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MARKETING The New Price Warriors
By R Sridharan & S Dobhal
Those in the race for winning over the Rs 7,500-crore small cars market seem to believe so. Two months ago, Maruti Udyog Ltd (MUL) even timed the proud announcement of the first-ever price-cuts--from Rs 6,998 to Rs 36,808 (ex-showroom, Delhi) on its different models--to deflect attention from the launch of TELCO's Indica. It was, of course, Hyundai Motors that had set the pace by putting a ticket of Rs 2.99 lakh on the basic model of its Santro. Then, even as customers rubbed their eyes in disbelief at the Indica's Rs 2.59-lakh entry-price, Ind Auto dropped the price of the Fiat Uno Diesel by Rs 64,867 (ex-showroom, Delhi). And, 6 days later, Premier Automobiles Ltd (PAL) lowered the prices of the 4 versions of the Premier Padmini by between Rs 5,000 and Rs 53,000. In the small cars segment, the only `P' that, suddenly, seemed to matter was the second in the Product-Price-Promotion-Place marketing-mix.
Maybe not. For, a pathbreaking BT-MDRA study of 200 would-be car-buyers in the 4 cities of Delhi, Hyderabad, Mumbai, and Pune--which surveyed potential first-time purchasers, upgraders, and replacement-buyers--proves that price is the primary driver of choice for only 36.20 per cent of the sample compared to the 38.40 per cent who consider fuel-efficiency as more important. Even among the first-time buyers, price only ties with fuel-efficiency as the prime consideration. Against this proactive backdrop, BT audits the efficacy of Second P auto-marketing, and maps the speed-breakers. Price as purchase driver Everything else remaining the same, the purchase-decision of the first-time buyer is influenced by 4 factors: Price, Price, Price, and Price. The first is the price of acquisition. The second is the price of finance, or the rate of interest on a loan to buy a car. The third is the price of maintenance, which includes the costs of fuel, service, and spare parts. And the fourth is the price of disposal, or the re-sale value of the car.
Complicating the equation further is the fact that cars far apart in terms of acquisition price are not as distant when the Equated Monthly Instalments (EMI) on financed purchases are considered. On a car-loan repaid over 5 years, for instance, a difference of Rs 1 lakh in the ticket-price translates into a difference of just Rs 2,462 per month in the EMI. The higher the EMI, the smaller is the psychological perception of a higher price. As for the importance of operational economy, it is obvious in the fact that 20 per cent of the cars and utility vehicles sold in 1997-98 run on diesel, the price of which is 40 per cent lower than that of petrol. Explains Suhel Seth, 35, CEO, Equus Advertising, Daewoo Motors' advertising agency: "The typical Indian car-buyer is obsessed with post-purchase pricing. Which is, in effect, the cost of maintenance and the possible re-sale value." And, obviously, the lower the selling-price of a second-hand model, the less is the purchaser's incentive to opt for it. In this complex interplay of 4 prices, the degree of influence of each varies according to the customer's needs as well as the market's dynamics. That Second P auto-marketing--the primary weapon--alone can sway every customer isn't obvious. Asserts Alok Shanker, 40, Vice-President, ORG-MARG: "There is one thing we have learnt from the several studies on the small cars market that we have conducted over the last 3 years: price is the most important parameter." Counters S.G. Awasthi, 54, CEO, Daewoo Motors: "Thanks to the stagnation in growth, the price-factor has become over-important." THE STRATEGIC PRICE PERIMETER. The total cost of
ownership of a car is more important than the acquisition price. In the long run,
auto-makers who can sell the cheapest car to own are more likely to succeed than those who
offer only the cheapest car to buy. |
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Is there a price to be paid for playing the game of price? In any
business, nothing is more dangerous than using money as the magnet for attracting
customers. It kills loyalty, mangles margins, and encourages defections. But is the Unique
Selling Price the only road to success in the intensely-competitive automobiles business? 
Evidently, features, technology, and service are
secondary. And the only warhead is price. Or, Second P auto-marketing (see The Strategic P
Of Marketing, BT, December 7, 1997). Declares Rohtash Mal, 44, Chief General Manager
(Sales & Marketing), MUL: "The market is sleeping. We need to wake it up."
With domestic car sales dropping by 15.01 per cent in November, 1998, over November, 1997,
price is the elixir that the auto-marketers are praying will resuscitate demand. Avers
Bhaskar Dole, 26, Research Analyst, Morgan Stanley: "Price is the most important `P'
in this market because it is pyramidal in structure, with a huge base and a narrow
apex." Maybe. 
The evidence: 82 per cent of the Indian market is
accounted for by cars priced below Rs 4.30 lakh, proving how strongly the ticket-price
influences volumes. Second, as the cost of finance falls--from 19 per cent in 1997 to 16
per cent now--its use in bankrolling car-purchases is becoming stronger. Estimates Rajeev
Kakkar, 35, Managing Director, Citicorp Maruti Finance: "By 1997-98, 50 per cent of
the cars sold in the country were financed. In 1998-99, that number will go up to 55 per
cent." 
