2011

Submitted to: Prof Anshu Jalora Group 5

[EVALUATING THE PRICING FAILURE OF MARUTI BALENO]

GROUP 5: Rohit Gupta (3), Piyush Dewan (11), Aditya Jain (19), Vinayak Jain (45), Rosha Talwar (56), Anuj Maheshwari (226)

TABLE OF CONTENTS
INTRODUCTION ............................................................................................................................................. 3 Why does a Product Fail?.......................................................................................................................... 3 Maruti Baleno: The Product, the Price, and the Positioning .................................................................... 6 THE LAUNCH ................................................................................................................................................. 7 THE COMPETITORS ....................................................................................................................................... 8 THE TVC: Analysis .......................................................................................................................................... 9 Maruti Suzuki Baleno: Pricing & Positioning ................................................................................................. 9 MARUTI BALENO- THE CAR ......................................................................................................................... 10 THE INITIAL PRICING APPROACH ................................................................................................................ 10 THE MARUTI ADVANTAGE .......................................................................................................................... 11 THE RESPONSE FROM THE MARKET ........................................................................................................... 11 MISMATCH IN PRICING AND POSITIONING ................................................................................................ 12 MARUTI RESPONDS..................................................................................................................................... 13 ENTRY OF SX4 : A COMPARISON ................................................................................................................. 14 FACTORS THAT SHOULD HAVE BEEN CONSIDERED .................................................................................... 15 DIFFERENTIATION ................................................................................................................................... 15 RELEVANCE ............................................................................................................................................. 15 ESTEEM ................................................................................................................................................... 15 TECHNOLOGY .......................................................................................................................................... 16 WHAT COULD HAVE WORKED IN BALENOS FAVOR................................................................................... 16 AN ALTERNATIVE PRICING AND POSITIONING STRATEGY .......................................................................... 16 NEW PRICING APPROACH ........................................................................................................................... 17 PRODUCT REPOSITIONING PROPOSAL ....................................................................................................... 18 CONCLUSION............................................................................................................................................... 18 REFERENCES ................................................................................................................................................ 19

INTRODUCTION
Why does a Product Fail?
The reasons for a product to fail can be many , it could be due to manufacturing problems , it could be because of supply chain issues ,it can also fail because of the way it is distributed or promoted or even if the strategy for the product is wrong in the first place. However the group understands that though these are major factors that can lead to a downfall of any product, but there are 3 major reasons why a product usually fails. We have coined the term 3Ps Model (no reference to Kotlers 4Ps) for this particular framework. Basically what we feel is that if a product can satisfy this framework it is guaranteed to be a sure shot success. The framework is as follows:

Product

Price

Positioning

Product

It is a tangible good or an intangible service that is mass produced or manufactured on a large scale with a specific volume of units. Intangible products are service based like the tourism industry & the hotel industry or codes-based products like cell phone load and credits. Typical examples of a mass produced tangible object are the motor car and the disposable razor. A less obvious but ubiquitous mass produced service is a computer operating system. Packaging also needs to be taken into consideration. Every product is

subject to a life-cycle including a growth phase followed by an eventual period of decline as the product approaches market saturation. To retain its competitiveness in the market, product differentiation is required and is one of the strategies to differentiate a product from its competitors

Price

The price is the amount a customer pays for the product. The business may increase or decrease the price of product if other stores have the same product. Price is the only element that involves revenue rather than expense, so its impact can be dramatic. Pricing not only highlights the importance of strategies but also conveys it to the customer in a way he can understand.

The successful producer of an article sells it for more than it costs him to produce - that's his profit. The customer buys it because it is worth more to him than he pays for it - that's his profit. No one can long make a profit producing anything unless the customer makes a profit using it. - Samuel Pettengill, US Congressman, 1930's

Positioning

Positioning has come to mean the process by which marketers try to create an image or identity in the minds of their target market for its product, brand, or organization. Pricing and Positioning go hand in hand, there needs to be an optimum balance between the two. Once this balance fails the product is bound for Failure.

Generally, the product positioning process involves: 1. Defining the market in which the product or brand will compete (who the relevant buyers are) 2. Identifying the attributes (also called dimensions) that define the product 'space'

3. Collecting information from a sample of customers about their perceptions of each product on the relevant attributes 4. Determine each product's share of mind 5. Determine each product's current location in the product space 6. Determine the target market's preferred combination of attributes (referred to as an ideal vector) 7. Examine the fit between:

The position of your product The position of the ideal vector

8. Interest and started a conversation, you'll know you're on the right track.

Applying the 3P Model to Baleno

Product

Price

Positioning
5

Maruti Baleno: The Product, the Price, and the Positioning

Product The Product was excellent, brilliant performance, superior technology, best engine in its class, very powerful and efficient. It was an experts delight.

Price

Priced at points close to the competitors, Baleno was priced at an ex showroom price of 8 Lacs which was too pricey at that point of time. It was one of the costliest car in its segment and Maruti known for its value for money component didnt go down too well with the customers

Positioning

Is your product or service unique, better, economical, profitable (for the market), or does it have other distinctive criteria that will differentiate it from the many other products and services available? These points of differentiation must be important and valued by your customers (for example, being marketed as an economical product in a luxury goods market would be a significant positioning mistake or vice versa).

Positioning your product needs to be focused on delivering a valued and distinctive product to a specific market and delivering in a way that customers accept (that's the hearts and minds part of the equation). Good product positioning will make it easy for

your intended customers to define why they want to buy the product (they will see the unique benefits).

THE LAUNCH
The Baleno was launched in 1999 when the market was booming and the Indian Auto Industry was growing at 20% CAGR. This also attracted a lot of foreign players into the market, notably Opel ,Mistubishi , Honda and Ford. It was targeted as a Mid-Size luxury sedan , It was an upgrade on Marutis super successful esteem that had dominated the sedan market for a long time. Maruti wanted to target middle aged businessmen and executives with the Baleno. Another reason for launching the Baleno was the declining market share of Maruti with the advent of foreign players in the market and also a glorious opportunity in capturing an untapped and rising segment in the ever growing Indian auto industry.

WHEN

In 1999 A time when foreign players had started making their presence felt.

Segment: Mid Size Luxury FOR WHOM Target: Middle Aged Business Executives

WHY

Decline in Maruti Udyogs market share Rising interest in the Segment

THE COMPETITORS

MISTUBUSHI LANCER
Price - 7.22lacs Engine 1.4 L Petrol engine @109bhp Origin Janpanese Car

OPEL ASTRA
Price - 6.77-8.64 lacs Engine 1.4 L Petrol engine @90bhp Origin German Car

HONDA CITY
Price - 7.57lacs Engine 1.4 L Petrol engine @100bhp Origin Janpanese Car

FORD ESCORT
Price - 6.69lacs Engine 1.5 L Petrol engine @95bhp Origin American Car

THE TVC: Analysis

The TV Commercial starts with depicting a scenario where a manager calls up his team that because of the cancellation of his flight, he is unable to attend the meeting. And the next scene is shown where he takes up his Maruti Suzuki Baleno and drives all the way to the destination. And the TVC ends by showing the tag line Surprising Performance. So, it becomes clear from the ad the positioning which the company wants to do. Highlighting the attributes of the car like fast speed and showing the benefits which one can get i.e. saving time depicts that the positioning done was Attribute Positioning & Benefit Positioning. The communication was directed to target middle level business executives and which is very clear from the scenario shown in the ad. Now, applying the Strategy, Big Idea & Execution model 1. Strategy: The strategy behind launching this ad was primarily that till that time, Maruti had no other car in that segment, i.e. luxury segment. So, they wanted to launch this car so as to get decent market share in that category. 2. Big Idea: It was to launch a car with all the configurations making it a perfect luxury car. 3. Execution: The execution of the ad is clearly in lines with the strategy and big idea and it clearly identifies the target segment.

Maruti Suzuki Baleno: Pricing & Positioning

The positioning statement chosen were: Owners Pride and Surprising Performance which were indicative of the superiority of technology as well as pleasure which one gets who owns the car. Apart from that, it was the first attempt of Maruti Suzuki to enter into the upper C-segment of cars in India. The car was launched aiming at customers seeking luxury, performance and style at the same time. Pricing Strategy: The pricing strategy of the company for Baleno was pretty clear. It was just to launch the car at a price close to its competitors in Indian market. Following such approach, Maruti launched Baleno with an ex-showroom price of Rs. 8 Lacs.
9

MARUTI BALENO- THE CAR

Maruti Baleno was a very sound and widely appreciated product. A lot of experts had given it very high ratings in different product features. Hence, we can be pretty sure of the fact that Baleno did not fail because of itself. The then marketing head of Maruti said in an interview The Name, an Italian sounding one, was chosen to evoke the feelings of an EXOTIC LUXURY Car. The colours themselves supplement this statement.

Some of the important product features were: 1) It had a mileage claim of 12kmpl, which was decent and competitive with the segment mileage. 2) According to industry experts it had the most technologically advanced engine 3) It had a turning radius of 4.9m, the best in its segment. 4) The only flipside to this product was lowest power capability in the segment of 94bhp@6000 rpm. However this was a very minor competitive disadvantage as this is a very small issue in terms of customer preference for a car.

THE INITIAL PRICING APPROACH

The initial pricing approach was product and cost centric. Maruti had a very clear vision in mind that it wanted to launch a car in a specific segment. So, the price was kept according to the segment. Moreover, it was cost centric approach because many parts of Baleno were imported from outside, and hence accordingly they had priced the car.
10

Produ ct

Cost

Price

Value

Custo mers

THE MARUTI ADVANTAGE

Maruti is Indias most trusted Car brand. It has an astounding 70% market share, which makes it a market leader. Its biggest core competency is its service and sales & distribution channel. It has 362 outlets in 222 cities. It has the widest service network with 2051 workshops in 1073 cities. To ensure a proper launch of Baleno, Maruti had allotted huge advertising budget. It had ensured Prime time Ads on all the Strategic Channels for effective awareness of Baleno.

THE RESPONSE FROM THE MARKET

The initial response was very lukewarm. Baleno had managed to sell only 1230 cars in the first quarter as against a 3300 of Esteem. The main cause for it was the price point which was very high because the engine was imported and not indigenously manufactured. Secondly, Indian customers had an inclination and preference towards international brand cars like city, lancer escort etc which at the similar price point. Lastly, Baleno had no Diesel variant which went against their positioning of High Performance highway car.

11

MISMATCH IN PRICING AND POSITIONING

In this section we will evaluate the underwhelming response that Baleno received post its launch. As we have already seen, Baleno as a car was pretty good- it was rated highly by experts, and even got favorable response from users. Maruti believed that they had a winner in their hands which would enable them to make their presence felt in a segment in which they were hitherto not present. However that was not to be and our group identifies a very evident mismatch between the pricing and the positioning as the probable reason for the failure.

Baleno was targeted at middle aged business executives doing well in life. Now, from a consumer behavior research report that we referenced online, we gathered that the people in this target segment value sophistication, reliability, status, and exclusivity while making the car purchase decision. Even the price point at which Baleno operated was associated with luxury and sophistication. However the message communicated by Maruti in their television commercials and print advertisements was something else altogether. The TVCs and the print advertisements positioned the car as something meant for frequent fliers. This was a subtle comparison of the car with an airplane and the emphasis was on speed and superior performance of the car. The other positioning statement that they had coined initially of the car being an owners pride was relegated to the background, and thus the wrong message was being communicated to the target group. Famous magazines and newspapers gave prominent space to their frequent fliers ad campaign and thus the spread of an incompatible message was quite quick and widespread.

12

The customers reacted by preferring to purchase imported cars in the same segment that promised to deliver what they looked for i.e. exclusivity and style. Thus Maruti Baleno, despite being a good product, lost out to its foreign competitors owing to a confused communication strategy which was unaligned with their pricing strategy and the segment of customers they were looking to cater.

MARUTI RESPONDS
After waiting four five long years, Maruti finally decided to revitalize the scene in late 2004, when they reduced the prices for Baleno drastically (to the tune of 25%). From a price band of Rs 7.6-Rs 8.6 Lacs they dropped to the Rs 5.6-6.5 Lacs one. This reduction in prices was also complemented by feature enhancement. They made the value proposition more lucrative for the customers by adding technologically advanced features like automated rear view mirrors, Power Alarms, and Climate Control Systems. This was truly a last ditch effort by Maruti to save Baleno from extinction. In fact by the time this move was made, they had already started working on the replacement offering for the upper C segment (which soon came to the market as SX4). Once again they went wrong as they did not change the positioning and the communication strategy with the change in prices. They continued to target the car at the middle aged business executives, and continued to sell on the proposition that it offered luxury and exclusivity. Not surprisingly, this last ditch effort of theirs failed, and the car was soon phased out.

13

ENTRY OF SX4 : A COMPARISON

SX4 was an upgraded version of Baleno, and was introduced in the year 2005, coinciding with the phasing out of Baleno. The car had a newer engine, an automatic transmission version, VVT technology, mileage claim of 15.6 kmpl, spectacular interiors, and enhanced looks. Maruti claimed that the car was the widest, longest, and tallest car in the segment. Comparison of the Prices of Baleno and SX4 (At the time of Launch) Variant SX4 VXi SX4 ZXi SX4 Zxi transmission) (automatic Price Rs. 6.68 Lacs Rs. 7.37 Lacs Rs. 8.02 Lacs

Variant

Price Launch)

(At

Baleno VXi Baleno ZXi

Rs. 8.05 Lacs Rs. 8.5 Lacs

SX4 was positioned with a catchy statement-Men are back which communicated that the car was macho, sturdy, powerful, energetic, and aggressive. The car was targeted at young achievers and ambitious young executives who were looking for a car that reflected style, performance, and luxury. The launch was successful with the car selling more than 3500 units in the first three months.

14

FACTORS THAT SHOULD HAVE BEEN CONSIDERED

DIFFERENTIATION PRICE ESTEEM

RELEVANCE

TECHNOLOGY

DIFFERENTIATION
Maruti Baleno was launched with the motive of making Marutis presence felt in premium segment high end sedan market, after its success over almost two decades in small car segment and appreciation of its Esteem model as well. But the product offered to customer could not differentiate well from the offerings by the competitors who were leaving no stone unturned to establish their hold in Indian markets. This variant had attributes comparable to others in the segment, hence no distinguishable looks was observed by the customers, who opted their value for money mindset to purchase cars from other players at similar prices with enhanced utility and features.

RELEVANCE
This car do catered to a segment with many options due to competitors trying to capture the market that space with their offerings too. Thus overall the segment became way too cluttered. Moreover, this car wasnt catering to any specific need that establishes its customer base away from the leader in the category Lancer.

ESTEEM
When a player is entering such a segment like entry level sedan, the positioning of its customers/ potential buyers is very specific. The conscious buyer is looking for luxury and style statement; a few buyers are the ones who are switching from small segment cars to these entries level sedans.
15

But these cars as Positioning was made, does not evoke ESTEEM in the buyer. Also, mismatch with the Price was a major reason for failure of this product.

TECHNOLOGY
As per reports observed on various automobile forums and sites, this car was having an advanced and Superior engine performance, but low power specification as such. Also, at high speeds the car was reported to stumble, an unusual characteristic observed in the segment. Thus, pricing premium for technology on offer wasnt a win-win battle for Maruti Baleno, as potential customers and even the loyalists were upset by the reviews offered by car experts on the vehicle performance.

WHAT COULD HAVE WORKED IN BALENOS FAVOR

A clear, direct alignment between the cars Positioning, Target Group and Price. A stable pricing approach in order to make their positioning statement clear. Instead of continuously decreasing prices, probably kept a mark-up to ensure substantial profits and desired perceived value. More in-depth Market Research related to consumers spending psychograph, expectations, perceived value of the competitors. Better ad-campaigns emphasizing more on needs of their TG (middle aged corporate)

AN ALTERNATIVE PRICING AND POSITIONING STRATEGY

16

NEW PRICING APPROACH

Maruti came up with Baleno with an imperative of increasing its market share which had plummeted drastically. During that period the mid-size luxury cars/sedan were seen as a very prospective market in India due to the increasing standard of living of the Indian public and rise in their disposable income. Maruti attempted to leverage upon this opportunity by coming up with Baleno to cater to this car segment. However this was without any prior need identification and in depth research of the requirements, expectations and the perceptions of the prospect customer. In other words, it was the product and cost pricing approach which the company had adopted which eventually led to the failure A customer and value centric pricing and product strategy should had been adapted by considering and understanding the requirements of the customer and whether or not a need exists. Identifying the key value drivers and quantifying it in terms of features and providing the pertinent differential value is of utmost importance in order to persuade the customers to accept the car.

Customer

Value

Price

Cost

Product

Complete analysis of customers and the perception of the value offered should hadbeen done.

17

PRODUCT REPOSITIONING PROPOSAL

Target Group (TG): Youth, including young budding managers (25-35 years of age) Repositioning statement:A Sedan with Style..With Substance Price: A more customer driven price. Differentiation from Esteem: In form of brand attributes. Add-Ons: After sales services and product warranties with Value Messaging at dealers outlet, TV and Internet.

6-7 Lakhs Car

CONCLUSION

Wrong Combination of Pricing & Positioning led to the failure of Baleno: The Company had been consistently, reducing prices to gain market share in the Indian market, while keeping its positioning of it being a mid size luxury car, the same. Once the car fell out from the price bracket of this car category it was no longer perceived by the people in generlia as a luxury car, which led to lower perceived value of the car by the people

Tweaking any one of Pricing & Positioning will not help in such cases: As discussed in the previous point, by slashing the prices continuously , Maruti could no longer justify Baleno's image as a luxury car which clearly indicates that your pricing and the positioning of the product should be in sync with each other in order to ensure the sustainability of the product

18

Changes in the Combination of all components required to sustain the idea: The alternate pricing and repositioning strategy suggested by us looks at striking a perfect chord between the three vital components- Price, Positioning and Target group. After comprehensively analyzing the entire case, we inferred that an overall make-over was required for all the components, in order to avoid a mis-match among these components and so that they reinforce each other.

REFERENCES
Brand Audit Report Passenger Sedan- Deutsche Consultants Maruti Case Study: MARUTI UDYOG LIMITED Managing competition successfully Marketing Management, Philip Kotler Pricing Strategy (Power Point Slides by Dr. Anshu Jalora)

19