THE PRICING DILEMMA OF MARUTI UDYOG LIMITED

Presented ByPrateek ChhapadiaSukhendu MandalManish GuptaBharat Sahu

CASE SUMMARY Since 1985, Maruti Udyog ltd. Has been the market

leader in the passenger car segment in India. Maruti800 had the distinction of being the largest selling car model in India since its launch in December 1983.

Market leader in the car segment, both in terms of volume of vehicles sold and revenue earned . 18.28% of the company is owned by the Indian government, and 54.2% by Suzuki of Japan.

In March 2003, MS sold 20,687 units of M800, the highest ever sales by any single model in a month.

CONTD. . . For few months of M800 performed well but gradually Alto

another MS product began eating share. Alto took over M800’s position as largest selling car with sale of 10,373 units over M800’s sale of 10,016 units.

Alto was priced very competitively i.e. 20,000-30,000 difference with that of M800. Although Alto was priced a bit higher, its sales boosted effecting the sales of M800.

Industry analysts began to anticipate that Mr. Jagdish Khattar then CEO of Maruti Suzuki will opt to discontinue M800 but later on he clarified the industry that it is a rumor and the production will continue. They now have two models in the entry level segment with the coming of Alto.

TARGETING

• 15-30 lakhs

Vitara

• 5-10 lakhs

Baleno,SX4

• 3-5 lakhs

Zen, wagon R, Versa, Swift

• Below 3 lakhs

Maruti800, Alto, Omni

• Maruti was introduced targeting the middle class.• Its target segments are well depicted in its Product Pyramid profit model.•Targeting was based on a variety of factors such as style, color, price preference, features etc.

STRATEGIES

STRATEGIES Caters to all segment and has a product

offering at all price points. Their pricing strategy is to provide an option

to every customer looking for up gradation in his car.

 CREATING DIFFERENT REVENUE STREAMS Maruti Finance Maruti Insurance Maruti Driving School (MDS)

CORPORATE STRATEGIES: STABILITY Maintaining status quo due to limited

environmental opportunities for gaining competitive advantage.

Few employees will have opportunities for advancement.

Critical that management identify key employees and develop specific HR retention strategies to keep them.

PROMOTION AND DISTRIBUTION Tied up with SBI which offered a loan of Rs 1,60,000

for a tenure of seven years at an equated installments of Rs 2,599. Interest rate was at 9.5%.

Tied up with State bank of Patiala to offer schemes where installments were payable every six months after Rabi and Kharif harvest in Punjab.

“Viataar” and the “True Value” scheme was conceptualised.

PRICING STRATEGY Despite, increase in sales tax and higher cost the price

was reduced to Rs 2,12,446. The Euro I M800 model was priced at Rs 1,98,979. The prices were slashed by Rs 15,000 and Rs 18,000 for some variants in 2002.

The price of Alto was also reduced by Rs 23,000 to create a new customer base for segment between A1 and A2.

Alto standard(Euro II) cost Rs 2,64,407 about 28,000 more than M800(Euro II) offering a variety of features

SALES OF MARUTI’S MODELS IN DIFFERENT SEGMENTS (2003-2004)

Segment Models April- June

April 03-March 04

2003 2004 YOY%

A1 M800 40,774 31,874 (-22.0) 1,67,561

C Omni, Versa 13,879 14,755 6.0 59,526

A2 Alto,Wagon R, Zen

32,885 59,201 80.0 1,76,132

A3 Baleno,Esteem 3,132 4,075 30.0 14,173

Total Passenger

Car

90,670 1,09,905 21.0 417,392

MUV Gypsy, Vitara 851 1,409 74.0 3,555

REPOSITIONING OF MARUTI PRODUCTS Whenever Maruti’s brand grew old or its sales started

dipping ,it made the following efforts in the same field:

Omni – interiors & exteriors,Omni cargo,& CNG Omni Versa – slashed prices by decreasing engine power Esteem – new look to boost sales Baleno – price slash from 1999 (7.2lacs) to 2003 (5.46)

WagonR – modifications in engine and sporty look Zen- Modified 4 times and special editions Maruti 800-Introduced modified accessories .

SWOT ANALYSIS OF MARUTI SUZUKI

Increasing purchasing power of

the Indian Middle class.

Government Subsidies.

Tax Benefits.

Prospective buyers from

the two wheelers segment.

Competition from second

hand cars and Tata

Nano.Threats

from chinese

manufacturers.

Strength Weakness

Opportunities Threats

CURRENT MARKET SHARE OF DIFFERENT COMPANIES

Q1- MARUTI IS THE MARKET LEADER IN THE PASSENGER CAR INDUSTRY IN INDIA. COMMENT ON THE RATIONALE BEHIND INTRODUCING SEVERAL PRODUCT MODELS AND THEIR VARIANTS AT DIFFERENT PRICE POINTS. HAS THIS STRATEGY HELPED THE COMPANY TO RETAIN ITS MARKET LEADERSHIP? EXPLAIN Rationale behind the strategy of introducing several product

models and their variants at different price points has helped the company to retain its market leadership to a greatest extent. Although the market share is decreasing it is still the market leader and will be for the coming decade at least.

Product life cycle plays a very important role in introducing several models at different price.

As we can see that M800 was in its growth stage and it went on a maturity stage during 2004.

CONT. . . A company whose product are dominating the market

will always think about retaining leadership.

In this case company launch a new product in time and position it when the existing products are in maturity stage. So that by the decline stage comes for the existing product, there will be an all new product ready in the market which will preserve the company’s image.

The same strategy was taken up in case of M800 and Alto.

CONTD. . . M800’s sales were highest ever i.e. 20,687 in March

2003 and performed well till mid 2004 when Alto took its position of highest selling model.

Because faster the sales, faster it will depreciate.

Gradually the product life of M800 was nearing to an end in 2010 era with the customers demanding more and more features and new design at a considerably low price.

So the company finally discontinued M800 and re-launched it as Maruti Alto 800 in April 2012.

Q2- MARUTI SUZUKI REDUCED THE PRICES OF ALTO TO REPOSITION IT AS ENTRY LEVEL CAR APPEALING TO THE URBAN CONSUMERS. DO YOU THINK THIS PRICING STRATEGY BENEFITED THE COMPANY? WAS THEIR A NEED A TO REPOSITION ALTO TO CATER TO A1 SEGMENT IN WHICH MARUTI SUZUKI WAS NOT FACING ANY COMPETITION ?

Yes, this pricing strategy benefited the company. But according to our findings the company could have waited for another 2 year to reposition Alto in A1 segment.

The company was not facing any competition, still risk cannot be taken in a volatile market where a leader can lose its leadership to its competitor for a wrong decision. The repositioning was needed but as we told above company could have waited at least 2 years because the sales were really showing good numbers.

CONTD. . . According to our findings if the repositioning would

have come late then M800 would have sold an average of 11,000 units till 2005 and than gradually decline.

But if Alto is taken into picture it was existing in the Indian market for a long time and if the company had waited for another 2 years for Alto to be repositioned, consumer would not have shown interest in Alto as it had already entered into its maturity stage.

Conclusion for this question would take the company’s decision as correct from our side.

Q3- IN THE LIGHT OF DECREASING SALES AND CONSUMER PREFERENCE, WHAT WILL BE THE FATE OF M800 IN NEAR FUTURE? GIVE SUGGESTIONS TO REVIVE THE DECLINING SALES OF MARUTI’S FLAGSHIP PRODUCT.

The fate will be the same for M800 as it happens for every product.

1983 1983-2003

2003-2008

2008-2012

SUGGESTIONS TO REVIVE DECLINING SALES OF MARUTI800. A whole new positioning strategy keeping the image

intact of the older one. Indigenization of more than 95%, by doing this the

cost will come dome by another 10,000. Banking Schemes with more flexible options for

payments of installments. Reviving the features according to the youths. Targeting age group of 18-35 by positioning

Maruti800 as a youth product because youth dives the market now a days.