MS Co Ltd: Reviving the M8 model

MS Co. is one of the largest companies operating in the automobile sector in India. In 2000, it had a share of just over half of the total passenger car market in India. It had however been facing a shrinking market share, especially of its major model, M8, in the A-class car segment. M8 accounted for over 90 % of its sales. At the end of the year 2000, it was still the largest selling car in this category in India by far; however its market share in the total car sales in the country was getting drastically reduced. Its very large market share in the mid-nineties of over four fifths of the total Indian car sales, was reduced to less than three fifths (See Table 1). This large market share was mainly due to the M8 model, which sold in hundreds of thousands a year. Stagnant sales and reduced market share of this model, was identified as the main cause for the fall in market share (see Table 2).

Table 1: Market share of MS Co. Ltd.

Month Apr-99May-99

Jun-99 Jul-99Aug-99

Sep-99Oct-99 Nov-99

Dec-99

Jan-00 Feb-00

Market share (%)

84.6 71.8 63.5 66.5 65.3 62.1 61.7 62.8 59.1 53.7 55.5

Table 2: Sales of M8 in unitsAug-99 Sep-99 Oct-99 Nov-99 Dec-99 Jan-00 Feb-0018,908 18,458 15,581 15,063 14,715 12,610 13,939

The MS Company Ltd.

It is the largest car manufacturer in the country which at one time had a market share of over 80 per cent in the car industry. It is a joint sector corporation incorporated in 1980. Though the company was still a clear leader, it was facing a major threat to its profitability levels and market share from global firms, who were new entrants into the Indian car industry. The company was known for its strategy of value-for-money offerings, and for having brought modern new generation cars and global level technology to India during the late eighties. It currently had a wide vendor network of about 375, and a major competitive advantage in its extensive sales & service network, with 1500 retail outlets and covering over a hundred cities with 1,400 odd service centers covering 550 cities.

Its first product, M8 was launched in 1985. In the total car segment, it had a market share of 83% in 1998, with sales of 345,303 cars. For the period 1998 to 1999, car sales dropped by over 6%, and this was the first inkling that the company would be affected by the growing number of large multinational players who had entered the market. By 2000, there were two Korean competitors who had targeted the lower end of the market by launching the Sunny and the Maz, technologically contemporary hatchback B class cars, along with more premium cars. The largest Indian auto sector company in the passenger segment, which had three SUVs and one sedan in the market, and had just launched the Indcar in the B class segment. There were other players in the market such as the erstwhile Indian auto major, manufacturing Ambar, the “old faithful” car seen

more as a niche offering in the government/taxi market. The other major Indian car company had been taken over by a global major, and was offering the Funo model, which had successfully gained market share in the B class market. (See Table 3 for market shares in 1999-2000).

To face this situation, MS Co. Ltd. had been focusing its communication on market expansion, building aspirations among the two wheeler owners so that they may convert to a four wheeler. Since the M8 is the lowest cost A class car, it was believed that usually those who upgrade from a two-wheeler, or are first time buyers of a vehicle and are looking at a four-wheeler, will first prefer this entry level car. The market share figures showed that lesser numbers of people are doing that. In 2000, though the company had sold around 26000 more units of M8 than in 1999, the market share of this model in the total car market, has come down from 47 % to just over 30 %; though its share within the A segment had however grown slightly after the price cuts and new versions were introduced.

Further, the share of the so-called 'B' segment in the total passenger car market, grew from 42% to 50% during 1999-2000. On the other hand, the share of the M8 and Om in the A class segment decreased from 50% in 1999 to 36% now. The 'B' segment figures showed a total of 274,245 cars sold during the year as compared to 209,120 units in the previous year. The premium segment has also increased its share of the car market from 8.5% last year to 14% this year.

The company was also forced to shed its earlier resistance in introducing new technology in its models. It had developed three versions of the M8 (M8, M8 E & M8 D). While the M8 D version incorporated features such as advanced suspension, radial tyres, and air conditioning, the base model M8 was the lowest cost car in the country, at two-thirds the cost of the B class cars. It had even reduced its prices drastically at the time India’s largest indigenous auto sector player launched its Indcar in this class. However the slide in market share from over 80 % of the market to the level of 57% overall, was a matter of concern.

Table 4: Market share of A & B class versus C class cars.Month Aug-99 Sep-99 Oct-99 Nov-99 Dec-99 Jan-00 Feb-00 Mar-00 Apr-00 May-00A & B class 51355 52113 44065 47299 45300 45503 47322 59259 45654 43396C class 4858 5394 3250 3678 6533 6141 6828 10101 7587 7447% sale Cclass 8.6 9.4 6.9 7.2 12.6 11.9 12.6 14.6 14.3 14.6

Table 3: Brand-wise sales of A & B class (small/hatchback) cars

ModelsApr-99

May-99

Jun-99 Jul-99Aug-99

Sep-99

Oct-99Nov-99

Dec-99

Jan-00Feb-00

Mar-00

M8* 16,529 16,854 12,107 18,445 18,908 18,458 15,581 15,063 14,715 12,610 13,939 15,975Zee 5,914 7,030 6,731 7,907 7,977 7,479 6,382 7,219 6,103 6,337 6,581 7,565Om* 6,744 6,977 5,353 7,548 7,768 7,601 5,069 7,516 7,261 6,264 7,218 7,783Sunny 3,531 4,519 4,634 4,949 7,002 7,214 6,207 6,301 5,092 7,402 6,203 6,405

Indcar 1,676 2,365 3,576 4,087 4,537 5,044 4,744 5,214 5,214 5,832 5,160 7,290Maz 754 1,999 2,231 2,438 2,453 3,165 3,259 3,139 3,827 4,054 4,312 5,853Ambar 1,245 - 1,319 1,368 1,389 1,638 1,298 1,394 1,824 1,782 1,632 2,291Funo 1,469 1,365 1,272 1,303 1,305 1,508 1,525 1,453 1,264 1,222 1,220 1,254Tallboy - - - - - - - - - - 1,057 4,843* A class; the rest are B class cars

The Head of Marketing at MS Co. was quite concerned and finally spoke with the top management about this situation. “In the past months, there has been extensive brand building and sales promotion activities to stay ahead in the race. We have initiated aggressive marketing strategies to expand the market, which include tapping of newer segments (like taxis, salaried classes, as well as geographical territories) and a renewed thrust on retail financing. Yet there is a pressure on market shares, and our stock product, M8 is facing the brunt. Sales have slowed down significantly. In the last six months, average monthly sales of the model were 13 % lower than the first half average for the year. Has the strategy of building aspirations among first time buyers/converts from two wheeler buyers been ineffective, that is, it has failed to inspire 2 wheeler buyers to upgrade, change their attitude towards buying a car? Or has it been so effective that a larger number of people than earlier have been motivated to buy, but have actually started to aspire for a larger car, i.e. the B category of cars? If that is so, then in its present form, it is hardly going to recover its premier position in the market. We may now rethink our position on the model, once and for all. It may require a complete redo of the body styling and aesthetics, technology and safety specifications. Or we may decide to discontinue the model in favor of the Ally altogether. We need to be sure whether this is an alternative, a direct substitute, of the “Ally” model which have recently launched. Making such a huge success of a new model as the M8, will not be easy; but recovering the primacy of the M8 may also not be easy.” The Director, Finance had a word of caution: “You have raised a lot of questions, and the answer may lie in the issues that you have raised. But any action now must be researched, and as we focus our strengths on meeting customer needs, we must be very accurate in predicting the market dynamics. The changes that we made earlier really hurt our bottom-line, though it helped avert the market share fall. If you recall, in December 1998, we slashed the prices of M8 and Zee cars by about 10 % and 7 % respectively and our total income dropped by 4%. The decrease in prices caused a drop of 20% in net profit. Yet, we are still debating the same market issues as during that period. As you say, just pricing or promotions alone may not be the issue. Even if it is, this time we may need lot more information so that the changes bring long term effects. Long term investments may be a better way out as they will at least lead to more profits. With this level of competition we have no leeway for any margin of error. The M8 is nearly synonymous with the company, and any decision to replace or even recast this model, would be a critical move for the company”.

Initial exploratory research with dealers, revealed some concerns and issues. According to dealers, maximum change in preferences is being witnessed in the segment of small cars priced between Rs300,000 to 400,000. This consumer segment, they opined, looks for low prices, adequate comfort (in terms of space) and the latest technology at the same time. It was still a price-sensitive market. But many other factors were now important: comfort, brand image, aesthetics, and availability of the right finance schemes. They

reported that people also found the M8 as an outdated car and consequently shifted their attention to more attractive and technologically superior models like Sunny, Maz and Indcar. They felt that the initial reluctance of MS Co. to make changes or launch new models had eaten into its market share. Sunny, on the other hand was supported by aggressive marketing, excellent positioning, new technology and performance levels, with good mileage as well. Some changes to its front grill had also improved its aesthetics, and overall the sales were moving upwards. Indcar too had started doing well due to its competitively priced diesel version. Dealer felt that Indcar sales would pick up further due to their manufacturer’s policy of regularly incorporating changes in its new models to improve its performance. Indcar also benefited from their manufacturer’s extensive presence across the country in commercial vehicle dealerships and service centers, and a existing, growing network for passenger cars, since they had been in the car market for several years, and had been operating for a few decades in HCV segment in India.

MS Co. carried out a survey of prospective and existing M8 customers, covering buyer’s perceptions and media usage for car related information. The results are presented in the exhibits below.

The marketing team dealing wit the M8 brand pondered over the action that may be taken at this stage. There were many options, as highlighted by the Head of Marketing. Should they position their car differently, or change people's attitudes towards car purchases or towards M8? What are the other steps could they take to enhance its appeal to customers? What could be done in the short term and the longer term? In what way can they influence the customer, to buy the M8? Or should the M8 be phased out, if the above changes do not allow it to remain the stock car, with a mass base and very large volumes and market share?

Exhibit 1: Customer profile as per dealer perceptions

Dealer perceptions: Two thirds of the dealers perceived the A and B class car customers most often had an income of less than Rs. 300,000 per annum. Further, half the dealers also believe consumers with incomes of Rs. 300,000 to 500,000 per annum also a buy the M8, maybe as their first car if they are looking for value for money and cost of operations. Three fourths of the dealers agreed that customers from every profession sought the A and B class models, and that they were mostly older than 25 years, typically around 25 to 35 years of age.

Exhibit 2: Consumer SurveyBased on this profile, a survey of consumers was undertaken, to assess the perceptions of the M8 and the competitive models. Initially an exploratory study based on depth interviews and focus group discussion helped identify the attributes consumers felt were important and played a role in deciding which model they would purchase. Then a quantitative response on these attributes on a Likert scale was obtained as to the importance or the attribute, as well as the performance of the model on those attributes. In each case, high importance and high level of performance was required to be given a higher score on a five point scale with values ranging from 1 to 5. A factor analysis of the

attribute importance scores was also carried out, and is shown below with the mean importance scores.

Exhibit 2a: Importance of various attributes playing a role in model choice.

AttributesMean

ImportanceFactor Analysis: Component matrix

1 2 3Fuel Efficiency 3.57 -0.868 -0.288 -0.03032Space (car is spacious) 3.17 0.817930182 0.2503935 0.270936Power 3.34 0.435422273 0.7592394 0.289114Prestige (social prestige/ esteem) 3.54 0.223741887 0.3775065 0.81814Comfort in driving 3.62 0.721107638 0.0444852 0.510473Car must have new technology / features 3.54 0.438696607 0.6307012 -0.32304Car should be sporty 2.42 0.844727185 0.1732351 0.186972After sales Service Network 3.52 -0.85153674 0.3486551 0.116864Safety features 3.70 0.134161371 0.8252562 0.185765Styling / looks 3.48 0.109421608 0.0824533 0.938774

Availability of spares 3.27 -0.69300481-

0.5555812 -0.24946Best Engine and transmission 3.65 -0.18841441 0.8781462 0.205069

Referenceshttp://www.indiainfoline.com/nevi/caup/ 9 May 2000http://www.indiainfoline.com/auto/updt/ca11a.html quoting Autocar India, May 2000.http://www.indiainfoline.com/ quoting Autocar India magazine, 30th May, 2000http://www.indiainfoline.com/nevi/caup.html, dated 9th May, 2000

Exhibit 2b: Perceived Performance of various models obtained from Consumer Survey

Exhibit 2c: Information Sources of Consumers