In a diverse market like India, where most of the major automotive brands (barring PSA and the Chinese lot) are represented in one way or another, for one to maintain market leadership over three decades is impressive.
That Maruti-Suzuki does that with more than 40% market share year-after-year is astonishing.
But, first Let us
bore impress you with numbers
Maruti’s market share of the passenger vehicle market was 41.66% in 2013. This is a 2.26% decline from 2005 and a 2.77% decline from 2009. In one way, this may look like a very significant decline in market share but in a country with 16 manufacturers and 18 brands, one single manufacturer managing to hold on to more than 40% market share even after twenty years of liberalisation of the market is astonishing. Surprisingly, the market share in 2013 was 2.98% higher than that in 2010.
More than Maruti’s leadership in the Indian market, it is the length of its stay at the top, and the brutal manner in which Maruti-Suzuki rubs everyone’s collective nose into the ground, that is astonishing. It is almost unbelievable that in an onslaught from most of the top ten carmakers in the world on the Indian passenger car market has resulted in very little market share erosion of the incumbent leader.
For the competition, it is something that calls for introspection. Even more so considering Maruti-Suzuki’s parent Suzuki is a minnow in the global pecking order of carmakers. Nearly everyone competing with Maruti-Suzuki, not named Tata or Mahindra, is much bigger in size globally, has got deeper pockets, and have much wider range of products.
So what works for Maruti-Suzuki in the Indian market?
A number of things actually. The company’s long-term success can be divided into three phases on the timeline.
- No competition: For the first seven years of its life in India, Maruti-Suzuki only had to contend with HM Ambassador, Premier Padmini (a rehashed 1960s Fiat) and some Mahindra utilities. The Indian eager to get on the road in a dependable, practical, and affordable way had only one option. What helped was the very positive word of mouth feedback from the initial Maruti owners who were experiencing Japanese engineering and build quality for the first time.
- Partially losing way before waking up with a vengeance: The first easy decade of its life made Maruti-Suzuki a bit complacent. The manufacturer who should have ideally flooded the market with choices was found short on introducing new models. As a result, new entrants like Hyundai nibbled at some of Maruti-Suzuki’s market share. However, in retrospect, this was unavoidable and more of a natural progression of things. The company started waking up only around the end of last century as the significant volumes from the Indian operations made Suzuki consider Maruti as an important plan of future model planning. Things started turning around with the launch of the Suzuki Swift model, the first model in a segment undefined till then.
- Freestyle hand-to-hand combat to fight for every inch of market share: In recent years, Maruti-Suzuki has wielded off a full blown attack from competition as Hyundai, Tata, Honda, Toyota, Ford…. practically everyone…has penciled India into their global platform planning. What this has meant is that Indian product lifecycles now run parallel to global ones and the same platforms underpin models in India and global markets. This has thrown more contemporary competition in Maruti-Suzuki’s way and the company has had to respond with contemporary models of its own. What has also happened is that many carmakers after spending nearly two decades in the Indian market have learnt their lessons and are now able to package their products the way Indian customers demand.
In face of such an attack from competition, Maruti-Suzuki India Ltd (MSIL) successfully defending its turf and market share is a testimony to the things that they are probably doing right.
Front end – Thou Shall Not Eat your Brother
A look at SIAM data over the years reveals that MSIL’s competition often fails in increasing their overall volumes even when they release a hot new model. While the response to the new model may be very positive in the market, it has in fact taken sales away from the existing showroom. The result is very little increment in the overall sales.
On the other hand, MSIL has managed to increase the overall sales of its cars as it ramped up its product portfolio in recent years. Even with having 6-7 Mini / Compact car models in its showroom, every new model has been able to carve a niche of their own without eating too much into the other models in the showroom.
Over the years and with the experience of multiple models, MSIL now hardly gets its product pricing wrong. The company’s products are typically priced towards the bottom of their respective segments and provide great value for money to the customers. In many cases like the Ertiga, MSIL has not bothered to benchmark its pricing against the existing major products in the market, preferring to create a new benchmark of its own with the aggressive pricing.
A number of MSIL dealers have grown with the company, many seeing a significant improvement in their prosperity as volumes increased. This has created a situation where a MSIL dealer is not too tempted by poaching efforts by rival carmakers. MSIL on its part has with dealer monitoring, discipline and training, ensured that its dealers are some of the most efficient and aggressive ones in the market. MSIL dealers are known to often pursue customers relentlessly till they convert them. The aggressive follow-ups with prospective customers on one hand is supplemented by the well-oiled service mechanism. It has often been noted that MSIL dealers despite handling the largest servicing volumes on a daily basis, deliver a much more professional experience to their customers. These factors go a long way in improving customer loyalty.
At the same time, MSIL is ruthless with its dealers. The company wants its dealers to be loyal to only the Maruti-Suzuki brand. The dealers are mot allowed to venture into multi-brand dealerships or even float dealerships of other brands with a different management set-up. Most other car manufacturers allow their dealers to open dealerships of other brands as long as the new outlet is at an arm’s length in terms of management and does not share anything at the front-end or back-end with the present franchise.
MSIL does not allow any such leeway to its dealers. In the past, on multiple occasions, the company has not hesitated in terminating dealerships of errant dealers when they went ahead to open separate dealerships of other brands. Sometimes the dealer has faced termination even when the other brand is Skoda, which has little overlap in the market with Maruti-Suzuki.
Surprisingly, MSIL’s Yakuza like enforcement of this discipline with its dealers is often done using unwritten guidelines. As a senior executive (anonymous, obviously) put it, “We cannot enforce such rules with dealers as the Competition Commission of India (CCI, a body much like US Monopolies & Restricted Trade Practices Commission) would not allow us to do that. But the dealers know, and there have been enough examples in the past, that we will not hesitate in implementing this.”
Brand – An all Encompassing One
MSIL has managed to make the Maruti-Suzuki brand synonymous with providing Indians with mobility. For a large chink of entry-level car buyers, MSIL is often the first choice. Conversions are also high from family buyers who identify with the MSIL brand for dependability and affordability.
Unlike many other brands, Maruti-Suzuki does not carry any baggage of a certain desired identity. While Volkswagen wants to have a premium image while playing mainstream, Honda wasted many years convincing itself that it was mainstream, Toyota still battles with its semi-premium ego while Renault believes it is different; Suzuki’s writ for Maruti has been to just sell cars – the maximum volumes that can be sold, without bothering for the brand image. Such a positioning makes Maruti-Suzuki acceptable to all.
Such a positioning has its problems as well – customers run away as soon as Maruti-Suzuki starts peddling anything above the INR 800k – 900k-price point. This has resulted in a severe handicap for products like the SX4 and a complete disaster for others like the Kizashi and Grand Vitara.
Moving Ahead of the Customers
In many ways – like the launch of the Alto in 1999 and the Swift in 2005 – MSIL has been able to judge the changing trends in the market even before they emerged. Many years back, car buyers entered the market with the Maruti 800, a Micro segment car.
However, as the customer started changing, MSIL responded with the Alto in 1999, offering entry-level car buyers with a more upwardly mobile choice of transport. As a progression, many car buyers now enter the market at the Compact segment level (unlike the Micro and Mini segment levels earlier) and MSIL has three credible products (Swift, Ritz & Celerio) in the segment.
Surprise the Competition
Despite having a brand that rivals would often term as stale, MSIL ensures that the sales momentum of even the weak models is maintained with special editions, multiple mid-life facelifts and dealer end schemes. This ensures that none of the models slip through the crack and even the weakest ones (Estilo, A-Star in the past) manage to sell as much as the strongest that the competition offers.
Many-a-times, MSIL has not hesitated in taking a technology leadership if it believes that the customer would have high acceptance of the technology or feature. Case in point is the original Swift DZire, which was created mostly by MSIL’s local Engineering department by sewing together a boot with the Swift hatchback. Such an attempt had not been made earlier and the results were very positive. Maruti’s recent release of the Celerio with an AMT gearbox is another illustration of how the company does not hesitate in being the first to the market with a new technology.
Rural Drive – A Step Ahead
Being a market leader, MSIL’s leadership s dependent on it being a step ahead of the competitors. The company has done that by entering markets before everyone else, doing new things before everyone else and identifying micro-segments of customers before the competition could even respond. One of the recent examples has been MSIL’s push into rural and semi-urban areas. The push has resulted in a relatively huge success for the car manufacturer, which now gets about 25%-28% of its sales from the rural market. These are markets, which are expected to grow at a fast pace in the future and where rivals are yet to make inroads. Capturing them now will ensure that MSIL is top of the mind recall when these customers come back to market for their next purchase.
Back End – Extracting Lower Prices from Suppliers
MSIL manages to give significantly large volumes to suppliers. This puts them in a position of strength when negotiating prices with suppliers. The carmaker is also helped by the equity partnerships it has forged with more than 15 supplier group entities, which supply to a large chunk of MSIL’s components requirement.
Since the start of its manufacturing operations in the mid 1980s, MSIL has worked closely with Indian suppliers to improve their quality, efficiency and lower their costs. This close relationship works well in helping MSIL get the best quality at the most competitive prices from its suppliers.
Suppliers also take MSIL very seriously as compared to other carmakers. MSIL is not only the provider of some of the biggest volumes for the suppliers, the company’s RFQ’s have also been quite precise. It has maintained a reputation of meeting RFQ targets quite consistently so that the suppliers treat anything thrown out by MSIL in the market very seriously.
Despite the close relationships with suppliers, MSIL’s focus on quality and competitive pricing means that suppliers need to be on their toes. The company has not hesitated in making almost irrational price / quality demands to suppliers which often gets them to have a serious relook at their processes to derive even greater efficiencies. The end result is often a win-win for both the supplier and MSIL.
With greater technology demands, MSIL has forged new relationships with suppliers to form new joint ventures. This has ensured that MSIL has an almost captive supply of the technology and the carmaker is able to work very closely with the supplier from an early stage engagement level. Case in point is the Celerio’s plastic fuel tank where MSIL has an equity stake in the supplier Inergy India.
One Size Fits All
MSIL believes in offering multiple choices within a segment. This ensures that the company is able to seek greater volumes within a product size segment, resulting in better efficiencies. In 2013, MSIL had 13 models (not counting Kizashi and Grand Vitara) in six product segments. In comparison to MSIL, General Motors has eight products in six model segments, Hyundai has 10 products in seven model segments and Toyota has six products in six model segments. Meanwhile, Renault has five products in as many product segments while Nissan has five products in four segments.
Remarkably, out of 1.035 million cars that Maruti-Suzuki dispatched to showrooms in 2013, a whopping 83.8% came from products in the Micro, Mini, Compact and Super Compact segments only. MSIL has eight products in these four segments.
This product optimisation is beneficial in multiple ways, including enabling the manufacturer to power the entire range with the same family of engines. In 2013, the 0.8-litre, 1.0-litre and 1.2-litre gasoline engines along with the 1.3-litre diesel engine powered 99.5%of the entire sales volumes of Maruti-Suzuki. This results in huge volumes for the suppliers of components for these engines and terrific cost optimisation.
Product optimisation is also advantageous in planning efficient logistics as greater space can be optimised inside car carrier trucks and stocking yards can be planned more efficiently.
Better volumes and even greater efficiency is derived at the supplier level through large-scale components and platform sharing across models. Maruti-Suzuki now builds four models on the Swift platform with high levels of component sharing. These four models (Swift, Ritz DZire and Ertiga) together account for 40000-50000 units in volumes every month. Similarly the Alto800 and WagonR have a high degree of components sharing and together account for 30000-35000 units every month.
Greater Focus on Local Engineering
With the increase in volumes over the years, India is now the largest market for Suzuki and Maruti-Suzuki has a much larger say in the carmaker’s global planning. As a natural progression, the local Engineering department also has a greater say in MSIL’s product range. This enables faster and better quality market feedback to be incorporated into products. This is what accounts for MSIL’s capability to create products like the D’Zire, Eeco and Ertiga, designed for local requirements and unlike anything that Suzuki has in their global portfolio. Local engineering also helps in keeping the development costs low, which in turn helps in the competitive pricing of products.
Zero Baggage…. or Little Baggage
Due to its size, promise and stature, MSIL is not affected much by global politics at Suzuki. Unlike many other global carmakers operating in India, MSIL has little pressure in terms of India featuring in Suzuki’s global volume and product planning. So while a Volkswagen and Toyota face an uphill task in convincing global managements for new products and keeping their faith in the Indian promise, MSIL faces no such challenges.
Missing the boat…. and Learning to Swim
It’s not that Maruti-Suzuki has been right every time. There have been number of times when MSIL has missed a trend, partially due to myopia, partially due to Suzuki’s inexperience in a certain technology / product area and sometimes because of leadership arrogance. However, they have realised their mistakes and corrected them and again improved the overall market with their new product. Case in point is the Ertiga, where Maruti-Suzuki decided not to take the Innova head-on. Instead they crammed seven seats in a packet the size of Innova’s little brother Avanza (not sold in India but extremely popular in many ASEAN markets) and undercut the Innova by a huge amount. The result was the creation of an entirely new difficult-to-describe segment and enough confused people to get MSIL 6000 units out of the factory gates month-after-month.
However, the biggest misses have been in the Compact SUV and the Micro Truck product segments. Maruti-Suzuki missed the bus in both cases, and by a huge margin. Ford and Renault-Nissan have benefitted from MSIL’s absence in the compact SUV segment, selling more than 12000 units a month. Arguably, had MSIL been here, they would have grown this segment to 16000 units a month and cornered 8000 out of that.
And the margin of the miss is quite wide as well. MSIL’s compact SUV YAD is only expected in mid 2016 now.
The same is the case with the micro-truck segment as well where Tata has been making serious money every month, every year since the launch of the Ace. However, in this case MSIL probably found the idea of a micro-truck sporting the Maruti brand name quite revolting. Quite surprising, considering Suzuki sells the Carry and Grand Carry in the ASEAN markets and Pak Suzuki sells the Ravi (an Omni based truck) in the Pakistan market. Maruti itself sells a few thousand Omnis every month and they cater to almost the same application as the Ace.
But then, money and the quest for incremental volumes change everything. A micro-truck (Y9T) is now under development at MSIL and it will rock a diesel engine. When it comes, it has a much better chance at glory than the Mahindra Maxximmo.