DECISION-MAKING: A STUDY OF INTENDING INDIAN CAR BUYERS CONSIDERATION SET IN THE SMALL CAR MARKET (SEGMENT B)

Vikas Mehra

The economic liberalization of 1991 turned the Indian economy into a competitive market-place. Every sector of the economywhether industrial or consumer was opened up to competition from global players. The Indian passenger car industry also attracted considerable attention both nationally and internationally, particularly in the last decade (post 1993). The industry attracted investment from domestic as well as overseas players. New players, who entered the country after auto sector de-licensing in 1993, created additional capacities and domestic players followed by augmenting their own capacities.

I.

REVIEW OF LITERATURE ON INDIAN AUTOMOBILE INDUSTRY

he Indian passenger car industry has seen the emergence of tremendous choices available to the consumer in almost every segment. To retain existing relationships as well as to develop new customers, Customer Relationship Management (CRM) has emerged as a key activity. Preiss and Kleinhans (2001); Osegowitsch and Kleinhans (2001) have emphasized CRM as a key goal for success in automobile industry. Verma and Kaur (2001) and Pearson (1976) highlighted the issue of customer satisfaction and dissatisfaction. Verma and Kaur (2001) emphasized the importance of 3 types of Justices necessary for customer satisfactionProcedural Justice (response time taken by company to address complaints), Distributive Justice (companys perceived fairness in dealing with customer complaints) and Interactional Justice (human behaviour in dealing with complaints). Kalra (1997) found that the Indian consumer rates technology, comfort and convenience as important considerations for car purchase. In the developed world, technology has always played an important consideration for vehicle manufacturers as customers have always embraced stateof-the art cars. In their study Rowland, Cornet and Bouvard (2001) reviewed the scope of automotive

telematics for usage in automobiles. However, the study by Ealey and Mercer (1999) stated that different countries accept technology at different rates. Ealey and Mercer (2000) suggested that auto companies must build on their long term relationships with customers. As in other industries, the scenario in domestic Indian Automobile Industry is quite different from the Global Automobile Industry. The industry actually developed in two clear stagesthe Maruti era (1983) and the post liberalization era (1992). Compared to the global automobile sector, where substantial research has been done, very little empirical research has been conducted on the Indian automobile industry. Society of Indian Automobile Manufacturers (SIAM), 1999, developed a set of recommendations for developing Indian automobile industry with two-fold objectives:
q

To provide the Indian consumer a contemporary choice appropriate to his need and purchasing power. To strengthen the Indian automobile industry, including auto component industry, in order to achieve international competitiveness and to emerge as a significant exporter in 10 years time.

Indias top car manufacturer, Maruti Udyog Limited (MUL), has reworked its entire corporate strategy and business portfolio. Sangameshwaran (2001) reported that

44 Mehra
q

the company launched initiatives to diversify into support services like vehicle insurance, used car sales, fleet management, accessories and car finance. He cited the result of a joint study by MUL along with AT Kearney in 1998, which stated that the purchase price of the car is only one third of what the consumer spends during the ownership cycle of the car. A third is accounted for by fuel. The rest goes into support services. Almost all car manufacturers are going in for localization to become more cost effective. Vijayraghavan and Philip (2001) have found that many customers include spare parts cost in their consideration for car purchase. MUL has the advantage of having the highest localization content (90 per cent) owing to its lengthy presence in the country. Other automakers like Hyundai, Fiat and General Motors are also able to offer competitive spare parts. Saxena (2000) investigated the satisfaction level amongst the customers of premium cars Opel Astra, Ford Escort, Maruti Esteem and Daewoo Cielo- in Indore. For measuring brand satisfaction level amongst the four manufacturers, eight attributes (service, spare parts availability, safety, leg space, boot space, price, style, resale) were listed in the questionnaire. The null hypothesis (there is no significant difference in satisfaction level among different brands of premium cars) was found to be true at 5 per cent significant level. To evaluate satisfaction with dealer service, thirteen attributes were evaluated (location, ease of appointment, facilities, proper diagnosis, labour cost, spare cost, spares availability, promptness in service, correct service, staff behaviour, warranty service, post service follow up, reception handling). The null hypothesis (there is no difference in satisfaction level towards dealer service between different brands of cars) was found to be false at 5 per cent significant level that is, there is significant difference between the dealer services in respect of the 4 cars.
Table 1: Car Classification According to Length
SEGMENT A (< 3.4m) Lower B (3.4-3.65m) Upper B (3.65-4.0m) Lower C (4.0-4.2m) Upper C (4.2-4.5m) Luxury D (>4.5m) Miscellaneous
Source: Society of Indian Automobile Manufacturers (SIAM)

II. OVERVIEW OF INDIAN CAR INDUSTRY The various car models existing in the Indian marketplace can be grouped as shown in Table 1. The flood of entrants into the car industry in the last few years has led to a complete transformation of this industry. In the last 5 years alone, more than 30 new models have invaded the Indian market, making it a case of an embarrassment of riches. Moreover, a lot many models are waiting to hit the ramp in the near future. In India, the small car segment B is the most competitive segment. From Table 2, we can see that it has the maximum overall market share amongst various segments. III. RESEARCH METHODOLOGY A descriptive cross-sectional research aimed at getting the feedback from the intending buyers of Zen, Santro and Indica was carried out in Delhi in the latter half of 2003. A final sample of 320 consumers (out of 533 persons contacted) was selected by judgmental area sampling method. In judgmental sampling the choice of sample items depends exclusively on the judgment of the investigator. In other words, the investigator exercises his judgment in the choice and includes those items in the sample, which he thinks are most typical of the universe with regard to the characteristics under investigation. In area sampling, we divide the total area into a number of smaller non-overlapping areas, generally called geographical clusters, and all units in the small area are included in the sample. It makes the field interviewing more efficient since the interviewer can take many interviews at each location. The consumers were approached personally and handed over the questionnaire. This direct approach for data collection instead of mailing questionnaires, was adopted because according to Meister (1985) experience has shown that the rate of response and the quality of responses received are lower in the mailed questionnaires

MODEL M800 Zen, Alto, Wagon R, Uno, Santro, Matiz Indica, Palio Esteem, Accent, Siena, Ikon, Corsa, Indigo Cielo/Nexia, Astra, City, Lancer, Baleno, Corolla Mercedes, Accord, Sonata, Octavia, Mondeo, Camry Ambassador, Versa, Omni

VISIONThe Journal of Business Perspective Vol. 9 No. 4 OctoberDecember 2005

q q q

Decision-making 45
q

Table 2: Cumulative Car Sales (20022004)

Segment A Lower B Model M800 Zen Alto Wagon R Uno Santro Matiz Sub-Total Upper B Indica Palio Sub-Total Lower C Esteem Accent Siena Ikon Corsa Sub-Total Upper C Cielo/Nexia Astra City Lancer Baleno Sub-Total Luxury D Mercedes Accord Sonata Octavia Mondeo Sub-Total Miscellaneous Omni Ambassador Versa Sub-Total Domestic Export TOTAL 577,628 28,000 605,628 60,239 19,781 650 2,000 2,946 10,011 7,335 3,069 12,176 16,085 2,557 18,023 5,318 43,823 April 2002 March 2003 151,866 60,908 24,193 19,200 7,212 64,876 45,870 Market Share % 26.3 10.5 4.4 3.3 1.3 11.2 7.9 38.4 7.6 7.6 2.1 2.8 0.4 3.1 0.9 9.3 0.3 0.5 1.7 1.3 0.5 4.3 0.1 0.1 10.4 3.4 13.8 584,584 48,000 632,584 60,457 13,034 1,332 1,123 1,520 2,227 722 505 100 1,948 9,596 6,540 1,093 11,831 17,797 880 14,34 6, 781 64,325 17,148 April 2003March 2004 145,868 66,528 27,107 25,829 3,306 69,327 13,250 Market Share % 24.9 11.3 4.6 4.4 0.5 11.8 2.2 35.1 11.0 2.9 13.9 2.0 3.0 0.1 2.4 1.1 8.8 0.3 1.6 1.1 0.1 3.3 0.1 0.3 0.1 0.7 10.3 2.2 0.2 12.7

Source: Society of Indian Automobile Manufacturers (SIAM)

than in the directly administered questionnaire. It is much easier to ignore a mailed questionnaire. The administrators instructions and appeals with positive motivation may increase the number of respondents completing the questionnaire. This motivational factor is lacking in mailed questionnaires. In the latter, respondents must derive their instructions and motivation from printed material, with no opportunity to query instructions. This was done with a view of giving complete attention to the respondent. Any ambiguity or clarifications asked by the individuals were attended to immediately. In this context, administration of a

questionnaire does involve some loss in terms of time. The set of questionnaires used in the present study however consisted of items so constructed that their meaning was obvious. However, to be absolutely sure about the suitability of both the consumer and dealer questionnaires, pre-testing of both the questionnaires was done on 15 consumers. Though there were no major problems encountered during the pre-testing, minor modifications were done where deemed necessary. Most respondents handed back the completed questionnaire instantaneously. Some took one or two days depending on exigency of work.
q q q

VISIONThe Journal of Business Perspective Vol. 9 No. 4 OctoberDecember 2005

46 Mehra
q

Intending Buyers were identified as adult males and females planning to purchase a new Zen/Santro/Indica in the next six months to one year. The total number of questions was 7 (Annexure). The questions were developed based on the research objectives, which primarily aim at identifying important aspects of consumer decision making in the Indian Car Industrys most competitive Segment B. Since the primary aim is to assess how the consumer choice sets influence car purchase decision-making, a number of dimensions were determined on the basis of which questions were developed. For the purpose of this particular research paper, the following two important dimensions have been considered, on whose basis propositions have been developed: 1. Perceived image of a car model and specific parameters that are valued by the consumer as important determinants for final car purchase. Specific questions were developed for measuring these in the questionnaire. 2. It was essential to carry out direct comparison on a one-to-one basis amongst the 3 car models under consideration. Hence one question was specifically included on number of parameters on the basis of which it was possible to carry out paired comparisons. After data collections, consumer questionnaires were scrutinized and analysis was carried out using various statistical tests including paired sample t test and Chisquare. IV. RESULTS Based on previously mentioned dimensions, the following Propositions were framed and examined : Proposition I: There is no significant association between parameters for car purchase and car brand selection and no difference in image perception amongst intending buyers of the 3 car models. Amongst the various parameters listed in the Consumer Questionnaire, the top 3 parameters for Car Brand selection as ranked by the intending buyers are:
Table 3: Parameter Ranking by Various Buyer Groups
Buyer Group Parameter Rank 1 2 3 Intending Buyers Driving Comfort Fuel Efficiency Technology

To check out any significant association between certain parameters deemed important and choice of Car Brand, Pearson Chi-square test was applied. As seen from Table 4, parameters are independent of Car Brand selection, that is, they may not have any relationship with Car Brand selection (or Car Brand selection and Parameters are independent of each other).
Table 4: Analyzing Association between Parameters and Car Brand Selection
Intending Buyers Buyer Group
Parameters

Pearson
Chi-square

Sig. .328 .061 .355 .658 .503 .365 .698 .121 .376

Ease of driving Fuel efficiency Durability/ruggedness Technology After sales service Availability of genuine spares Financing schemes Exchange programmes Knowledge & Attitude of dealer staff * p <.05 ** significant values

13.590 20.347 13.191 5.908 15.293 21.559 16.290 27.530 17.152

Proposition II: There is no significant difference between Zen and Santro, Santro and Indica, Indica and Zen on various parameters (ease of driving, maintenance, sophistication, styling, popularity, spaciousness, fuel efficiency, value for money, environment friendliness, sportiness, technology) as assessed by the intending buyers of the 3 car models Zen, Santro and Indica. To assess comparative strengths and weaknesses, paired comparison between the 3 cars were done two at a time (that is, Zen versus Santro, Zen versus Indica, Santro versus Indica) for various parameters. A Likert scale of 1-5 (very poor-very good) was given to the respondents to choose their ratings and statistically significant Means were separated from insignificant ones on the basis of Paired sample t test. V. ANALYSIS OF THE RESULTS What attracts consumers to a particular car brand is of immense interest to marketers, especially within the car industry. In the present study, consumers were asked to rank parameters that they considered important. This was followed by Chi-square testing to confirm whether the Indian small car consumer actually buys car based on his short-listed parameters only or other factors can

VISIONThe Journal of Business Perspective Vol. 9 No. 4 OctoberDecember 2005

q q q

Decision-making 47
q

Table 5: Intending Buyers: Mean Scores Given By Respondents on A Scale of (1: Very Poor 5: Very Good)
Parameters Easy to drive Car Brands Zen-Santro Santro-Indica Zen-Indica Zen-Santro Santro-Indica Zen-Indica Zen-Santro Santro-Indica Zen-Indica Zen-Santro Santro-Indica Zen-Indica Zen-Santro Santro-Indica Zen-Indica Zen-Santro Santro-Indica Zen-Indica Zen-Santro Santro-Indica Zen-Indica Zen-Santro Santro-Indica Zen-Indica Zen-Santro Santro-Indica Zen-Indica Zen-Santro Santro-Indica Zen-Indica Zen-Santro Santro-Indica Zen-Indica t-value .781 3.002 .237 3.798 2.303 .182 .340 -2.430 1.311 -1.797 -2.318 .842 2.637 -.157 3.865 -.596 2.054 -1.321 2.189 .896 -2.024 2.746 1.811 -.358 -.973 1.533 -1.447 -3.339 2.831 -1.239 -3.346 .422 -2.335 Sig. (2-sided) .439** .005** .815** .000** .027** .857** .736** .024** .197** .079** .031** .405** .012** .877** .000** .555** .047** .200** .034** .376** .056** .009** .078** .724** .336** .133** .162** .002** .007** .228** .002** .675** .029** Mean 4.41-4.32 4.61-4.27 3.90-3.95 4.49-4.04 4.27-3.98 3.91-3.87 3.89-3.84 4.27-4.10 3.41-4.00 3.95-4.25 4.49-4.37 3.64-4.14 4.55-4.23 4.60-4.00 4.09-4.14 3.98-4.05 4.40-4.13 3.70-4.00 4.25-3.91 4.43-4.30 3.52-4.00 4.33-4.05 4.32-3.89 3.91-4.00 4.05-4.18 4.35-4.22 3.70-4.13 3.50-4.07 4.28-3.90 3.39-3.65 3.75-4.20 4.35-4.30 3.22-3.78

Easy to maintain

Sophisticated

Attractive styling

Popularity

Spacious

Fuel efficient

Value for money

Environment friendly

Sporty

High tech

* p<.05** significant values

influence final decision-making. In general, it can be said that each one of the three considered car models is independent of various parameters that have been considered. This implies that a buyer may purchase a Car Brand even if particular parameter(s) are being met or not being met by that Car Brand. It could also mean that a buyer might be looking at a optimum mix of Parameters, instead of only concentrating on two or three important Parameters. Some of the parameters considered in this study have been identified to be significant in other research studies. For example, image of the manufacturing company, after sales service, and knowledge and attitude of dealer staff are 3 important parameters which influence a buyers

perception of the company. Hence, Customer Relationship Management (CRM) should be improved. As cited earlier, the studies by Preiss and Kleinhans (2001); Osegowitsch and Kleinhans (2001) had also rated CRM implementation necessary for auto firms. Other studies by Verma and Kaur (2001) and Pearson (1976) highlighted the issue of customer satisfaction and dissatisfaction. Verma and Kaurs (2001) 3 types of justicesProcedural Justice, Distributive Justice and Interactional Justiceare more relevant today from the Indian consumers viewpoint than ever before. The present study is quite similar to an earlier study by Saxena (2000) who evaluated customer satisfaction amongst owners of 4 premium cars (Opel Astra, Ford Escort, Maruti Esteem, Daewoo Cielo) across the following 8 parameters: service, spare parts availability, safety, leg
q q q

VISIONThe Journal of Business Perspective Vol. 9 No. 4 OctoberDecember 2005

48 Mehra
q

space, boot space, price, style and resale value). His results validate this studys findings, as his research found no significant difference in satisfaction level among different brands of premium cars. On the other hand, he found significant difference between the dealer services of these 4 cars. Earlier study by Kalra (1997) found that Indian consumer rates technology, comfort and convenience ahead of peripherals, of car purchase (such as car finance). Similarly, superior technology is an important ingredient for success. Rowland, Cornet and Bouvard (2001) have justified the usage of automotive telematics (such as vehicle navigation systems) in shaping the international industry. At the same time, Ealey and Mercer (1999) cautioned that different countries accept new technology at different rates. Ealey and Troyano (1991) suggested that all automobile companies are giving undifferentiated products/services to customers. To be successful, Ealey and Mercer (2000) have suggested that auto companies must build relationships with customers beyond the immediate sale of vehicles to the extent of vehicles life cycle. One of the parameters of customer satisfaction is providing car consumers with car purchase support services like finance insurance and accessories. Sangameshwaran (2001) has highlighted the importance of one-shop support services like insurance and finance. He said that Maruti Udyog Limited has already entered into this area. Recent study by Vijayraghavan and Philip (2001) has reiterated that many customers include spare parts cost when considering car purchase a point highlighted in this research. Kalras (1997) study concluded that the Indian car consumer has become a highly discerning buyer who wants the most sophisticated and latest technological innovations in his car. This bodes well for Santro, which has since its launch in India introduced significant technological innovations in the small car market, once considered the preserve for only the medium and luxury cars (such as introduction of Multi Point Fuel Injection system and automatic transmission). Griliches and Adelman (1961); Ealey and Mercer (1999) also emphasized the importance of introduction of latest technology even though different markets absorb them at different rates. They cited the quick rise to popularity of radial tires in USA in 1970svery similar to the case of Santros popularizing the concept of Multi-Point Fuel injection (MPFI) system for small car engines in India. Now even the Zen comes in the MPFI engine mode.
q q

VI. CONCLUSIONS The Indian passenger car industry has become highly competitive and the car manufacturers must take note of the changing pattern in car purchase. The present study empirically researched and evaluated the Indian consumers intended purchase process for three car models in the Segment B (Zen, Santro and Indica). A few notable insights can be drawn from the present research. Though the Indian small car consumer ranks certain parameters (like safety, technology, fuel efficiency and driving comfort) important for car purchase, his actions can be contrary to his parameter selection. Chi-square test confirms that final car brand selection is independent of the parameters that the consumer considers as important. This implies that Indian consumer is interested in a bundle of car offerings, which go beyond short listed car parameters only. Companies could use this information to develop those particular competencies desirable to a car consumer. Until now, only general descriptive studies by car manufacturers and automobile magazines have been done, where direct comparisons are done on the basis of test driving of these cars. This is a heuristic research, that has done paired comparisons in the small car segment by collecting and evaluating independent data from 320 potential consumers. The findings show that to succeed in Indian car market, every car model needs to focus on a particular set of differentiated offerings (as seen from results of Proposition II) VII. LIMITATIONS AND RECOMMENDATIONS FOR FURTHER RESEARCH The present study has certain limitations. The study was confined to Delhi State only as it was able to offer sufficient number of consumer respondents required for the study. Also, the increased logistical cost was another major factor in confining the study exclusively to Delhi State. The Delhi consumers surveyed may not be representative of entire India. For more broad-based results, the study needs to be extended to a larger number of consumers in other Indian states also. This would bring out clearly differences in social, cultural and economic factors. The study has focused solely on one particular car segment (Segment B) represented by Zen, Santro and Indica. The results cannot be said to be representative of the entire Indian car industry. The results may be different for other car segments mid-size, premium and luxury.
q

VISIONThe Journal of Business Perspective Vol. 9 No. 4 OctoberDecember 2005

Decision-making 49
q

Further cross segment research could be undertaken taking small, medium and large segments simultaneously. Also, the present design of the study has not taken into consideration certain environmental factors (such as impact of international/domestic political environment, GDP/GNP changes, unemployment), which may have direct and indirect effects on the Indian automobile industry. These could be suitably studied in future research work undertaken on car industry. REFERENCES
Ealey, L. and Troyano (1991), L., Are Automobiles the Next Commodity?, The McKinsey Quarterly, Vol. 4. Ealey, L. and Troyano, L. (1996), Are Automobiles the Next Commodity?, The McKinsey Quarterly, 4. Ealey, L. and Mercer, G. (1999), Telematics: Where the Radio meets the Road, The McKinsey Quarterly, Vol. 2. Ealey, L. and Mercer, G. (2000), The Automotive Industry: A 30,000 Mile Checkup, The McKinsey Quarterly, Vol. 1. Griliches, Z. and Adelman, I. (1961), On an Index of Quality Change, Journal of American Statistical Association, September, pp. 535-548. Meister, D. (1985), Behavioral Analysis and Measurement Methods, John Wiley and Sons, inc., Meister, D. (1985), Behavioral Analysis and Measurement Methods, John Wiley and Sons, Inc.

Osegowitsch, M. and Kleinhans, B.A. (2001), Human Performance puts Customers in the Drivers Seat, accessed on 13 February 2003 at http://www.accenture.com/industries. Pearson, N. M. (1976), A Note on Business Responses to Consumer Letters of Praise and Complaints, Journal of Business Research, February, Vol.4, 61-68. Preiss, F.J., and Kleinhans, B.A. (2001), What keeps Your Organizations Heart BeatingThe Customer or the Product? Rethinking CRM in the Automotive Industry, accessed on 13 February, 2003 at http://www.accenture.com/ industries. Rowland, P.J., Cornet, A. and Bouvard, F. (2001), The Road ahead for Telematics, The McKinsey Quarterly, Vol. 2. Sangameshwaram, P. (2001), Maruti Revs into New Territory, The Strategist (Business Standard), July 31. Saxena, R.P. (2000), Owners of Premium Cars and their Satisfaction Level: An Empirical Investigation, Paradigm, JanuaryJune, 4 (1). SIAM Society of Indian Automobile Manufacturer (1999), Working Paper, Recommendations For Developing Indian Automobile Policy, May. Verma, D.P.S. and Kaur, G. (2001), What the Complainant Expects: A Study of Car Users, IIMB Management Review, December, Vol. 13, No. 4, pp. 39-44. Vijayraghavan, K. and Philip, L. (2001), A Big Part of the Action, The Economic Times, October 5.

Dr. Vikas Mehra is Professor and Head, Marketing Area at Asia Pacific Institute of Management, New Delhi. An alumunus of International University of Japan and Faculty of Management Studies, University of Delhi, he has had rich experience in the industry and academia. His current research interests are in the areas of Strategic Marketing and Management, International Marketing and Indian Automobile Industry. He has authored several research papers in reputed journals. He has been a resource person in various Executive Development Programmes. He has been a consultant and trainer to various organizations.

VISIONThe Journal of Business Perspective Vol. 9 No. 4 OctoberDecember 2005

q q q

50 Mehra
q

ANNEXURE
Questionnaire For Consumer Survey
RESPONDENT DETAILS Name : _______________________________________________________________ Sex: [1] Male [2] Female Address : __________________________________________________________________ Age: ____________ Pin: _______________________________ Telephone: ______________________________________________ 1. 2. 3. 4. 5. Do you plan to purchase a new car? [ ] Yes [ ] No Please tell us the model you want to purchase? [1] Zen [2] Santro [3] Indica [4] Any other When do you want to purchase this car? [1] In 6 months [2] 6 months 1 year [3] 1 2 years [4] > 2 years

From which source(s) did / do you collect information before purchasing the car? [1] Car dealer [2] Newspapers/Magazines [3] Radio [4] TV [5] Website [6] Friend/ relative [7] Any other

Given below are certain parameters. Please rank the three most important parameters for you (1: Most important & 3: Least important) in selection of a car. [1] Easy maneuverability in traffic conditions [ ] [2] Passenger seating space [ ] [3] Luggage space [ ] [4] Driving comfort [ ] [5] Ease of driving [ ] [6] Commercial purpose [ ] [7] Serviceability [ ] [8] Superior technology [ ] [9] Image of the manufacturing company [ ] [10] Fuel efficiency [ ] [11] Safety [ ] 6. Please rate these cars on a 5 - point scale on the following parameters. 5: Very good, 4: Good, 3: Neither good nor bad, 2: Poor, 1: Very poor Statements Are easy to drive Are easy to maintain Are sophisticated Have attractive styling Are more popular Have more internal space Are fuel efficient Are value for money Are environment friendly Are fun/ sporty Are High Tech 7. Which of the following was the source of finance for this car? [1] Personal savings [2] Bank/ finance company [3] Financed by employing company [4] Gift from a relative [5] Any other _____________________________________
q q q

Zen

Santro

Indica

VISIONThe Journal of Business Perspective Vol. 9 No. 4 OctoberDecember 2005