Splitting Hair – Micro-Segmenting Hatchbacks

image_pdfimage_print

What do you get when you take a thin strand of hair and split it longitudinally? Even thinner hair…

And that is what seems to be happening with hatchbacks in the Indian market. Manufacturers are flooding the market with models and variants and this in turn has been creating micro-segments within the hatchback segment.

Hatchbacks – Popular Choice; Huge Volumes

Starting 1984, the hatchback segment has always been the largest segment in the Indian car market. It is the segment that has given mobility to Indians and in 2013, accounted for 73.87% of all passenger car sales (not counting in the country.

The width of the segment is huge. Going by ex-showroom Delhi prices, the Nano Base is the cheapest hatchback at INR 141,000 while the Polo GT TDi is the most expensive one at INR 811,000. This is a price gap spawning INR 669k and for that price gap, the increase in size across the segment (length) is a mere 896 mm.

Hatchbacks - Length Comparison

Hatchbacks – Length Comparison

More importantly, there are 189 model variants spanning this INR 669k price gap and this speaks of the breadth of the market. There is a choice for everyone and their neighbor and micro-segmentation is but natural.

SIAM itself divides hatchbacks into three segments – Micro, Mini and Compact. However, that is oversimplifying things based on pricing and length of cars alone. We think that the micro-segmentation in the customer’s mind runs much deeper than this.

Segmentation – How does the customer perceive it?

The customers have their own way of perceiving a car and most often the primary differentiator is the price. Things like fuel efficiency, size (length), interior space and boot space come after that but for the customer, the acquisition price of the car is the first decision maker / breaker. On the basis of price, hatchbacks can be classified in the following micro-segments:

  1. I just need basic weather rain protection: We were tempted to use the term ‘weather protection’ but when the car is sans an air conditioner, it really is just rain protection. This is a field of one as the Nano Std. variant, retailing at INR 141,000 in Delhi, outclasses everything in terms of price. However, apart from air conditioning, there is still the issue of highway-ability and that is why we exclude other non-AC cars like the Maruti-Suzuki Alto800 Std., Hyundai Santro Xing non-AC and Hyundai Eon D-Lite from this segment.
  2. Basic hatchbacks: This is the segment where a lot of action happens as many car buyers enter the market first at this level. Many of them are buyers who have just obtained their driving license and are scared of driving anything bigger. Cars in this segment include the Maruti-Suzuki Alto800, Hyundai Eon, Hyundai Santro Xing, Maruti-Suzuki Alto K-10 and Datsun Go. Now the Go is an anomaly here as while it compares with basic hatchbacks on price, its size is considerably bigger and comparable to some of the more expensive hatchbacks.
  3. Premium Basic Hatchbacks: These are cars, which are placed just a wee bit higher than basic hatchbacks. They offer better style and features to the entry-level buyer while not a great improvement in size. Cars in this segment include the Maruti-Suzuki Wagon R / Stingray & Celerio, Hyundai i10, Honda Brio, Chevrolet Beat & Spark, and Tata Indica.
  4. Premium Big Hatchbacks: These are hatchbacks above INR 400k for the base version and with length of more than 3750mm. The features list gets richer and the added size is a major attraction. SIAM classifies them under the Compact car segment (though SIAM classifies cars above 3600 mm as Compact) and this segment is fast becoming the mainstay of the market. The urban customer, in search for more features, space and power, is increasingly entering the market at this segment, rather than with smaller cars. Meanwhile, the rural customer is more inclined towards the smaller cars. Cars in this segment include the Maruti-Suzuki Swift & Ritz, Hyundai Grand i10, Renault Pulse, Nissan Micra, Chevrolet Sail U-Va, Tata Indica Vista, Toyota Etios Liva, and Ford Figo.
  5. Premium-Premium-Big-Hatchbacks: This is an evolution of the Premium Big Hatchback category where cars have grown a wee bit bigger, pack in many more features and match Super Compact sedans and Executive Sedans in terms of trim level. However, the cars are still below 4000mm to benefit from the lower taxation. Cars in this segment include the Hyundai i20, Fiat Punto and Volkswagen Polo.

Many of these segments depend on how the customer perceives the products or how the product is placed in the market. So the Volkswagen Polo compares poorly with the Hyundai i20 in terms of specifications and the Fiat brand has dropped a lot of its sheen. The result is poor sales of both the Polo and Punto in comparison to the i20, which is relatively steady.

Why Micro-Segmentation is Important

For carmakers, this minor segmentation is important. When a carmaker starts offering multiple models, it meets the requirements of a wider audience. In most cases, this results in greater footfalls and higher conversions. Often, customers walking into a showroom with one model in mind end up buying something else. A wide range of products ensures that the customer is not walking out of your showroom and into the rival’s.

Maruti-Suzuki knows it best. The leading carmaker has six models and 42 variants on sale in the hatchback segments. A few months back, there were eight models being offered. In 2013, Maruti accounted for 698,050 units in the hatchback segment, or 50.42% of the hatchback market.

Rival Hyundai has learnt things well, so when the time came to replace the i10 globally, it pulled out the Grand i10 out of its hat. The Grand i10 hits the sweet spot between the very expensive i20 and the much lower cost i10 and gives Hyundai a direct competitor against the Swift / Ritz in the Premium Big Hatchback segment. As of today, Hyundai offers five models and 43 variants in the hatchback market. This resulted in sales of 323,946 units and accounted for 23.4% of the hatchback market.

Price Overlapping – A Necessity

As the price band plotting graphic demonstrates, models occupying the same showroom have price bands overlapping each other. For instance, the i10’s top-end and the Grand i10’s bottom end overlap by INR 38,000. Similarly, the top-end of the WagonR /Stingray overlaps partially with the bottom-end of the Ritz and Swift models.

Hatchbacks - Price Bands

Hatchbacks – Price Bands (Click to enlarge)

This is done to offer maximum choice to the customers. Buyers come in all shapes & tastes and there are some who demand space at the lowest price while there are others who want the best specifications and safety equipment in their small hatchbacks. As a result, the top-end of the i10 appears to have richer specifications as compared to the bottom-end of the Grand i10.

Minor Segmentation – A Strategic Move in Platform Planning

This minor segmentation is also a strategic tool in platform planning. Globally, over many model cycle changes, vehicle models tend to grow in size with each passing generation. This results in the new generation model slotted slightly higher than the generation going out.

With the Indian market not being too fussy about platform lifecycles and being tolerant to platform extending their lifecycles and overstaying their welcome, this provides a unique opportunity to manufacturers. The older generation model can then be retained and slotted lower in the pecking order while the new generation moves upwards. Case in point is the Hyundai i10 / Grand i10.

Filling all Segments

For a manufacturer, it is no longer about offering a small hatchback (or two) for the Indian market. There are at least four hatchback micro-segments that can be identified and some more would emerge as the market matures further. Hyundai is a good example of a manufacturer straddling all micro-segments convincingly. Surprisingly, rival Maruti-Suzuki despite having more models in the hatchback market fails to offer anything in the Premium-Premium Big Hatchback micro-segment.

How the Datsun Go is a segment wrecker Datsun has recently launched their first car in the Indian market. The Go is a hatchback that shatters traditional micro-segmentation in the Indian market. At 3785mm, it is comparable in size to premium Big Hatchbacks like the Maruti-Suzuki Swift (3850mm), Maruti-Suzuki Ritz (3775mm), Hyundai Grand i10 (3765mm) and Toyota Etios Liva (3775mm). At the same time, with a price starting INR 312000, the Go compares to models much smaller in size. Even much smaller models like the Maruti-Suzuki WagonR/Stingray & Celerio, Chevrolet Beat & Spark and Honda Brio are priced significantly more than the Go. On paper, this makes the Datsun terrific value for money, a formula that normally kills it in the hatchback segment.

×

The YRA will change that. The YRA is a Compact hatchback under development and would be positioned in the Premium-Premium-Big-Hatchback segment, above the Swift. When it comes out in 2015, the YRA will challenge the upcoming Honda Jazz and the next generation of the i20. Expected to be slightly bigger and roomier than the Swift, the YRA would still be under 4000 mm in length to safeguard its small car credentials.

Premium-Premium Eating Super Compacts

Due to their pricing, the Premium-Premium-Big-Hatchbacks are right in the midst of the Super Compact sedan zone. There is a substantial overlap between Premium-Premium and Super Compact sedans and this again ensures that the customer has choice. However, the differentiation is stark, as the Premium-Premium Big Hatchback customer is looking for the bets possible specifications and kit in a small package while the Super Compact customer wants boot space at a reasonable cost.

Also the Hatchback customer often gets more legroom in the rear and greater cabin space overall as compared to the Super Compact sedan buyer as most small sedans are built by stitching a boot to a Premium Big hatchback (and not a Premium-Premium Big Hatchback) like the Brio, Swift or Grand i10.

Problems with Micro-segmentation

While Micro segmentation may be a good strategy for maximizing sales, manufacturers often face a huge challenge in offering such a wide variety of choices in the hatchback segment. Such a product strategy plays havoc with platform timings, especially when platforms are globally synced.

For instance, Hyundai is currently selling the old generation i10 and the Grand i10 (new generation i10) simultaneously. Both models coexist in the market. However, when the time comes to let go of the old generation i10 due to age-related issues, the manufacturer would most likely be left with a void as the global platform planning has synced themselves with the Grand i10.

 

 

 

Related News

Leave a Reply

Your email address will not be published. Required fields are marked *

Copyright 2015 | Emerging Markets Automotive Advisors Pvt Ltd