Banque Automobiles in France entered into

automobile sales financing in 1906 and Morris Plan began financing

such sales in USA in 1920. As time went on the automobile industry,

became more and more dependant upon the purchasing power of the

people in the lower income groups.94

87

However, Mr. Henry Ford, in spite of his affiliation to less affluent

people, was repugnant to the development of automobile sales

financing. He never allowed the Model T cars to receive his

company’s official blessing to the credit sales. He advised the banks to

‘get cash pay cash’.95

He argued that instalment plans have no use in a

market dominated by low priced Model T cars. He believed that such

plans were ‘merely a postponement of the day of judgment’. However,

Mr. Ford had to reverse his decision. He realized that like judgment

day, instalment plans are also inevitable. In 1924, the Ford Motor

Company offered cars at one-sixth down payment and the rest in

instalments to penetrate into the German market for the first time after

the World War. Four years later in 1928, the Ford Motor Company

introduced the ‘Model A’ cars into the American market with the

company’s full official blessings to instalment sales. Otherwise, Mr.

Ford knew that they would not be able to compete with GM

Chevrolet.96

3.3.2.3.1.1 Automobile Financing in India

Until recently, a car loan in India meant tedious trips to the banks,

a lot of paper work, and long waiting periods for the requisite

approvals from the sanctioning authority. Now, the competitive

environment transformed everything and the consumers enjoy easy

and instant access to very flexible financing options that are

designed to suit their varied requirements.97

Moreover, there was a

88

drastic reduction in the interest rates. The entry of commercial and

new generation banks into automobile financing- a field once

dominated by the non-banking financial institutions further

intensified competition.98

To face stiff competition the participants

keep coming up with innovative strategies. A leading example of

such a strategy is to establish tie–ups with financial institutions that

has wide network coverage such as State Bank of India.99

Such tie-

ups are effective not only to get over the mindset of the Indian

public that buying a car was a luxury, but also to reach untapped

rural markets and such segment of consumers as teachers,

journalists, lawyers, police officers, and the judiciary who were

other wise on the negative list of finance companies.100

Shay

(1964) has rightfully observed that “competition among credit

agencies has been active through out the development of

automobile financing and the results of such competition has been

the secular decline in the cost of consumers of obtaining larger

amounts of credit for progressively longer periods of time”.101

3.3.2.3.2 Automobile Trade–ins and Planned Obsolescence

The automobile industry was actually and technically getting into an

over produced state during the early 1920’s. Each producer had

utilized his increased manufacturing ability to produce more and more

cars as though he was the only producer. They completely ignored the

fact that the number of consumers who could afford a car is limited

and that the car is a durable good that has a useful life for a number of

89

years. Therefore, in order to face the threat of a possible saturation the

manufacturers in the matured markets like the USA began to

encourage trade-ins right from the late 1920’s. The term trade-ins

mean the exchange of a used car with allowance on the used car

partially offsetting the cost of new one.102

The manufactures sought to

persuade the motorists to replace their existing cars much before its

mileage is extinguished with a new one by periodical introduction of

new models to accentuate the old-fashioned appearance of previous

models.103

According to Sloan (1972), the role of a used car at its

much-reduced price was to cater to the need at various levels for basic

transportation but role of a new car is to cover up scrap and to result in

the growth of car ownership. The first car buyers who return to the

market for the second round with their old car as a first payment on the

new car, sells basic transportation and demand progress in new cars

relating to comfort, convenience, technology and style.104

Trade-in was a spontaneous and gradual development. No one knew

the time and place of its birth. Most of the automobile buyers of the

early 1920’s were automobile owners. For example, in 1923 the

dealers had to accept 28,00,000 trade-ins to sell 36,00,000 new

passenger cars. This means that the clean sales or the number of new

buyers of cars is only 8,00,000. Further the dealers had to sell

36,00,000 new cars and 28,00,000 used cars making the total to

64,00,000. Whilst the dealers offered an average of $322 allowance

per trade–in, the average re-sale price they got from a trade-in was

90

only $308. This meant a loss of $14 per trade-in and an aggregate of

$4, 00, 00,000 plus their time, labour and overhead diverted to the sale

of used cars.105

As time went on the automobile industry, became

more and more dependent upon its ability to sell cars repeatedly to the

same consumers. Since the automobile industry had primarily come to

depend upon replacement sales rather than sales to new consumers,

any technique that shortened the average period of ownership promised

more sales. Therefore, the cars began to receive cosmetic attention and

style changes to accentuate the old-fashioned appearance of existing

models. If the present car owners could be persuaded to focus more on

the transportation function of their old vehicle, then they could be

made to purchase another car sooner by convincing them that there

were significant psychic benefits from ownership of the new model.

This will enhance the replacement demand. Besides, as the number of

vehicles released into the used car market increases, the prices of used

cars will decrease there by making such cars available to additional

individuals. However, the cars do not basically change every year

partly because the cars produced are more nearly perfect allowing very

little room for further technical improvement and partly because the

manufactures could not afford to scrap his machinery every year.

Nevertheless, the salesmanship both verbal and written uses every

adjective in an effort to convince the consumer that the new car is

really new and revolutionary and that the old car is positively archaic

that it is unusable for any citizen who wants to update.106

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3.3.2.3.2.1 Practices in the Indian Used Car Market

The Indian scenario until a decade ago was completely different

from what was in the matured markets. The first car of most of the

Indian middle class buyers was a used car. When it gets old, he

sells it for another used car in a better condition.107

This process

continued until the car became a total wreck. Besides, the

consumers showed a tendency to keep their cars beyond its normal

life despite the increase in cost of repairs and maintenance. One of

the reasons why the Indian market has not shown any perceptible

tendency to generate replacement demand may be due to the lack

of basic model change. There was little or no motivation for

consumers to go for replacements. Moreover, India did not have an

organized used car market until recently. Used car business was

done through classified advertisements, or through owner-to-owner

negotiations or through brokers. The major drawback of this

system was that the buyer was always kept in the dark about the

good or bad conditions of the vehicle while the seller had the full

knowledge of the same. In a situation like this, suspicious buyers

could offer only very low prices for the cars. This forced the

owners of well-maintained cars to withdraw from the market

leaving only lower quality cars for sale.108

The unsatisfactory cars

made the buyers more suspicious, which further reduced the

prices.109

However, the stiff competition in the new car market

following the entry of global brands prompted the manufactures to

encourage the consumers to replace their cars more often. In order

92

to assist the consumers to dispose of their existing cars the

manufactures began to organize trade-in schemes. For example,

the MUL has started ‘True Value’ schemes to help their consumers

to exchange their cars. Under such schemes, the cars are to

undergo a multi point check servicing to bring the car up to the

standards set by the manufactures before they are resold. It is usual

that such cars come with a warranty of one to two years. This

system enhanced the confidence of used car buyers because they

trust the backing of the manufacturer. Therefore, they are willing

to pay a little extra money to enjoy the quality assurance of the

manufactures. The manufactures in turn are encouraging the new

car buyers to buy more often and replace their cars when the

residual value reduction is not so high.110

According to Kinji Saito

Director, Marketing, MUL111

if a consumer sells his car within

three years of buying it he will have recovered sixty-five percent of

the original cost. This means that the consumer will require only

about thirty-five percent as a loan and hence need to pay only a

small amount as monthly instalments. Given that India has, a high

percentage of first time buyers compared to other countries a bright

future is ahead for replacement sales. At present, the consumers in

India show a natural tendency to upgrade from two wheelers to

small cars and further to premium model.

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3.3.2.4 The Automobile Dealers

The purchase and use of a motorcar is managed by the interaction between

the consumers, the manufactures and the dealers. The manufacturers

respond to the consumer’s demand for mobility by designing, producing

and marketing new cars. The dealers form the distribution channel for the

new cars between the manufactures in one location and consumers in

many locations. Thus, the dealers exist because of demand for

motorisation on one hand and supply of new cars on the other hand and

they can offer a solution to both the consumers and the manufacturers. As

far as the consumers are concerned, the dealers are the face of the

company and the consumers rate the company based on the performance

of the dealer.112

They evaluate the company as good or bad based on the

performance of dealers. The dealers help the manufacturers to maintain

local brand awareness, to maximize market penetration by providing local

display and test-driving facilities, to sell actively all products of the

manufacturer at all stages of their product cycles, to ensure after sales

support to consumers and to ensure the availability of the repair parts all

over the country.113

The Tariff Commission (1956)114

has recommended to

the Government of India that all sales of automobile vehicles except the

sales to the government be made through their accredited dealers. The

Commission permitted the manufacturers to include a provision for the

dealer’s commission in the final price of the vehicle to the consumer.

According to the Commission, a dealer is responsible for promoting the

sale of the vehicle concerned and arranging for after sales service and

94

technical advice, ensuring the availability of spare parts and arranging

periodical repairs and maintenance.

In a dynamic business environment a dealer who is keen on protecting his

business against the threat of certain and potential changes that will foster

competitors, need to focus their attention on consumers. The challenge for

the dealers is to give the consumers non-coercive reasons for choosing

them as their preferred provider for acquisition and maintenance of their

cars. Therefore, they should try to understand the needs and wants of the

consumers better.115

Even when the automobile industry was in its infant

stages, Henry Ford wrote to his dealers to have the names of every

possible buyer in his territory including those who have never thought of

buying a car. He urged his dealers to implore such prospects wherever

possible by personal visits or at least by correspondence. He reminded his

dealers that if any one of them felt that his territory is too large to permit

this he would be deemed to have more territory than he could manage.116

In order to ensure greater customer loyalty manufacturers need to have

dealers that offer the most desirable way for the consumers to acquire and

maintain their cars. Manufacturers seek greater customer loyalty because it

substantially reduces their customer acquisition costs. A consumer-

oriented dealer cannot be encumbered with non-communicating, separate

departments such as new cars, used cars, finance, service, spare parts, etc.

Instead, they shall view both the sales and after sales service process as

one customer revenue stream moving from sales through after sales (or

95

rather between sales) to the next sale and so on throughout the consumer’s

life of motorisation. In this process, they can also control the car during its

life by selling it to a sequence of consumers.117

3.3.2.5 Role of Sales Executives

Sales executives are the personal link between consumers and automobile

dealerships. For many consumers sales executives mean the dealership. As

far as the dealership is concerned, sales executives bring back the much-

needed information about the consumers. Thus, they occupy a vital

position in the business. Therefore, sales executives should be provided

with up-to-date fundamental product knowledge along with the knowledge

of competitor’s products.118

However, Lele and Sheth (1988)119

and

Womack, et al. (1990)120

have observed that most of the car sales

executives are not product specialists though they are professional sellers.

This means that they receive excellent training in sales techniques and they

know how to drive an effective bargain. However, it really does not matter

to them if they are selling shoes, computer, encyclopaedias, or cars.

Womack, et al. (1990)121

quotes the example of a car salesman who

volunteered that shoes - his previous product specialty- were a lot easier to

sell than cars, which he had been selling for the past two weeks.

If the sales executives acquire good product knowledge and involve in

other activities in addition to selling cars, they could contribute

significantly to improve the efficacy of the dealership to serve the

consumers better. Along with sales training in the brand, where they

96

acquire product knowledge, some extra technical training will empower

them to schedule the cars for service and repair with the help of a checklist

and a technical assistant. By scheduling the consumers at a specific time of

the day, the queuing and waiting at the beginning and the end of the day

could be reduced. The consumers need not realize that they are actually

being scheduled to the convenience of the workshop. Such contacts with

the consumers will improve the sales executive’s understanding of the

consumer’s needs and wants and eventually the database of the dealer.

Then again, most of the car owners leaving their car at service station are

pedestrians to reach their offices. The sales executive could utilize this

opportunity to drive them back to their offices or destination in the latest

model car. This action could open a door for further conversation and

trigger a possible resale. The whole system need not incur heavy additional

costs as the sales executives replace the service executives and attend to

the consumer when they arrive. Moreover, their improved relationship

with consumer will benefit the dealership.122

3.3.2.6 Role of World Wide Web

The increased tendency among the car buyers to use the World Wide Web

for shopping has encouraged the manufacturers in mature markets to

promote virtual dealerships. They support the web site by heavy national

and local advertisements. Vehicles are displayed in public places such as

shopping centres and airports. The cost savings bring price advantage,

other things being equal. A limited number of cars are made available at

delivery centres for test drive and inspection. When the cars arrive at the

97

delivery centres, the executives explain the features to the consumers and

assist in the signing of legal documents. These centres provide space for

spare parts and repair work.123

3.3.3 After Sales Variables

“The consumption of a car unfolds over time and satisfaction is dependent

jointly not only on the product but also on associated service offered by the

dealer”.124

Therefore, the car companies need to realize that the consumers are

not buying just a car but they are buying mobility.125

Unless, the dealers are

able to provide effective after sales support to keep the vehicle mobile it

becomes the surest way to spoil a brand name. It is the litmus test used by the

consumers who judge the company by its willingness to stand behind its

products and to provide satisfaction to the most unreasonable buyer.126

According to Gerson (1993)127

service recoveries are the actions of the

company to assure the consumers that their problems will be taken care of.

Kumar (1996)128

observes that at the time of after sales interface the

consumers encounter the ‘moment of truth’ about the brand, the company, its

philosophies and its claim on consumer orientation. Ehinlnwo and Zairi

(1996)129

consider after sales sector as the medium of continuous contact

between the car producers, dealers and the consumers for a long time after the

delivery of the car. Further, Mittal, et al. (1999)130

has found that the

satisfaction with the product affects the behavioural intention toward the

service provider and satisfaction with the service influences the behavioural

intentions toward the product manufacturer.

98

Any turbulence in the car industry could cause a feeling of insecurity among

the players as to what the future direction of the industry would be. Some of

the key factors or major trends affecting the industry are stagnating or cyclic

demand, stronger price and quality awareness among the consumers and their

increased emphasis on service and general economic pressures that reduce the

buying power of consumers. These trends and the competitive pressures

indicate that volume can be increased only by an increase in consumer loyalty

and development of strong brand awareness among consumers. Therefore, in

order to ensure continuous contact with consumers for a long time after a

delivery of the car and to improve relationship with the consumers the

producer and the dealers need to focus on the after sales service sector.131

After sales service is an effective weapon to make market penetration. The

experience of the German manufacturers of the 1920’s best illustrates this.

When, the American manufacturers made their entry into the German market

during the mid 1920’s with an offensive marketing strategy i.e. a strategy of

obtaining new customers and also the customers of other competitors. They

based their exports offensive not only on the technical advantages but also on

establishing a net work of sales offices spread over the market well equipped

to execute servicing and repairs of the automobile sold. A typical German

automobile factory of that time was functioning as a united place for

production, sales, agency and workshop all under one roof. Very few

enterprises had independent dealers but they had to take the financial risk of

further sales at a very low sales commission varying from seventeen percent to

twenty one percent of the list price. Meanwhile, the Americans in addition to

offering a commission up to twenty five percent offered long-term payment

99

plans for financially weak dealers. The German producers thereby lost their

dealers to foreign competitors. Besides the German manufacturers were

astonished at the emphasis the Americans had given in their advertisements

for ‘service after sale’ as an argument to buy their cars. Most of the German

brands of that time neither had a supra regional parts supply nor an efficient

service network. The automobiles were taken back to the factory for repairs

and maintenance at great cost of money and time. Initially, the German

manufacturers took shelter in their excellent workmanship and claimed that

German cars are free from maintenance. However, the consumers would not

want to listen to this and started patronizing the American cars. Finally, in

order to prevent themselves being squeezed out of the domestic market the

German manufacturers not only had to modernize their production procedures

and techniques but also their distribution and after sales support as well.132

3.3.3.1 The Indian Scenario

The Hyundai Motor India Ltd. also used the power of after sales support to

establish itself in Indian markets. When they arrived, they were a barely

known Korean group, struggling to establish themselves as a dependable

brand. However, in less than three years they achieved the volumes,

which no other carmaker in India has ever achieved. It took only thirty-

two months for them to sell two lakh cars. This success did not happen on

its own but due to accurate assessment of current market realities. Firstly,

they introduced their flagship offer Santro with MPFI (Multi Point Fuel

Injection) engine– a technology that other carmakers thought too advanced

for the Indian market. Then, they introduced this ‘complete family car’ to

100

the Indian households in a very impressive and innovative manner.

However, the biggest challenge in front of the HMIL was establishing a

service network that could match that of MUL. The MUL ensured their

brand loyalty through excellent service network. To neutralize this HMIL

ensured a nation wide dealer network, most with attached service centres.

HMIL treated the dealers as brand ambassadors rather than as mere

distributors and technicians so that they could win the respect of the most

sophisticated of consumers. The Company wanted to locate consumers in

distress, not the other way round. Therefore, they made the brake down-

rescue-service vehicles ply along the roads. These vehicles also acted as

advertisements on wheels. All these measures added to the aura generated

by the positive word of mouth how trouble free the car was and the sales

soared.133

In 1987, Mr. Krishnamurthy, the former Chairman, MUL had reminded

the dealers that they were selling a long term commitment to the

consumers in a complete package of product and after sales service to take

care of their transportation needs efficiently and economically.134

All the

same, in 2004 Kingi Saito Director (Marketing), MUL had to accept that

the dealers enjoyed the monopoly of MUL and made good profits by

selling cars alone. 135

They made their consumers wait for their cars and

for their spare parts. However, the entry of competition in 1994 made them

realize that selling new cars is very competitive and not much profit

generating. Now they began to understand that they have no other

101

alternative but to focus on the after sales service to ensure basic

profitability because good volume of service meant good profits.

3.3.3.2 Consumer Satisfaction- A Capital Asset

More and more companies are realizing that satisfied consumers constitute

the company’s relationship capital. Kotler (2003)136

and Mittal and Lassar

(1998)137

renowned authors in Marketing assert that it costs five times

more to acquire new consumers than the costs involved in satisfying and

retaining current consumers. It is very difficult to induce satisfied

consumers to switch away from their current suppliers. Therefore, the

companies adopt a defensive marketing approach that concerns managing

the dissatisfaction among its own consumers; ensuring consumer

satisfaction as one of the best ways to minimize consumer turnover.

Hence, consumer satisfaction is a future oriented indicator of the profits of

the company. Thus, it complements traditional measures of profit such as

return on investment, market share and profit.138

The satisfied and loyal

consumers are a revenue-generating asset to the firm. Therefore, a long-

term perspective to evaluate the efficacy of the efforts to improve

consumer satisfaction is needed because such efforts will reflect in the

future purchasing behaviour.139

Mark Juron, General Manager, Client Assistance Centre, Mercedes- Benz,

USA says that the car manufacturers and dealers should not forget that

every person who purchases a car spends a relative percentage of his or her

disposable income on the car. In many cases the individual who buys a less

102

expensive car spends a larger percentage of his or her annual income than

an individual who buys a very expensive car. Therefore, a person who

buys a cheaper car deserves the same level of client care as somebody who

owns a very expensive car. He believes that rising expectations of clients

and capabilities of current and future technological innovation are going to

make dramatic changes in the automobile business. A concentric circle of

client expectation, needs and wants is going to replace price as the leading

factor influencing the decision making process. It is true that a company

can make a difference with product capabilities and values but the best

differentiation happens when the company makes the relationship not just

satisfactory but delightful. Therefore, the manufacturers and dealers must

begin to understand the needs and wants of their consumers. Then only

they can expect to shape their marketing and other contact programmes to

ensure better consumer satisfaction.140

3.3.3.3 Complaint Handling and Word of Mouth Behaviour

According to Singh (1997),141

an organisation begins to understand its

consumers when it realizes that the term ‘complaint’ signifies feedback

from consumers. It is through complaints that the consumers demand

improvement in the product and services of the organisation. Effective

complaint handling contributes to quality improvement within the

organisation and leads to improvements in consumer loyalty and retention.

Therefore, it is important for the firms to solicit as many complaints as

possible by breaking down the barriers to complaints. According to

McCormick (1995)142

only, four percent of the consumers who experience

103

a problem with the company ever choose to complain or give a feed back.

This means, the rest ninety-six percent consumers are left out to spread

negative word of mouth that can upset the organisation. The main barriers

that prevent the consumers from complaining are either they do not know

where or how to complaint or they feel complaining is not worth their

time, as they feel no one at the dealership is interested in listening to their

problems. Their complaints will achieve nothing. Homburg and Furst

(2005)143

find a strong impact of complaint satisfaction on consumer

loyalty whilst the overall consumer satisfaction makes only a lesser impact

on consumer loyalty. This means that after a complaint, loyalty depends

not as much on satisfaction accumulated over time but essentially on

complaint satisfaction. This is because the way their complaints were

treated will dominate perception of consumers and will become the main

factor of loyalty. Therefore, the organisation should not be satisfied by

surveys and responses they get from the comment cards left at the cash

register. Instead, they should beg the consumers for feedback so that they

can get as many responses as possible.144

Once they have started getting

responses the organisations should not hesitate to force themselves to the

most stringent demands of consumers even if it costs them a major

organisational expenditure. It benefits the organisations in the long run if

they try to cater to the most stringent demands of the consumers because in

that process they learn new management techniques new production

technology and acquire new ways of thinking in the complaint resolution

process. Just like the most demanding teachers produce the best students

the most demanding consumers produces the best organisation.145

In short,

104

the consumers who opt to complain are offering firms an opportunity to

demonstrate their trustworthiness. A poorly handled complaint can hurt the

trust among the consumers whereas effective complaint handling deflect

the spread of negative word of mouth, makes dramatic impact on

consumer retention rates and improve profitability.146

Incomparable after sales service motivates consumer to spread positive

word of mouth about the organisation and good word of mouth is the least

expensive way to acquire new consumers.147

According to Soderlund

(1997),148

word of mouth is the extent to which consumers let friends,

relatives and colleagues know about an incident that has created a certain

level of satisfaction or dissatisfaction. A study conducted by US office of

the consumer affairs indicates that satisfied consumers relate their

experience to an average of five other people. On the other hand,

dissatisfied consumers relate their story to nine other people. Consumers

rely on word of mouth communications to reduce their level of perceived

risk and the uncertainty that are often associated with their purchase

decision. It has a greater impact on product judgments than printed

information.149

According to Mr. Bhargava the former Managing Director,

MUL, dissatisfied consumers who spread adverse publicity is a great

liability to the company and a double effort is required to mitigate the

damage caused by such consumers. 150

If the dissatisfaction experienced is

minor, often the consumer’s responses are minimal. Most of them neither

complain nor spread negative responses about the product or services. On

the other hand, if the dissatisfaction is serious enough they tend to

105

complain. It may happen that the consumers may perceive that the barriers

to transmission of feedback are larger compared to the barriers for

transmission of word of mouth.151

Therefore, by encouraging the

consumers to complain the manufacturer and or the dealer stand a chance

of remedying the legitimate complaints and win back a consumer who may

also make positive reports to others, thus enhancing the good will. Even if

the firm could not settle the complaint to the satisfaction of the consumer,

he or she is more likely to show positive attitude to the organisation than if

no complaint is made. In a situation where complaints are discouraged the

consumers may not complain. Instead, they may tell others about their

unsatisfactory experiences and may not repurchase the product in the

future. Therefore, it is very important to remove the barriers to the

transmission of feedback. In dealing with complaints, the firms need to

consider not only the cost of the remedy but also the cost of not settling the

complaint at all. The managers must be aware that the latter include the

potential negative word of mouth in addition to the potential loss of repeat

business. It is better to treat the loyal and satisfied consumers as a revenue-

generating asset. Hence, the cost to acquire, retain and develop that asset

should be treated as investments rather than expenses.152

Ehrenberg (2000)153

points out that a firm can ensure repeat selling only by

generating positive word of mouth. According to him, advertising can

only act as a lubricant to ease and speed up the initial adoption of a new

product by creating awareness. It cannot effectively respond to the

question whether people continue to buy something after they or their

106

friends or their neighbours have used it. No one can go on selling some

thing, which people do not like, or want. Nevertheless, the influence of

satisfied consumers makes itself felt through word of mouth

recommendation over the garden fence or the industrial equivalent through

retailers, dealers, and press comments and so on. According to Foxall and

Gold Smith (1994)154

it is the consumer’s observations and contacts with

other persons that generate a desire for a product. Therefore, it is almost

certain that in the case of expensive, infrequently purchased items they

will approach their friends, neighbours or relatives for information about

the relative merits of different brands. A study conducted by Sudhahar and

Venkatapathy155

among the car buyers in Coimbatore district, Tamil Nadu

reckoned that ‘Peer reference’ as an important factor influencing the

purchase decision of passenger car consumers. They also find ‘friends’ as

the most influencing peer group followed by colleagues in the decision

making process. They further point out that this peer group can contribute

to the publicity and network aspect of the market for passenger cars.

Kumari, et al. (2005)156

and Haneef, et al (2006)157

also expressed similar

opinion. Thus, the informal word of mouth communication is much more

effective than the formal advertising in motivating consumer’s decision.

Henry Ford preferred the power of word of mouth communication to

market the Model T cars than the power of advertisements. The Model T

advertisements were neither very inspiring nor particularly imaginative nor

were the amount expended upon it proportional to the soaring sales

volume. Within just five years after the introduction of Model T, more

than three million cars filled the American roads; each car bearing a Ford

107

emblem was a mobile advertisement. With over three million satisfied

consumers recommending the T’s virtues, the executives in Ford Motor

Company must have found it impossible to convince Mr. Ford that there

was any need to advertise at all, let alone increase the annual

appropriation. Mr. Ford must have considered the employment of a sales

force and an advertising department as an unnecessary extravagance.158

Kaikati and Kaikati (2004)159

narrate about a new concept in marketing

known as ‘stealth marketing’. Stealth marketing is based on the

assumption that word of mouth is the most powerful form of promotion

and a peer group recommendation is the ultimate marketing weapon to cut

through the clutter and monotony of the traditional advertising. Stealth

marketing presents a new product or service by creating and spreading

‘buzz’ in an obtuse and surreptitious manner. It is softer and more personal

than traditional advertising. Unlike traditional advertising, it is not

shouting to every body at the same time. Instead, it tends to whisper

occasionally to a few individuals who are supposed to be the spontaneous

carriers and relies heavily on the power of word of mouth to encourage

consumers to feel that they just stumbled upon the product or service on

their own. Thus, the message is diffused in concentric circles from

trendsetters to the mainstream consumers.

108

3.3.3.4 Replacement Behaviour

Womack, et al. (1990)160

has made a very interesting observation in the

replacement behaviour among car owners in Japan. The car owners in

other countries generally pay little attention to specific brands. They just

look for a good bargain or an available vehicle that could meet their

particular needs. On the other hand, the car owners in Japan are very loyal

to their brands. The Japanese manufacturers and dealers accept them as a

part of the family. They get frequent calls from the sales persons enquiring

whether the car is performing to their satisfaction. The car owners receive

greeting cards on their birthdays, anniversaries and on special occasions.

If their sons and daughters are about to leave home for studies or work, the

sales person will be there to enquire whether the children need a car. In

Japan it is often said, “The only way to escape the sales agent from whom

you once bought a car is to leave the country”.161

The manufactures and dealers of automobiles are facing many problems.

For instance, the fall in demand occurred in Western Europe, USA and

Japan after many years of steady growth, may happen in the other markets

too. Another factor, which influences sales territories, is that an increasing

number of manufacturers are competing to supply a market of the same

size. In addition, the changing values of the consumers jeopardized the

intangible additional utility that can be achieved through the prestige of a

vehicle. This resulted in raising the price sensitivity of the consumers

particularly among the consumers in higher price segments. These

developments have lead to price wars and intra–brand competition. Hence,

109

the number of manufacturers and dealers who realize that the only solution

to the problems outlined above is the development of a closer relationship

with the consumers has been increasing for some time now. They hope

that in the long run economic consequence of this will be greater consumer

loyalty. A higher percentage of loyal consumers in the purchase portfolio

reduce the threat of the consumers buying elsewhere. This will ensure

substantial sales over the lifetime of consumers. As they climb upward the

social ladder, they are likely to purchase vehicles that are more luxurious.

Thus, they are likely to bring in higher profits in the latter phases. This can

be ensured only if the new consumers can be locked in through loyalty

promoting measures during the post purchase phase.162

The fortune of

automobile manufacturers and dealers hang on the consumer’s decision

whether to display consistency of choice from purchase to purchase or

switch brands at trade-in time. The past emphasis to seek new vehicle sales

by converting owners of competing brands has more recently been shifted

towards retaining existing consumers.163

Anticipating similar situation in India, Mr. Jagdish Khattar, Managing

Director, MUL, urges his company to leverage the relationship with the

consumers to the fullest. In times of acute competition he wants his

company to stay close to the consumers not only through out the life cycle

of the car but also through out the life cycle of the consumer.164

Besides,

the longer a business can keep its consumers, the lifetime revenue from

them not only increases but also the cost of serving those consumers

declines as both parties develop greater familiarity with each other.165

110

Therefore, consumer loyalty is the greatest asset a firm can possess-

though it does not appear on a balance sheet -to boost sales and to enhance

profitability and share holder value.166

According to Soderlund (1996)

loyalty is “the extent to which the customer intends to purchase again from

the supplier who can create a certain level of satisfaction”.167

He further

explains, “A low degree of satisfaction may signal that the supplier should

be replaced whereas a high level of satisfaction may signal that it could be

useful to deepen the relationship with the supplier. On the other hand an

intermediate level of satisfaction (i.e. a neutral experience) may not signal

a need for any particular change”.168

As said by Huber and Herrmann

(2001)169

consumer satisfaction is the central determining factor of loyalty

for automobile manufacturers and dealers. Satisfaction depends not only

on the vehicle but also on dealers and their after sales services. Their

study shows that variables of intentions to make a repeat purchase and

willingness to recommend are closely linked to the two factors, brand and

dealer loyalty. The satisfaction with a product has considerable influence

on brand loyalty. Besides characteristics such as product quality and image

that result in the brand loyalty extend their influence to a person’s attitude

to dealers. Thus, satisfaction with the vehicle indirectly influences the

loyalty to the dealer. Conversely, if the dealer could keep the car in good

running order and the consumer do not experience any negative incidents

during his/her visits to the dealer; it could result in enhanced product

satisfaction. Thus, the services provided by the dealer could influence the

feeling of loyalty on the part of the consumer to the product. However, the

authors caution that a low level of product satisfaction and diminishing

111

brand loyalty can shatter the bond of loyalty to the dealer where as the

poor performance of the dealer need not adversely affect the manufacturer

because a consumer who remains loyal to a brand can generally take

his/her business to another dealership.

3.3.3.5 Beyond Consumer Satisfaction

However, the assumption that a satisfied consumer will return for a

repurchase is not left without challenge. Many researchers argue that the

concept of satisfaction has failed to adequately perform the function of

predicting the brand loyalty or consumer behaviour.

Mittal and Lassar (1998)170

and Rice and Bennett (1998)171

argue that a

consumer who is extremely dissatisfied with a brand being used, may still

continue his/her patronage if the perception held by him/her is that the

alternatives are even worse. Equivalently a satisfied consumer may be

willing or even eager to patronize alternative supplier if he/she held the

opinion that other brands were even better and expect to receive even more

results that are satisfying. Therefore, Mittal and Lassar (1998)172

recommends a two dimensional approach to the problem of consumer

retention which consists of achieving consumer satisfaction and then

achieving loyalty beyond satisfaction. Yoon and Kim (2000)173

criticize

that the incorporation of overall satisfaction as the principal determinant of

repurchases intention, which in turn affects loyalty behaviour. They argue

that, the concept overall satisfaction implies an aggregate attitude towards

trait performances and hence it may not adequately capture the true effects

112

of salient trait performances. Besides it gives little thought to consumer’s

responses to marketing mix variables such as advertising or promotional

efforts. According to Shaw (2001),174

the presence of a number of

alternatives in the automobile market that offers a wide variety of choices

to consumers reduces the probability of consistency in repurchases. Oliver

(1999)175

is of the opinion that loyal consumers are typically satisfied but

satisfaction does not universally translate into loyalty. He asserts that

satisfaction is a necessary step in loyalty formation but ultimate loyalty

emerges as a combination of perceived product superiority, personal

fortitudes, social bonding and their synergistic effects.

The above discussion indicates that even in the absence of a genuine

relationship with or any kind of emotional attachment to the brand or

dealer it is entirely possible for consumers to exhibit repeat patronage and

a high level of retention. Factors such as convenience, price or other non-

emotive elements could explain such behaviour. On the other hand

consumers could demonstrate repeat patronage because the brand or

dealership occupy a special position in their lives and they feel the same

kind of emotional attachment towards the brand as they feel towards their

family members, friends or colleagues. In order to attain this relationship

status, a business must aim at creating value to consumers not only in

terms of ensuring the brand’s ability to be convenient and economical but

also by assuring the consumers that they are important and valuable to

both the business and its employees. The firm that makes efforts to show

consumers that they really mean some thing is usually rewarded with

113

loyalty.176

The experience of the US car manufacturer Saturn, a small GM

subsidiary submits a good example of how relationship could lead to

loyalty. The company organizes ‘familiarization day’ parties to introduce

new buyers to the basic features and maintenance requirements of their

cars. The company avails of this occasion to make the consumers feel how

important and valued they are in the Saturn family. Moreover, the

company’s main advertising platform was the publication of these events.

Within a short span, the company took a leading position in the J.D.Power

customer satisfaction index. According to the company, “Saturn cars are

bought not sold”.177

Effective marketing should thus result in creating value for consumers and

in turn generate value to the service provider. This in turn establishes a

relationship between the consumer and the provider. The nature and

efficiency of this relationship will influence the consumer’s perception of

quality, value, satisfaction and their future choice decisions. According to

Groth and Dye (1999)178

the consumer may perceive the servicing of their

cars as more personal than the purchase of the product itself. Further, they

might perceive a fault in the quality of the product as less personal than a

fault in the service rendered. Kapoor (2004)179

says that a consumer who

has made full payment for a complete service feels cheated if he/she was

made to return to complete certain tasks, which the service station had

ignored or forgotten to perform. He reminds the service providers that it is

better to do two things completely rather than doing twenty things partially

and speed is no substitute for satisfactorily completing the job. Therefore,

114

the service providers need to recognize the importance of interaction

between internal service quality and external service value. The direct

influence of internal service quality on external service value calls for the

development of a service delivery system in accordance with the needs of

the consumers to ensure satisfaction and loyalty. The service providers

must make sure that the work place designs, rules and award systems are

satisfactory to both employees and final consumers. They need to accept

that satisfied employees ultimately lead to satisfied and loyal

consumers.180

Mittal and Lassar (1998)181

too advocates the use of

measures of service quality to understand consumer loyalty. They argue

that measuring satisfaction reveals only whether consumers are satisfied or

not. However, measuring quality will reveal the aspects of services that are

below par and need improvement. Their studies on car repair services

suggest that the managers should realize the impact of service quality on

consumer loyalty. Satisfaction rating need not translate into loyalty. Even

satisfied consumers exhibit tendency to switch. There are two dimensions

to service quality ‘the technical quality and the functional quality’. The

authors define the technical quality as the quality and effectiveness of car

repair services and functional quality as the quality of how the service is

delivered i.e. the care and manners of the service personnel. Their research

summarizes that a threshold level of technical quality should exist for

satisfaction to occur in car repair services. Nevertheless, beyond this it is

the improvement in functional quality rather than the technical quality that

will do the magic of consumer loyalty. This implies that the primary

concern of a consumer is technical quality i.e. the car gets fixed well.

115

Thus, technical quality drives satisfaction and absence of which causes

more dissatisfaction than the absence of functional quality. Once, the car is

repaired well to the satisfaction of the consumer the functional quality i.e.

the caring and empathy of service personnel becomes the driving force for

consumer loyalty beyond satisfaction.

116

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168. Ibid.

169. Frank Huber and Andreas Herrmann, op. cit., pp.97-122.

170. Banwari Mittal and Walfried M. Lassar, op. cit., pp.177-194.

126

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181. Banwari Mittal and Walfried M. Lassar, op. cit., pp.177-194.