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Measuring success of new product launches in the Indian automobile industry

SUBMITTED TO

V.K.AGRAWAL SIR

AFFILIATED TO

GUJARAT TECHNOLOGICAL UNIVERSITY, AHMEDABAD

SUBMITTED BY

VINOD PRAJAPATI

EN No: 47

MBA (semester-I) PIET

PARUL INSTITUTE OF ENGINEERING & TECHONOLOGY

TABLE OF CONTENTS

  • 1. Objectives……

  • 2. Indian Automobile market history…

  • 3. Segmentation & Profile………

  • 4. New product development……

  • 5. New Product: Success or failure……………………

  • 6. Problem of measuring success of new product………

  • 7. Measuring success for automobiles

...

…………………

  • 8. Buying Behavior…………………………

  • 9. Conclusion…

Objectives

To study the various new products launch in Indian automobile industry.

To understand various factors that affect preference of consumers while purchasing an automobile

Critical factors responsible for the success of new product in Indian automobile industry.

Indian Automobile Industry

History and development

The history of the automobile industry in India actually began about 4,000 years ago when the first wheel was used for transportation. In the early 15th century, the Portuguese arrived in China and the interaction of the two cultures led to a variety of new technologies, including the creation of a wheel that turned under its own power. By the 1600s, small steam-powered engine models were developed, but it was another century before a full-sized engine-powered automobile was created. The dream a carriage that moved on its own was realized only in the 18th century when the first car rolled on the streets. Steam, petroleum gas, electricity and petrol started to be used in these cars.

On a growth path

The Indian auto industry, worth US$ 34 billion in 2006, has grown at a CAGR of 14 per cent over the last five years with total sales of vehicles reaching around 9 million vehicles in 2005-06. That number is likely to see a significant boost, given that the first half of 2006-07 has already witnessed a staggering growth rate of 17.12 per cent. Domestic car sales for the April-September 2006 period stood at an impressive 4.86 million vehicles, including cars, two-wheelers and commercial vehicles. According to industry experts, if this trend continues, sales could touch 10 million by March 2007, clocking an annual growth rate of 20 per cent. In addition, the Government’s announcement to cut excise duty on small cars will soon see India emerging as the world's largest manufacturing hub for small or compact cars.

Destination India

India is on every major global automobile player’s roadmap, and it isn’t hard to see why:

India is the second largest two-wheeler market in the world

Fourth largest commercial vehicle market in the world

11th largest passenger car market in the world

Expected to be the seventh largest by 2016

Robust production

India’s car production capacity is in for a US$ 2 billion boost. Auto majors have announced massive investment plans which will push the country’s car production past the psychological 2 million mark by the end of fiscal 2006-07, up 70 per cent from 1.4 million units now. Even at 2 million, India, which stood at No.11 among global car producing nations, will move two steps ahead, past UK (1.6 million) and Canada (1.35 million). It will be neck and neck with Brazil’s 2-million capacity at No.8.

The automobile industry witnessed a growth of 19.35 percent in April-July 2006 when compared to April-July 2005, as is evident from this year’s production trends.

Automobile Production Trends

Category

2004-05

2005-06 (In no.s)

M&HCVs

214807

219297

LCVs

138896

171781

Total CVs

353703

391078

Passenger Cars

960487

1045881

Utility Vehicles

182018

196371

MPVs

67371

66661

Total Passenger vehicles

1209876

1308913

Scooters

987498

1020013

Motorcycles

5193894

6201214

Mopeds

348437

379574

Total Two Wheelers

6529829

7600801

Three Wheelers

374445

434424

Grand Total

8467853

9735216

Source: Society of Indian Automobile Manufacturers (SIAM)

Segmentation of the Indian Car Market

Segmentation of cars in Indian market is mainly done on the length of the car or the price

of the car. Segmentation on the basis of length is done as:

Passenger cars • Segment A1 (mini) – cars having a length of up to 3,400mm • Segment A2 (compact) – cars having a length of 3,401-4,000mm • Segment A3 (mid-size) – cars having a length of 4,001-4,500mm • Segment A4 (executive) – cars having a length of 4,501-4,700mm • Segment A5 (premium) – cars having a length of 4,701-5,000mm • Segment A6 (Luxury) – cars having a length of more than 5,000mm

FORD INDIA LIMITED

The very first mass produced vehicle was the model T.built in 1908, in Ford plants around the world. Ever since the company has been coming out with models with breakthrough technology. Now the company stands tall among all automobile manufacturers and now houses some of the world’s most favorite brands of cars. If there is anything that’s made this possible its Ford’s “Can Do” philosophy. The philosophy that triggered Ford’s growth worldwide. In India, this is reflected in the company’s sprawling, 350 acre manufacturing plant in Maramalai Nagar near Chennai.

A project that has been set up with a investment of Rs.1700 crore. Ford India Limited is a subsidiary of Ford Motor Company, currently Ford has a 78% stake, which is going up to 92% soon.The Maraimalai Nagar Plant of Ford India Limited, located roughly 45k.m.from Chennai, provides employment to over 20000 people. The plant has the capacity to manufacture 1,00,000 vehicles per annum, equipped with state-of-the-art vehicle manufacturing technology from Ford. Presently offering seven different models, Ford India Limited (FIL) is catching up fast with the Indian consumer. Looks like FIL is all set to conquer the Indian market like rest of the world

Tata Motors

Tata Motors Limited is India's largest automobile company, with revenues of Rs. 24,000 corers (USD 5.5 billion) in 2005-06. It is the leader by far in commercial vehicles in each segment, and the second largest in the passenger vehicles market with winning products in the compact, midsize car and utility vehicle segments. The company is the world's fifth largest medium and heavy commercial vehicle manufacturer.

Tata Motors, the first company from India's engineering sector to be listed in the New York Stock Exchange (September 2004), has also emerged as a global automotive company. In 2004, it acquired the Daewoo Commercial Vehicles Company, Korea's second largest truck maker. The rechristened Tata Daewoo Commercial Vehicles Company has already begun to launch new products.

Toyota Kirloskar

As a joint venture between Kirloskar Group and Toyota Motor Corporation, Toyota

Kirloskar Motor Private Limited (TKM) aims to play a major role in the development of the automotive industry and the creation of employment opportunities, not only through

its

dealer

network,

but

also

through ancillary industries.

TKM's growth since inception can be attributed to one simple, yet important aspect of its business philosophy - "Putting Customer First". While managing growth, TKM has

maintained its commitment to provide quality products at a reasonable price and has

made

every

effort

to

meet

changes

in

customer

needs.

TKM firmly believes that the success of this venture depends on providing high quality products and services to all valued customers through the efforts of its team members.

TKM, along with its dedicated dealers and suppliers, has adopted the "Growing Together" philosophy of its parent company TMC to create long-term business growth. In this way, TKM aims to further contribute to progress in the Indian automotive industry, realize greater employment opportunities for local citizens, improve the quality of life of the team members and promote robust economic activity in India.

New Product Development

Identifying and developing a new product is always a messy, experimental process. For many companies this process is more difficult and less successful than necessary. The process of introducing new products is as risky as it is vital to the long-term success of companies. The number of new products introduced globally is increasing every year, but most of them fail. Revolutionary new products often come from upstart players or companies outside the industry whose vision is not limited by a focus on the current Business and markets. To remain successful innovators, business managers must continually review their Companies' to meet the three conditions for effective innovation:

• Closeness to customers – Managers must know their customers and understand their Needs and requirements well, • Multifunctional teamwork – Successful product innovations are almost invariably The result of people in the company working together in teams rather than independently, And, • Cross-functional communications – Innovations in most companies refer to the Information flow between the key functions.

New Product: Success or Failure

The experiences of a large number of enterprises show that the failure in product development, particularly

The experiences of a large number of enterprises show that the failure in product development, particularly related to the products representing the basis for the creation of a whole range of other, so-called product platforms, originates from the phase of the product concept definition. The risk is more pronounced in the cases of developing the products that should create the needs of consumers. In such circumstances, when completely new products of high risk are created, technological and marketing uncertainties have to be studied in order to reduce or eliminate the risk of their implementation. The enterprises that are successful in this field are characterized by the management through projects, which enables successful management of each individual project and a network of projects within the enterprise, of interactions and relations among different projects and of the relationships with the environment . The surveys of the practices of successful companies suggest that adequate approaches (methods and techniques) in the product creation and development should be selected in the conditions of abrupt technology and market changes. Different approaches may be applied.

Problems of Measuring Success of a New Product

• Creates a clear product course map of the enterprise where the managers, regardless of their functional location, understand the significance of the product for the enterprise. Product maps help in defining key priorities, in timely decision-making and in defining the products that shall represent the grounds for further development. This enables not only the improvement of final products but also the elimination of the lost efforts that divert the enterprise from more important activities. The product maps, as well as the processes that create them, are the central parts of the total product development process.

• Collects and uses valid information from the market and cooperates in particular with consumers and suppliers. The product creation process includes consumers-innovators, who are the first to accept the product and who appear in the role of referential groups, which facilitates not only a full satisfaction of consumers but enables the realization of the desired enterprise performances.

Measuring Success of New Products

New products are important for business success of enterprise as a whole. Measuring new product success and its contribution to business performance of enterprise as a whole is a very complex process. A fundamental problem when measuring new product success lies in the meaning of such success, as it has not been well defined.

Most small companies cannot afford the complex and costly consumer tracking studies used by larger, more sophisticated competitors:

usage and attitude studies that examine consumer usage and attitude about products, advertising, brand awareness, and brand image at a given point in time trial and repeat purchase tracking studies that record weekly purchases of similar products by target consumers, as well as the reasons for buying or not buying the products (this type of study is sometimes called a diary panel) simulated test marketing called "experimental primary lab research," which is usually conducted in store malls under controlled conditions controlled field testing called "experimental primary field research," which is usually conducted in a controlled group of stores advertising awareness and recall studies that examine the efficacy of print and electronic advertising on target buyers, often conducted by the Burke, Starch, or AC Nielsen market research companies

But small companies can conduct low-cost or free qualitative research:

Talk to buyers and consumers about product satisfaction and purchases. From a marketing research standpoint, this is biased, qualitative research without standard interview controls. But it is timely information and may be actionable. And it places you at point-of-purchase, close to your buyers (e.g., retailers) and end users. Examine weekly company sales receipts for new account sales, compared to receipts for reorders. This is an indirect, but free, way to measure initial purchase vs. reorder sales.

There are no reconciled opinions in the literature on new product success measures.

The three most important aspects to be measured are:

Financial performance

Market impact

Opportunity window dimensions

Measuring Success for automobiles

Development of a new product in case of automobiles is a very difficult job. For different markets different conditions have to be taken into account . It’s important to look at the business from the customer’s and market’s perspective. People are buying from you. The more you understand your customer’s needs and wants the more you can satisfy them. And the more you understand how they buy — that is, their buying decision process — the greater the likelihood your sales and marketing efforts will be successful. The measure of success for an automobile is very difficult. Different organizations define it in their own way. Time horizon has big say in measuring of the new product success. The time over which you want to evaluate your product success changes the the volume or amount you are expecting. But overall success for an organization should fulfill these objectives:

Business acquisition/demand generation, which can include metrics such as market share gains, lead acquisition and deal flow.

Product innovation/acceptance, which can include market adoption rates, user

attachment and affinity, loyalty and word-of-mouth. Corporate image and brand identity, which can include growth in brand value and

financial equity, awareness and retention of employees. Corporate vision and leadership, which can include share of voice and discussion, retention and relevance of messaging, and tonality of coverage

. Due to exhaustive nature of the industry, the study has been confined to cars only. The project deals with measuring success of new product launch for cars launched in the past four years. Further, short listing of some car models have been done to make the study more specific and effective. Few models from varying segments and different manufacturers have been short listed .These have been introduced in the past few years and are new to the industry .

Few models that have been shortlisted are :

Toyota Innova

Tata Indigo

Ford Fiesta

FORD FIESTA

The Ford Fiesta has quickly climbed up the market share ladder. Within a year of its launch, the car has become the second largest selling family sedan in the Indian market.

Ford Fiesta enjoys a market share of about 18 % in its segment. Of course, the more

popular (by a big margin) of the two models — petrol and diesel — is the latter, and for obvious reasons. The Fiesta 1.4 TDCi, with its advanced, `fuel-frugal' common rail injection diesel technology engine and its diesel fuel advantage is clearly the first choice amongst fuel-efficiency conscious sedan buyers.

Tata Indigo

Tata Engineering signaled its impending entry into the mid-size segment with the naming of the indigenously developed Tata Indigo, India’s first sedan. The car derives its name from the words ‘India’ and ‘go’, as it symbolizes a nation on the move and is aimed at Indians on the go wanting to make a purposeful statement.

Tata Indigo is targeted at people who exude energy, enthusiasm, ambition and the desire to succeed and are raring to go, undaunted by new challenges. Powered by a 85 bhp petrol and a 62 bhp turbo-diesel engine, the car will be launched with 14-inch wheels and a first-in-class independent three link and strut type rear suspension with anti-roll bar seen only in more premium segment cars. It has 500 litres of trunk space and 42 litres of fuel tank capacity, more than adequate for long outstation drives with the family. Currently it enjoys a market share of around 17 % in its segment.

Toyota Innova

Showing the way forward in though and execution as also a new way of motoring life is Toyota with the classy and powerful Innova, heralding a whole new category. The look is all new and refreshingly curvy and pleasing where the boxy Qualis looked like a weightlifter on skinny legs. Toyota has probably the best diesel engine in its class on offer, period. Toyota's famous D4D common rail diesel engine is a proven performer, having excelled not only in various pick-ups and SUVs in Asia but also in certain saloons in Europe. This engine has capacity - 2494cc - to begin with, has a strong dohc 16-valve

Showing the way forward in though and execution as also a new way of motoring life

top end force fed by a turbocharger and the latest generation common rail diesel injection system to make for not just a punchy and frugal prime mover but also a very refined powerplant which effortlessly meets the latest Euro III emission norms.It enjoys a market share of above 40 % in the MUV segment.

Buying behavior exhibited while purchasing an automobile

According to the primary research conducted emotive needs such as potency, prestige, and status account for over 50% of the car buyers in India.

The study identifies the following six need segments in the Indian automotive market:

Contrary to the belief that prestige and status needs are pre-dominantly among buyers of higher-end vehicles, the study clearly reveals that needs exist across vehicle segments. While prestige and potency related needs are the key motivators for entry luxury buyers, these needs exist across segments, including the cheaper small cars.

The key drivers for the FOUR need segments in India are summarized below:

Utility buyers seek a need for basic transportation and care for family; Value for

money and cost of ownership are the benefits that these buyers associate with. Prestige buyers are motivated by a need for prestige, indulge self, and exclusivity;

They are least price sensitive and desirous of latest/ futuristic features in cars Adventure buyers seek fun & adventure and to increase popularity; SUV finds

preference for these buyers who relate to their cars as “lover”. Status buyers want to show-off success and attract attention; Superior craftsmanship

and best technology are imagery issues that this group relates to. Liberation is the smallest of the six need segments – these buyers seek increased freedom and latest technology; safety consciousness is relatively higher among them.

It is apparent from the need segment drivers that a majority of motives are about what a consumer desires to communicate to the outside world based on the car he/ she uses. Therefore, it is vital to understand these underlying drivers for consumer behavior and position brands accordingly instead of solely focusing on rational elements of purchase

such

as

fuel

economy

and

engine

power.

While brands cut across different need segments due to a similar identity, the varying degrees of “fit” is determined by its soul or persona. Needs such as adventure and liberation are more expressive, while status need is more subdued. Similarly, potency need is about self-assertion and more individual oriented, whereas prestige is more about affiliation and family oriented.

The two examples below further illustrate the essence of these differences.

Hyundai and Toyota:

Automotive

Penetration

(vehicles

in

use

per

thousand

persons)*

persons)*
Automotive Penetration (vehicles in use per thousand persons)* Passenger Cars Two wheelers USA 478 14 United
Automotive Penetration (vehicles in use per thousand persons)* Passenger Cars Two wheelers USA 478 14 United
 
Passenger Cars Two wheelers
 

Passenger Cars

 

Two wheelers

Automotive Penetration (vehicles in use per thousand persons)* Passenger Cars Two wheelers USA 478 14 United
Automotive Penetration (vehicles in use per thousand persons)* Passenger Cars Two wheelers USA 478 14 United

USA

USA
 

478

USA 478 14
 

14

 

United Kingdom

United Kingdom

373

12

Automotive Penetration (vehicles in use per thousand persons)* Passenger Cars Two wheelers USA 478 14 United
Automotive Penetration (vehicles in use per thousand persons)* Passenger Cars Two wheelers USA 478 14 United

Japan

Japan
 

395

 

115

Automotive Penetration (vehicles in use per thousand persons)* Passenger Cars Two wheelers USA 478 14 United
Automotive Penetration (vehicles in use per thousand persons)* Passenger Cars Two wheelers USA 478 14 United

Germany

Germany
 

508

 

36

Germany 508 36
Automotive Penetration (vehicles in use per thousand persons)* Passenger Cars Two wheelers USA 478 14 United
Automotive Penetration (vehicles in use per thousand persons)* Passenger Cars Two wheelers USA 478 14 United

China

China
 

3

 

8

Automotive Penetration (vehicles in use per thousand persons)* Passenger Cars Two wheelers USA 478 14 United
Automotive Penetration (vehicles in use per thousand persons)* Passenger Cars Two wheelers USA 478 14 United

Indonesia

Indonesia
 

14

 

62

Automotive Penetration (vehicles in use per thousand persons)* Passenger Cars Two wheelers USA 478 14 United
Automotive Penetration (vehicles in use per thousand persons)* Passenger Cars Two wheelers USA 478 14 United

South Korea

South Korea
 

167

 

59

Automotive Penetration (vehicles in use per thousand persons)* Passenger Cars Two wheelers USA 478 14 United
Automotive Penetration (vehicles in use per thousand persons)* Passenger Cars Two wheelers USA 478 14 United

India

 

5

 

27

India 5 27
 

*Source: World Bank

Satisfaction Survey, Awareness and Repurchase as measure

As mentioned earlier satisfaction survey is one of the method to to measure the success of a car. A survey is carried out with the existing owners of the the products and they are asked to give their rating on the based if their experience with the product . Customer satisfaction can help your business achieve a sustainable competitive advantage. It's about understanding the way a customer feels after purchasing a product or service and, in particular, whether or not that product or service met the customer's expectations.

Customers primarily form their expectations through past purchasing experiences, word- of-mouth from family, friends and colleagues and information delivered through marketing activities, such as advertising or public relations. If the customer's expectation isn't met, they will be dissatisfied and it's very likely they will tell others about their experience.

Conclusion

On the basis of the parameters selected it clearly shows that Toyota Innova and Ford Fiesta have topped the rankings in the satisfaction survey.

More than 72 % of Innova owners say they are willing to repurchase it if provided with subsequent developments with time. They would (around 60%) convince others to purchase this car if in the same segment. Also taking other factors that is the market share and the sales volume of the car it is clearly a success for Toyota

Hence Innova has topped the group with that and the next car that closely follows it is the Ford Fiesta . Around 63 % of people owning a fiesta say they are willing to repurchase fiesta if buying a second car or changing the car. Hence , Fiesta is the runners-up.Also taking sales volume and market share Fiesta is clearly not lagging behind Innova and is sense of pride for Ford.

Next car is the Tata Indigo which has a higher satisfaction score than swift but is more in Taxi segment and had an good sales volume initially but with introduction of Fiesta sales

volume has gone

down.

.

In the automobile industry which is a high involvement product there are large no. of parameters while purchasing an automobile. Different people have different needs and they choose the product accordingly. In a car there are large number of factors such as mileage, engine power and performance, interiors, mechanical components, handling , braking etc which make an automobile . So all these components have to be equally effective or according to their weights demanded by the customer to make an automobile successful. More over the segmentation for the vehicle has to be clearly defined. Even though segmentation in Indian market is done on the length it should be done on the customer needs. Different profile or set of profile should be made and segments should be defined accordingly.