Wednesday, April 12, 2017

Market Giants: Failing to Analyze

After I finished reading ‘The Coherence Premium’ by Paul Leinwand and Cesare Mainardi and ‘Seven Ways to fail’ by Paul B Carroll and Chunka Mui, two Indian automobile companies popped in my mind, Maruthi Suzuki and Tata Motors. Both companies targeted middle class population from the beginning later diverted towards lower and higher class population where they did not find the success as they estimated. The companies made fortune in mid-class automobiles.

Maruthi Suzuki started and stayed as mid cost automobile company for two decades, it used to import fully built cars in the beginning but later when the government started to impose taxes on imported cars, they started to build cars in India to reduce costs. India was a growing market and they did not want to lose the market share. They concentrated on middle class population, they kept the prices low and build good quality cars. Tata Motors also started as mid cost automobile company, and from the beginning it was manufacturing in India.

In 2012, the companies decided to shift their target customers from middle class to lower population. Tata Motors introduced Tata Nano and said, “a car for every family in the country”. The company got high response from the market. But the company’s goal to reach the lower class failed because of their production rate and built quality. They had to build new production plants which delayed the launch of the vehicle. Customers had to book the car and wait for 6 months before they could ride their car home and by the time they reached the demand rate the market declined. And also when the first batch of production came into market, people did not like the build quality, most of the engines caught fire. This was a major setback. In the meantime, Maruthi kept its model Maruthi 800 and Alto but they reduced the price so they can concentrate the lower-class population. They did not need new production plants and also they did not comprise much on built quality. Maruthi gained advantage and gained market share. Tata had huge setbacks and is planning to stop production of Nano cars.

As the average income of the people increased in the country and new premium car manufacturers entered the market, the companies decided to shift towards higher class automobile. Tata motors introduced Aria. Tata motors did not learn from their previous mistakes. The model again did not match the quality price ratio. It failed to impress its customers. Maruthi separated low-mid segment cars from their premium cars called “NEXA”. They opened separate showrooms and started selling their premium cars there. They met the cost quality ratio but failed to deliver cars on time. Customer wanted to drive their car as soon as possible. The wait time made the customers to shift to other car manufacturers.

In conclusion, both the companies in one or the other scenario failed to attract customers when they changed their initial goals. But till date both companies are making good profits in mid-segment cars, this shows that the strategists failed to analyze the market demands (customer expectations), failed to learn from each others mistake and did not take necessary steps to shift their goals. Now they are correcting their mistakes and changing their strategies. Tata Motors has introduced HEXA with improved built quality and Maruthi is increasing its production rate. With other manufacturers in the contest and damaged image will the companies be able regain their market share in premium cars? We have wait and watch.

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