Description
The document is about the new product launch of small car, its segmentation, targeting and positioning. It includes Competitor analysis, pricing strategy, promotional strategy and entire marketing mix of the small car.
TAPMI
MKT - 2
4PS INTEGRATION NEW PRODUCT LAUNCH
Fills your Heart, Fits your Pocket
Group G2
Dheepak J Shreya Jain Anup Kataria Sharathchandra Priyank Daga Jim Kim
Group I1
Sholina Mukerji Puneet Jain Ashwin Shenoy Abhishek Chandak Piyush Porwal
Group M2
Sushant Mallya Chethan Swaroop Rakshit Chaudhary Rajeev Kumar Sharmistha Shreerang
Group M1
Mrunmayi Gadre Vijeth P R V Bharath Abhilash K Veneet Keshar Nirav Vohra
MARKET ANALYSIS
The small car market in India is increasing by leaps and bounds. The indigenous market for small cars now occupies a substantial share of around 70% of the annual car production in India of about one million. The main players in the car market like Tata Motors and Maruti Udyog are fiercely competitive and more or less all the automobile companies in India that have forayed into the production of small cars are trying to out-do each other in terms of design, innovation, pricing, and technology, in order to gain control of the small car market in India. Factors driving the demand for small cars in India The increase in the demand for small cars can be attributed to the aspirational lifestyle of people which makes them strive for a car early on in life. The overall age for owning a car has also decreased in recent years. Further, the growth of Indian middle class with increasing purchasing power, along with easy financing options has made small cars more affordable. As a result, the demand for them has shot through the roof. Maruti Suzuki Alto is the most preferred car among the Indian middle classes, followed by Santro and Maruti 800. Tata already is in the process of launching the small car Nano to suit the needs of this segment. The other successful compact cars include Maruti Zen, Wagon R, Hyundai i10, Chevrolet Spark and Tata Indica V2. The small car market in India is witnessing the maximum activity, with more players from India and abroad joining the race. Hence, presently it is the most attractive car segment to enter.
SEGMENTATION:
From Market analysis, it was found that middle income class consumers – the consumers and the climbers, who buy the product for the first time and those who are replacing a secondhand product with a new one, prefer compact city cars and this segment of people are highly price sensitive. Also, the product will be sought by Business people who are looking for a second car to use for shorter leisure travels. Hence, we?ll be first segmenting the market according to Geography to find our geographical segments where both business class and
middle income are equally present. Then, each Geographical segment will be sub-segmented based on Demographic and Life Cycle variables. Geographical Segmentation The Indian geography is classified as Metros, Tier 1, 2 and 3 and rural areas. As we are expecting high volume sales to cover our aggressive promotion strategy, we need to identify geographical segments where potential customers exist. Hence, we will follow the prevailing segmentation based on classification of cities. Demographic and Lifecycle Segmentation (Sub-segment): Demographic Classification (Income based) indicates that India, officially, classifies its population into five groups, based on annual household income (Refer table below). Annual HH income (in thousand Rupees) > 1000 500 - 1000 200 - 500 90 - 200 < 90 2007 (in million hh) 6.2 75 78 27.2 12.8 199.2
Consumer Classes (Annual income Rs) The rich The Consuming Class / Strivers The Climbers / Seekers The Aspirants The Destitute Total
Also, we will be segmenting consumers based on the stage of lifecycle they are currently in based on the following variables: 1. Working Singles – People who have newly entered the workforce and planning to purchase a compact car for business and leisure travel 2. DINKs – Double Income families with No Kids who like to purchase a compact car. 3. Married with 2 kids or less 4. Married with 2 or more kids
5. Retired singles/couples – People who like to purchase a compact car that offers low maintenance and provides comfort for leisure travel. The following segmentation chart shows how the sub-segmentation is done:
I1
I2
I3
I4
I5 Working Singles Married with no kids (DINKs) Married with 2 kids or less Married with more than 2 kids Retired singles/couples
I1 – The Rich I4 – The Aspirants
I2 – The Consuming Class I5 – The Destitute
I3 – The Climbers
TARGETING:
As the product is newly launched in the most competitive segment of the market, we need substantial promotion budget to sell the product to the customers. Hence, we will not be going for a national launch initially. Geographical analysis of Indian population indicates that the consuming population is concentrated generally in bigger cities. As Primer is designed for both middle and upper middle income groups, we need to target cities where there is a good mix of the working middle class and business class population. Hence, we will be targeting two major categories of cities – the metros and the Tier I cities. Our target segment of the middle and higher income groups are present in big numbers in the metros and the Tier I cities. This will give us access to a large population of our potential customers. This is very important as we require a sales volume of 19,380 units to break – even, with projected sales of 15,000 units in the first year. Although, we are targeting only
the metros and the Tier I cities, we believe that our cars would be also be purchased from smaller cities in and around the metros and the Tier I cities. The following chart shows our target sub-segments
I1 I2 I3 I4 I5 Working Singles Married with no kids (DINKs) Married with 2 kids or less Married with more than 2 kids Retired Singles / Couples
I1 – The Rich I4 – The Aspirants
I2 – The Consuming Class I5 – The Destitute
I3 – The Climbers
As mentioned earlier, we will be targeting the middle income and the higher income groups. Within the middle income group, we will be targeting the segment of customers who are first – time buyers and those who are upgrading from a second – hand car. First time buyers refer to the segment of customers who are buying a car for the first time and haven?t owned a car before. The other segment refers to those customers who already own a second – hand car, but are now going in for a new car. Hence, the concept of getting more features at a competitive price appeals to both these segments. It is important to note that the first time buyers could also include those customers who are upgrading from a two – wheeler to a car. Although for such buyers the price will be the primary concern, the value obtained would also be an important consideration. Further, we will be targeting the single working class, the newly married couples without kids & married couples with 2 kids categories of Lifecycle segmenting. As the I3 income group people have budget constraint and will not be able to afford a big car, we have assumed that the married couples in this income group with more than 2 kids would still prefer a compact car.
We would also be targeting the I2 income group as our car is available with the option of upgrading to a lot more luxury and comfort features. This is instrumental while targeting the higher income group since they would be more interested in such features. The price of the product is not as much of a priority as the features are. Further, amongst the higher income group, we would be targeting the customers who are looking at owning more than one car. Generally, the tendency amongst higher income groups is to own one car for city use and another car for long distance travelling. We would be targeting these customers who prefer a compact car in their second car purchase.
POSITIONING
The New Product is positioned to appeal to the upper income group and upper middle class families mostly confined to Metros and tier-1 cities. In terms of positioning strategy, the target segment can still be classified based on the benefit seeking behavior and value proposition as follows: 1.) Upper income group mainly in metros who want to have a small but convenient and highly customized car, and are not price sensitive. Value proposition: For this segment, we would be highlighting the additional features of the car available, so that people can customize the car as per their convenience. 2.) Middle income group people living in metros or tier 1 cities who are going to make their first buy or replace their old car. Value proposition: As this segment would generally do a cost benefit analysis of the product before taking a major buying decision, hence we would highlight the ‘value for money’ proposition as well as the comfort, ease in handling and utility of the car as compared to its price, and position it as a one-time investment with low running cost. 3.) Working Singles living in metros and tier 1 cities, who have high purchasing power.
Value proposition: People in this segment look for style and convenience in a city car. Hence, for them our product would be positioned as a small yet stylish car that will be able to match with their personality. Apart from these strategies, we would stress on the following PODs: ? ? ? Best combination of Price and Mileage within the compact car category. A car having many additional features to suit your style. The only car with Front Power Windows in its base model.
Our product advertisement would carry the following tagline, which would indicate the „value for money? aspect of the car:
Fills your Heart, Fits your Pocket.
PRODUCT:
Cars are now considered as convenience options and compact cars enter the Maslow?s Hierarchy of Needs at the safety and security level and find a place in every level above that. Relating the Needs Hierarchy to Demographic classification in India, it was observed that the lower middle and middle income consumers generally are at this level. Hence, our product
was designed to meet the needs of this segment of consumers. However, keeping in mind the volume of sales needed for breaking even, we need to provide additional features (add-ons) which can transform the car in to a luxury package to appeal to business class people and the youth. Positioning and promoting the product on the basis of the factors that motivate the consumers at this level of the hierarchy would prove an effective strategy. The base model of the car will come with a 1086CC engine with microprocessor ingnition and fuel supply control which offers an in-city mileage of 13.6 kmpl, which is slightly higher than competitors? offerings and will qualify as a potential POD for our product. The sloping front glass provides increased interior room space. We?ve decided to provide power windows only in the front in the base model as it would be regarded as a convenience to the driver and will be considered as a safety factor too. This feature currently does not exist in competitors? product and will be a POD for our product. Apart from the base model, a wide variety of add-ons like leather upholstery, fog lamps, Rear Spoilers, SONAR parking indicators, GPRS equipment, Central Locking System, Tinted Glass, etc. will available to the feature-loving consumer. Keeping in mind the importance Indian consumers give to style and looks, we have considered a sleek design (refer cover page) while using straight parts to reduce cost and transfer the benefit to the consumer. Thus, we qualify our value-for-money pricing strategy. The base product with the 1.1l engine will be named PRIMER v1.1. The name “Primer” is a Spanish word which means “First” to indicate that Primer will be the preferred first car by customers. The Spanish word was considered while naming as it projects “perceived” style and appeals to the youth and business class people. Refer Pricing strategy for detailed product specifications.
PRICING STRATEGY:
Price and Quality are the two most important factors looked upon by middle income consumers before they make a purchase. DINKs (Double Income No Kids) – recently married couples and newly entered members of the workforce look for style and comfort also, apart from price. However, this segment is not very price sensitive i.e. they do not see a difference in the price range of around Rs. 25,000/- amongst various models of cars.
The following factors are of prime importance while pricing a new car for middle income groups: 1. Price of competitors? offerings 2. Features offered by the new product 3. Margins of the dealers and producers 4. Distribution and Promotion costs incurred in getting the product to consumers 5. Break-even analysis Price of Competitors’ Offerings: Our product would be competing mainly in the B and B+ segments of the motorcar market. All cars in these categories are hatchbacks in the price range of Rs. 2,69,000 to Rs. 3,95,000. The major competitors are Maruti Suzuki with their Zen Estilo, Alto and Wagon-R, Hyundai with Santro Xing and i10, Tata Indica and Chevrolet Spark. The lowest price of Rs. 2,69,000 is offered by the base model of Hyundai Santro Xing and the highest is by Hyundai i10. The following are the prices of the various models of the competitors? offerings:
MAKE Maruti Suzuki
BASE MODEL Alto LX Zen Estilo LX Wagon R LX A-Star LXi
PRICE (ex-showroom) 2,69,243 3,13,139 3,22,211 3,58,996 2,67,517 3,41,004 2,92,910 2,79,777
Hyundai Santro Xing Non-AC i10 D-Lite Chevrolet Spark 1.0 Tata Motors Indica V2 Xeta 1.2 GLE
Features Offered by the New Product: The following table depicts a summary of the features offered by LetsGo Primer and other cars in its category (the comparison is for the base models only).
LetsGo
Maruti Suzuki
Hyundai
Chevrolet
Tata Motors
Model Price (Rs.) Overall Length Overall Width Overall Height Displacement Air Conditioner Power Windows Power Steering Mileage CD Player Cup Holder Folder Rear Seat Child safety locks Remote fuel lid
Primer 1.1 297,000 3565 1525 1590 1086 Y FRONT ONLY Y 13.6 Y Y Y Y Y
Alto LX 269,243 3495 1475 1460 796 Y N N 14.5 N Y N Y Y
Zen Estilo LX 313,139 3495 1475 1595 1061 Y N N 13.6 N Y Y Y Y
Wagon R LX 322,211 3520 1475 1660 1061 Y Y Y 12.9 N Y Y Y Y
A-Star LXi 358,996 3500 1600 1490 998 Y N Y N Y Y Y Y
Santro Xing Non-AC 267,517 3565 1525 1590 1086 N N N 12.8 N Y Y Y Y
i10 D-Lite 341,004 3565 1595 1550 1086 Y N N N Y Y Y Y
Spark 1.0 292,910 3495 1495 1518 995 Y N N 14.5 N Y N Y Y
Indica V2 Xeta 1.2 GLE 279,777 3675 1665 1485 1193 Y N N 11.9 N Y Y Y Y
As seen from the above table, the specifications of Primer are matched with that of the competitors? offerings and, in addition, we offer a few other features, as indicated. Hence, we arrive at a tentative price of Rs. 2,97,000/Breakup of the Pricing: COSTS Manufacturing Cost Dealer Margin Producer Margin Contingency Provision 5 Free Services* Excise and Tax Logistics/Distribution costs Promotion costs per car* PRICE OF THE CAR % 65% 4.5% 10.5% 3% 2.5% 12% 1.5% 1% Value in Rs. 1,93,000 13,365 31,185 8,910 7,425 35,640 5,940 2,970 2,97,000
* - We have assumed that the cost of the free services incurred will be around 2.5% for each car, as the services will be availed within 18 months from the date of purchase, when the product will still be in almost perfect usable condition. The costs indicated against promotion are exclusive of the pre-launch advertisement cost and represent the post-launch advertisement expense incurred per car.
Dealer Margin: To encourage more dealers for our product, we have given a margin that is slightly higher than the industry average. Apart from this, we have also included a scheme where the dealer margins on add-on (optional) features will be more i.e. the margin for the dealer on every additional feature opted by the customer will be around 5-8 %, depending on the features opted by the consumer. This adaptive pricing strategy will promise higher margins to dealers and induce stocking of our product.
PLACE
As our product is a compact city car, the producer?s margin is low. Also we require high sales volumes. Hence we would follow a demand push strategy. Our main objectives are: ? To keep the distribution cost low by having minimum number of levels in the distribution channel ? To have a good number of dealership points as well as sales and customer touch points. This is done to keep the distribution frequency high in order to cater to the huge demand We are mainly targeting the metros and tier -1 cities. There are six metros and eight tier - 1 cities in India as follows:
Classification Metro Metro Metro Metro Metro Metro Tier-1
Place Mumbai Delhi Kolkata Chennai Bangalore Hyderabad Visakhapatnam
Classification Tier-1 Tier-1 Tier-1 Tier-1 Tier-1 Tier-1 Tier-1
Place Pune Kanpur Surat Coimbatore Lucknow Nagpur Ahmadabad
We propose the following channel design for the distribution of our compact car:
MANUFACTURING PLANT (BIDADI)
SALES HEAD OFFICE (BANGALORE) ZONAL OFFICES NORTH ZONE (DELHI) WEST ZONE (MUMBAI) CENTRAL ZONE (BHOPAL) EAST ZONE (KOLKATA) SOUTH ZONE (BANGALORE)
DEALERS
DEALERS
DEALERS
DEALERS
DEALERS
There would be three dealers in each metro and one dealer in tier-1 cities. These dealers would have a number of sub-dealers and booking agents under them, who would represent a particular area. We would have five Zonal Offices, which would collate the orders and send it across to the Head Office in Bangalore. The Head Office will plan the delivery schedule, and the orders would be delivered directly from the manufacturing plant in Bidadi to the respective dealers. This would take a maximum of 7-8 days and reduce the transportation costs too. The distribution costs for a compact car like Tata Nano account for around 1% of the total expenses. However, as our car is slightly bigger than Nano, hence we assume 1.5% distribution costs.
PROMOTION STRATEGY
As LetsGo?s promotion strategy aims at creating brand awareness by increasing product visibility, we will concentrate on the non – personal modes of communication for promotion. These modes include advertising through television, newspaper, auto magazines and through hoardings in the launch cities. The promotion of the product will begin two months before the launch of the product. (1) TV Advertisements The TV advertisements will begin about a month before the product is launched. We will be airing the advertisements during the peak hours. Peak hours are those hours where the TRP ratings are the highest. Upon investigating, we found that the peak hours are from 6 p.m. to 10 p.m. Hence, we will air our ads during this time across five leading channels. The ad will be aired five times on each of the five channels for the first 20 days. During the last 20 days, this frequency shall increase to 10 ads per channel on each of the five channels. Besides this, we will also get our car reviewed by the various car shows like the Car and Bike Show on NDTV, The Auto Show on CNBC TV18 and Wheelocity on Zee News. This will help establish credibility in the minds of our potential customers. (2) Newspaper Advertisements The newspaper advertisements will begin two months before the launch of the product. For the first month, we will come out with full page ads on the weekends on 6 newspapers – the Times of India, The Economic Times, The Deccan Herald, The Indian Express, The Hindu and the Hindu Business Line. During the second month, along with the full page ads, we will also run 4 half page ads in each of the four weeks. Again, these ads will appear in the same 6 newspapers. (3) Auto Magazines A huge section of the upper-middle class people is inclined towards reading and getting information from auto magazines. Hence, these people could be targeted by providing them with a comparison of various features of LetsGo Primer with other compact cars, in order to highlight our product?s PODs.
Promotion through auto magazines includes two aspects – advertisements and advertorials. This means that not only will we run ads in the magazines but, we will also get our car reviewed by the magazines. This will help in achieving both of our promotion objectives – creating visibility and inducing buying behaviour.
(4) Hoardings The advertisements in the hoardings will begin one month before the launch of the product. Hoardings will used in the metros and Tier 1 cities for a period of one month. (5) Others Besides the above mentioned media, we will also be giving free test drives to prospective consumers. From research, it was observed that middle income group people do not generally go by influence and prefer first-hand trial of the product before buying it. Hence, free test drive is a good strategy for induce buying behaviour in consumers. Road Shows and Trade promotions through auto-shows, where the product will be demonstrated before the customers? eyes will again be used to induce buying behaviour. Further, we will tie up with banks like HDFC Bank, ICICI Bank and the like for provision of auto loans and reasonable rates. Promotion Budget Head of Expenses TV Advertisements (a) Month 1 5 times a day X 5 channels X 20 days (b) Month 2 10 times a day X 5 channels X 10 days (Note: Rates calculated for 20 second ad @ Rs. 3 lakh per 10 seconds, ads to air 1 month before launch) Newspaper Ads (a) Times of India + The Economic Times (b) 4 other newspapers 2,58,25,000 10,23,00,000 30,00,00,000 Amt. Amt. 60,00,00,000
30,00,00,000
12,81,25,000
(Note: Rates calculated for 8 full page ads for 2 months and 4 half page ads during the 2nd month) Hoardings 6 metros: 3 places 10 Tier 1 Cities: 2 places 10 Tier 2 Cities: 1 place Brochures (3 lakh brochures X Rs. 10 each) Online Promotion Website Design & Maintenance Online advertising in other websites TOTAL PROMOTION BUDGET 54,00,000 40,00,000 10,00,000 30,00,000 1,04,00,000
10,00,000 6,00,000 4,00,000 74,25,25,000
BREAK-EVEN ANALYSIS
Outflow Promotion (Pre-launch) Inflows Producer Margin per car Cost saved in contingency provision per car Total Inflows per car Break-even sales volume = Initial outflow / Inflows per car Estimated sales in Year 1 15000 units 2.1% of the entire compact car market Rs. 38313 19,380. Rs. 31,185 Rs. 7,128* Rs. 74,25,25,000
Market Share to be captured in year 1 -
*- Considering that only 20% of the vehicles incur damage costs during distribution the remaining 80% of the provisions for contingencies will be available to the company as profit on each unit sale. Considering the effectiveness of the promotion strategy adopted by us, we are expecting a sale of around 15,000 units in the first year of production. Hence, we will be breaking even in 15 months after product launch. Considering the intense competition in this segment, we have projected a conservative market share of 2.1% that will be captured from the competition.
doc_268596272.pdf
The document is about the new product launch of small car, its segmentation, targeting and positioning. It includes Competitor analysis, pricing strategy, promotional strategy and entire marketing mix of the small car.
TAPMI
MKT - 2
4PS INTEGRATION NEW PRODUCT LAUNCH
Fills your Heart, Fits your Pocket
Group G2
Dheepak J Shreya Jain Anup Kataria Sharathchandra Priyank Daga Jim Kim
Group I1
Sholina Mukerji Puneet Jain Ashwin Shenoy Abhishek Chandak Piyush Porwal
Group M2
Sushant Mallya Chethan Swaroop Rakshit Chaudhary Rajeev Kumar Sharmistha Shreerang
Group M1
Mrunmayi Gadre Vijeth P R V Bharath Abhilash K Veneet Keshar Nirav Vohra
MARKET ANALYSIS
The small car market in India is increasing by leaps and bounds. The indigenous market for small cars now occupies a substantial share of around 70% of the annual car production in India of about one million. The main players in the car market like Tata Motors and Maruti Udyog are fiercely competitive and more or less all the automobile companies in India that have forayed into the production of small cars are trying to out-do each other in terms of design, innovation, pricing, and technology, in order to gain control of the small car market in India. Factors driving the demand for small cars in India The increase in the demand for small cars can be attributed to the aspirational lifestyle of people which makes them strive for a car early on in life. The overall age for owning a car has also decreased in recent years. Further, the growth of Indian middle class with increasing purchasing power, along with easy financing options has made small cars more affordable. As a result, the demand for them has shot through the roof. Maruti Suzuki Alto is the most preferred car among the Indian middle classes, followed by Santro and Maruti 800. Tata already is in the process of launching the small car Nano to suit the needs of this segment. The other successful compact cars include Maruti Zen, Wagon R, Hyundai i10, Chevrolet Spark and Tata Indica V2. The small car market in India is witnessing the maximum activity, with more players from India and abroad joining the race. Hence, presently it is the most attractive car segment to enter.
SEGMENTATION:
From Market analysis, it was found that middle income class consumers – the consumers and the climbers, who buy the product for the first time and those who are replacing a secondhand product with a new one, prefer compact city cars and this segment of people are highly price sensitive. Also, the product will be sought by Business people who are looking for a second car to use for shorter leisure travels. Hence, we?ll be first segmenting the market according to Geography to find our geographical segments where both business class and
middle income are equally present. Then, each Geographical segment will be sub-segmented based on Demographic and Life Cycle variables. Geographical Segmentation The Indian geography is classified as Metros, Tier 1, 2 and 3 and rural areas. As we are expecting high volume sales to cover our aggressive promotion strategy, we need to identify geographical segments where potential customers exist. Hence, we will follow the prevailing segmentation based on classification of cities. Demographic and Lifecycle Segmentation (Sub-segment): Demographic Classification (Income based) indicates that India, officially, classifies its population into five groups, based on annual household income (Refer table below). Annual HH income (in thousand Rupees) > 1000 500 - 1000 200 - 500 90 - 200 < 90 2007 (in million hh) 6.2 75 78 27.2 12.8 199.2
Consumer Classes (Annual income Rs) The rich The Consuming Class / Strivers The Climbers / Seekers The Aspirants The Destitute Total
Also, we will be segmenting consumers based on the stage of lifecycle they are currently in based on the following variables: 1. Working Singles – People who have newly entered the workforce and planning to purchase a compact car for business and leisure travel 2. DINKs – Double Income families with No Kids who like to purchase a compact car. 3. Married with 2 kids or less 4. Married with 2 or more kids
5. Retired singles/couples – People who like to purchase a compact car that offers low maintenance and provides comfort for leisure travel. The following segmentation chart shows how the sub-segmentation is done:
I1
I2
I3
I4
I5 Working Singles Married with no kids (DINKs) Married with 2 kids or less Married with more than 2 kids Retired singles/couples
I1 – The Rich I4 – The Aspirants
I2 – The Consuming Class I5 – The Destitute
I3 – The Climbers
TARGETING:
As the product is newly launched in the most competitive segment of the market, we need substantial promotion budget to sell the product to the customers. Hence, we will not be going for a national launch initially. Geographical analysis of Indian population indicates that the consuming population is concentrated generally in bigger cities. As Primer is designed for both middle and upper middle income groups, we need to target cities where there is a good mix of the working middle class and business class population. Hence, we will be targeting two major categories of cities – the metros and the Tier I cities. Our target segment of the middle and higher income groups are present in big numbers in the metros and the Tier I cities. This will give us access to a large population of our potential customers. This is very important as we require a sales volume of 19,380 units to break – even, with projected sales of 15,000 units in the first year. Although, we are targeting only
the metros and the Tier I cities, we believe that our cars would be also be purchased from smaller cities in and around the metros and the Tier I cities. The following chart shows our target sub-segments
I1 I2 I3 I4 I5 Working Singles Married with no kids (DINKs) Married with 2 kids or less Married with more than 2 kids Retired Singles / Couples
I1 – The Rich I4 – The Aspirants
I2 – The Consuming Class I5 – The Destitute
I3 – The Climbers
As mentioned earlier, we will be targeting the middle income and the higher income groups. Within the middle income group, we will be targeting the segment of customers who are first – time buyers and those who are upgrading from a second – hand car. First time buyers refer to the segment of customers who are buying a car for the first time and haven?t owned a car before. The other segment refers to those customers who already own a second – hand car, but are now going in for a new car. Hence, the concept of getting more features at a competitive price appeals to both these segments. It is important to note that the first time buyers could also include those customers who are upgrading from a two – wheeler to a car. Although for such buyers the price will be the primary concern, the value obtained would also be an important consideration. Further, we will be targeting the single working class, the newly married couples without kids & married couples with 2 kids categories of Lifecycle segmenting. As the I3 income group people have budget constraint and will not be able to afford a big car, we have assumed that the married couples in this income group with more than 2 kids would still prefer a compact car.
We would also be targeting the I2 income group as our car is available with the option of upgrading to a lot more luxury and comfort features. This is instrumental while targeting the higher income group since they would be more interested in such features. The price of the product is not as much of a priority as the features are. Further, amongst the higher income group, we would be targeting the customers who are looking at owning more than one car. Generally, the tendency amongst higher income groups is to own one car for city use and another car for long distance travelling. We would be targeting these customers who prefer a compact car in their second car purchase.
POSITIONING
The New Product is positioned to appeal to the upper income group and upper middle class families mostly confined to Metros and tier-1 cities. In terms of positioning strategy, the target segment can still be classified based on the benefit seeking behavior and value proposition as follows: 1.) Upper income group mainly in metros who want to have a small but convenient and highly customized car, and are not price sensitive. Value proposition: For this segment, we would be highlighting the additional features of the car available, so that people can customize the car as per their convenience. 2.) Middle income group people living in metros or tier 1 cities who are going to make their first buy or replace their old car. Value proposition: As this segment would generally do a cost benefit analysis of the product before taking a major buying decision, hence we would highlight the ‘value for money’ proposition as well as the comfort, ease in handling and utility of the car as compared to its price, and position it as a one-time investment with low running cost. 3.) Working Singles living in metros and tier 1 cities, who have high purchasing power.
Value proposition: People in this segment look for style and convenience in a city car. Hence, for them our product would be positioned as a small yet stylish car that will be able to match with their personality. Apart from these strategies, we would stress on the following PODs: ? ? ? Best combination of Price and Mileage within the compact car category. A car having many additional features to suit your style. The only car with Front Power Windows in its base model.
Our product advertisement would carry the following tagline, which would indicate the „value for money? aspect of the car:
Fills your Heart, Fits your Pocket.
PRODUCT:
Cars are now considered as convenience options and compact cars enter the Maslow?s Hierarchy of Needs at the safety and security level and find a place in every level above that. Relating the Needs Hierarchy to Demographic classification in India, it was observed that the lower middle and middle income consumers generally are at this level. Hence, our product
was designed to meet the needs of this segment of consumers. However, keeping in mind the volume of sales needed for breaking even, we need to provide additional features (add-ons) which can transform the car in to a luxury package to appeal to business class people and the youth. Positioning and promoting the product on the basis of the factors that motivate the consumers at this level of the hierarchy would prove an effective strategy. The base model of the car will come with a 1086CC engine with microprocessor ingnition and fuel supply control which offers an in-city mileage of 13.6 kmpl, which is slightly higher than competitors? offerings and will qualify as a potential POD for our product. The sloping front glass provides increased interior room space. We?ve decided to provide power windows only in the front in the base model as it would be regarded as a convenience to the driver and will be considered as a safety factor too. This feature currently does not exist in competitors? product and will be a POD for our product. Apart from the base model, a wide variety of add-ons like leather upholstery, fog lamps, Rear Spoilers, SONAR parking indicators, GPRS equipment, Central Locking System, Tinted Glass, etc. will available to the feature-loving consumer. Keeping in mind the importance Indian consumers give to style and looks, we have considered a sleek design (refer cover page) while using straight parts to reduce cost and transfer the benefit to the consumer. Thus, we qualify our value-for-money pricing strategy. The base product with the 1.1l engine will be named PRIMER v1.1. The name “Primer” is a Spanish word which means “First” to indicate that Primer will be the preferred first car by customers. The Spanish word was considered while naming as it projects “perceived” style and appeals to the youth and business class people. Refer Pricing strategy for detailed product specifications.
PRICING STRATEGY:
Price and Quality are the two most important factors looked upon by middle income consumers before they make a purchase. DINKs (Double Income No Kids) – recently married couples and newly entered members of the workforce look for style and comfort also, apart from price. However, this segment is not very price sensitive i.e. they do not see a difference in the price range of around Rs. 25,000/- amongst various models of cars.
The following factors are of prime importance while pricing a new car for middle income groups: 1. Price of competitors? offerings 2. Features offered by the new product 3. Margins of the dealers and producers 4. Distribution and Promotion costs incurred in getting the product to consumers 5. Break-even analysis Price of Competitors’ Offerings: Our product would be competing mainly in the B and B+ segments of the motorcar market. All cars in these categories are hatchbacks in the price range of Rs. 2,69,000 to Rs. 3,95,000. The major competitors are Maruti Suzuki with their Zen Estilo, Alto and Wagon-R, Hyundai with Santro Xing and i10, Tata Indica and Chevrolet Spark. The lowest price of Rs. 2,69,000 is offered by the base model of Hyundai Santro Xing and the highest is by Hyundai i10. The following are the prices of the various models of the competitors? offerings:
MAKE Maruti Suzuki
BASE MODEL Alto LX Zen Estilo LX Wagon R LX A-Star LXi
PRICE (ex-showroom) 2,69,243 3,13,139 3,22,211 3,58,996 2,67,517 3,41,004 2,92,910 2,79,777
Hyundai Santro Xing Non-AC i10 D-Lite Chevrolet Spark 1.0 Tata Motors Indica V2 Xeta 1.2 GLE
Features Offered by the New Product: The following table depicts a summary of the features offered by LetsGo Primer and other cars in its category (the comparison is for the base models only).
LetsGo
Maruti Suzuki
Hyundai
Chevrolet
Tata Motors
Model Price (Rs.) Overall Length Overall Width Overall Height Displacement Air Conditioner Power Windows Power Steering Mileage CD Player Cup Holder Folder Rear Seat Child safety locks Remote fuel lid
Primer 1.1 297,000 3565 1525 1590 1086 Y FRONT ONLY Y 13.6 Y Y Y Y Y
Alto LX 269,243 3495 1475 1460 796 Y N N 14.5 N Y N Y Y
Zen Estilo LX 313,139 3495 1475 1595 1061 Y N N 13.6 N Y Y Y Y
Wagon R LX 322,211 3520 1475 1660 1061 Y Y Y 12.9 N Y Y Y Y
A-Star LXi 358,996 3500 1600 1490 998 Y N Y N Y Y Y Y
Santro Xing Non-AC 267,517 3565 1525 1590 1086 N N N 12.8 N Y Y Y Y
i10 D-Lite 341,004 3565 1595 1550 1086 Y N N N Y Y Y Y
Spark 1.0 292,910 3495 1495 1518 995 Y N N 14.5 N Y N Y Y
Indica V2 Xeta 1.2 GLE 279,777 3675 1665 1485 1193 Y N N 11.9 N Y Y Y Y
As seen from the above table, the specifications of Primer are matched with that of the competitors? offerings and, in addition, we offer a few other features, as indicated. Hence, we arrive at a tentative price of Rs. 2,97,000/Breakup of the Pricing: COSTS Manufacturing Cost Dealer Margin Producer Margin Contingency Provision 5 Free Services* Excise and Tax Logistics/Distribution costs Promotion costs per car* PRICE OF THE CAR % 65% 4.5% 10.5% 3% 2.5% 12% 1.5% 1% Value in Rs. 1,93,000 13,365 31,185 8,910 7,425 35,640 5,940 2,970 2,97,000
* - We have assumed that the cost of the free services incurred will be around 2.5% for each car, as the services will be availed within 18 months from the date of purchase, when the product will still be in almost perfect usable condition. The costs indicated against promotion are exclusive of the pre-launch advertisement cost and represent the post-launch advertisement expense incurred per car.
Dealer Margin: To encourage more dealers for our product, we have given a margin that is slightly higher than the industry average. Apart from this, we have also included a scheme where the dealer margins on add-on (optional) features will be more i.e. the margin for the dealer on every additional feature opted by the customer will be around 5-8 %, depending on the features opted by the consumer. This adaptive pricing strategy will promise higher margins to dealers and induce stocking of our product.
PLACE
As our product is a compact city car, the producer?s margin is low. Also we require high sales volumes. Hence we would follow a demand push strategy. Our main objectives are: ? To keep the distribution cost low by having minimum number of levels in the distribution channel ? To have a good number of dealership points as well as sales and customer touch points. This is done to keep the distribution frequency high in order to cater to the huge demand We are mainly targeting the metros and tier -1 cities. There are six metros and eight tier - 1 cities in India as follows:
Classification Metro Metro Metro Metro Metro Metro Tier-1
Place Mumbai Delhi Kolkata Chennai Bangalore Hyderabad Visakhapatnam
Classification Tier-1 Tier-1 Tier-1 Tier-1 Tier-1 Tier-1 Tier-1
Place Pune Kanpur Surat Coimbatore Lucknow Nagpur Ahmadabad
We propose the following channel design for the distribution of our compact car:
MANUFACTURING PLANT (BIDADI)
SALES HEAD OFFICE (BANGALORE) ZONAL OFFICES NORTH ZONE (DELHI) WEST ZONE (MUMBAI) CENTRAL ZONE (BHOPAL) EAST ZONE (KOLKATA) SOUTH ZONE (BANGALORE)
DEALERS
DEALERS
DEALERS
DEALERS
DEALERS
There would be three dealers in each metro and one dealer in tier-1 cities. These dealers would have a number of sub-dealers and booking agents under them, who would represent a particular area. We would have five Zonal Offices, which would collate the orders and send it across to the Head Office in Bangalore. The Head Office will plan the delivery schedule, and the orders would be delivered directly from the manufacturing plant in Bidadi to the respective dealers. This would take a maximum of 7-8 days and reduce the transportation costs too. The distribution costs for a compact car like Tata Nano account for around 1% of the total expenses. However, as our car is slightly bigger than Nano, hence we assume 1.5% distribution costs.
PROMOTION STRATEGY
As LetsGo?s promotion strategy aims at creating brand awareness by increasing product visibility, we will concentrate on the non – personal modes of communication for promotion. These modes include advertising through television, newspaper, auto magazines and through hoardings in the launch cities. The promotion of the product will begin two months before the launch of the product. (1) TV Advertisements The TV advertisements will begin about a month before the product is launched. We will be airing the advertisements during the peak hours. Peak hours are those hours where the TRP ratings are the highest. Upon investigating, we found that the peak hours are from 6 p.m. to 10 p.m. Hence, we will air our ads during this time across five leading channels. The ad will be aired five times on each of the five channels for the first 20 days. During the last 20 days, this frequency shall increase to 10 ads per channel on each of the five channels. Besides this, we will also get our car reviewed by the various car shows like the Car and Bike Show on NDTV, The Auto Show on CNBC TV18 and Wheelocity on Zee News. This will help establish credibility in the minds of our potential customers. (2) Newspaper Advertisements The newspaper advertisements will begin two months before the launch of the product. For the first month, we will come out with full page ads on the weekends on 6 newspapers – the Times of India, The Economic Times, The Deccan Herald, The Indian Express, The Hindu and the Hindu Business Line. During the second month, along with the full page ads, we will also run 4 half page ads in each of the four weeks. Again, these ads will appear in the same 6 newspapers. (3) Auto Magazines A huge section of the upper-middle class people is inclined towards reading and getting information from auto magazines. Hence, these people could be targeted by providing them with a comparison of various features of LetsGo Primer with other compact cars, in order to highlight our product?s PODs.
Promotion through auto magazines includes two aspects – advertisements and advertorials. This means that not only will we run ads in the magazines but, we will also get our car reviewed by the magazines. This will help in achieving both of our promotion objectives – creating visibility and inducing buying behaviour.
(4) Hoardings The advertisements in the hoardings will begin one month before the launch of the product. Hoardings will used in the metros and Tier 1 cities for a period of one month. (5) Others Besides the above mentioned media, we will also be giving free test drives to prospective consumers. From research, it was observed that middle income group people do not generally go by influence and prefer first-hand trial of the product before buying it. Hence, free test drive is a good strategy for induce buying behaviour in consumers. Road Shows and Trade promotions through auto-shows, where the product will be demonstrated before the customers? eyes will again be used to induce buying behaviour. Further, we will tie up with banks like HDFC Bank, ICICI Bank and the like for provision of auto loans and reasonable rates. Promotion Budget Head of Expenses TV Advertisements (a) Month 1 5 times a day X 5 channels X 20 days (b) Month 2 10 times a day X 5 channels X 10 days (Note: Rates calculated for 20 second ad @ Rs. 3 lakh per 10 seconds, ads to air 1 month before launch) Newspaper Ads (a) Times of India + The Economic Times (b) 4 other newspapers 2,58,25,000 10,23,00,000 30,00,00,000 Amt. Amt. 60,00,00,000
30,00,00,000
12,81,25,000
(Note: Rates calculated for 8 full page ads for 2 months and 4 half page ads during the 2nd month) Hoardings 6 metros: 3 places 10 Tier 1 Cities: 2 places 10 Tier 2 Cities: 1 place Brochures (3 lakh brochures X Rs. 10 each) Online Promotion Website Design & Maintenance Online advertising in other websites TOTAL PROMOTION BUDGET 54,00,000 40,00,000 10,00,000 30,00,000 1,04,00,000
10,00,000 6,00,000 4,00,000 74,25,25,000
BREAK-EVEN ANALYSIS
Outflow Promotion (Pre-launch) Inflows Producer Margin per car Cost saved in contingency provision per car Total Inflows per car Break-even sales volume = Initial outflow / Inflows per car Estimated sales in Year 1 15000 units 2.1% of the entire compact car market Rs. 38313 19,380. Rs. 31,185 Rs. 7,128* Rs. 74,25,25,000
Market Share to be captured in year 1 -
*- Considering that only 20% of the vehicles incur damage costs during distribution the remaining 80% of the provisions for contingencies will be available to the company as profit on each unit sale. Considering the effectiveness of the promotion strategy adopted by us, we are expecting a sale of around 15,000 units in the first year of production. Hence, we will be breaking even in 15 months after product launch. Considering the intense competition in this segment, we have projected a conservative market share of 2.1% that will be captured from the competition.
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