Fi(a)t for the premium test
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Fiat’s move to offer high-end cars will surely revive its batterred brand image
The sight of the Bravo and the new Fiat 500 at the Auto Expo in New Delhi during January 2008 was indeed refreshing, atleast for an ailing Fiat. Even though the company showed off its regular range, a strong feeling that Fiat is now betting big on recasting itself into an auto major which also caters to the premium auto market demands was evident. Analysts too contend that Fiat is now focusing on resurrecting its market image in the Indian market which has been distorted by its only mid-segment vehicles, inefficient after-sales service and poor reach.
With a fully-owned operation, when Fiat entered the Indian market in 1997, it had a tough task at hand. Apparently, unlike other players entering the market, there was no novelty factor involved with its launches. Though the initial models like the Uno and Siena managed to ring some bells, a product which could demonstrate Fiat’s contemporary appeal remained a far-fetched dream. Also, Fiat’s global car, Palio managed to bring in the much awaited volumes but even that was bogged by after-sales issues. Since sales could never recover even after improved customer interfaces, Fiat understood that its image problem could not be solved by merely launching new models. Today, even though these shortcomings have been rectified to an extent – thanks to the Tata Motors tie-up – sales have not been satisfactory. It is therefore argued that Fiat India, as a company, has perception problems and foraying into the premium Indian car market is a logical strategy.
According to sources, alongwith newer offerings in the mid-segments, Fiat India will also focus on the upper niches. This exercise will give the company a brand appeal and leverage among the masses that are easily influenced by the lifestyle patterns of the rich. A co-branding exercise with subsidiary Ferrari and Alfa Romeo will prove a logical alternative in the operation as well.
Currently, Fiat has chosen the iconic Fiat500 and the sleek Stilo for the task. The products are anticipated to be branded and sold like premium Italian products as a Fiat spokesperson admits, “As per our business plan we will import both the Bravo and the Fiat500 as CBUs. We will start the branding exercise as soon as we launch these cars…” As a start to the plan, the 1.3 MultiJet Palio Stile will be unveiled beginning March 2008, the Fiat500 will come in May 2008, followed by the Bravo in June, the Linea and the Grande Punto in September and December 2008 respectively. Considering a mighty 128% import duty on the vehicles, the company intends to price its new offerings between Rs.1.1 to Rs.2 million. As per market reports, Fiat India will also sell these cars like boutique products rather than normal cars as the spokesperson further adds, “These are premium cars and are for the people in the high end of life. They will be more of collector’s item, celebrity cars.”
Clearly, Fiat India is not ready to let go of a high potential market like India where auto sales are appreciating y-o-y at an incredible 18%. The company’s premium segment entry and the resultant rebranding strategy is sure to get the desired results but a word of caution here: Fiat India should guard against its tendency to take the after sales scenario lightly. Apparently Fiat India is ready to nip the problem at its roots, but it’s still too early to say Bravo!
B&E edit bureau: Karan Mehrishi
Source : IIPM Editorial, 2008 An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).
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One may be prompted to say here that this is because the Tata group has been in existence for decades and, for most periods, operated in a protected business environment. But so did many other business groups, and they don’t seem to have this kind of a presence. What works for the Tatas is a single-minded focus on business, spotting opportunities, and offering products and services that click with consumers. They identify the needs, and roll the products out at the cheapest-possible price.
This is definitely true of Tata’s foray in the passenger car segment. B&E finds out how Ratan Tata, Chairman, Tata Group changed the face of Indian roads.
Prior to the launch of the Indica, Ratan Tata realised that internal factors were compelling him to change Tata Motors’ strategy. Since the market for commercial vehicles wasn’t growing fast, he had to seek volumes elsewhere. The only way he could do it was to venture into the passenger car segment. But then, he could only compete with established players like Maruti Suzuki by offering new propositions to the customer. Tata thought it should be low price and cheap operational costs.
Agrees Ramnath S, Partner, Idfcsski Securities, “Indica became a success because of its pricing and positioning as a diesel car. Since Maruti was only making petrol cars then, Indica was the first of its kind.” For the upwardly-mobile consumer, a ‘sensible’ car is one, which has the lowest operational costs. She understood the dynamics of the volatility in global crude prices. The disparity between petrol and diesel prices in India created an insecurity against petrol cars. For her, Indica was a small car with a difference. It was as cheap as other compact models, and it had a diesel engine, which was cheaper to run.
Says a Tata Motors’ spokesperson, “When Indica was launched, it combined the best of what was offered by competitors. Most importantly, it offered running economy and ‘more car per car’ value. This enabled the Indica to become a breakthrough product in the Indian small car market and, in fact, establish the B segment in India. The positioning strategy was more space, better styling and more economy.” Tata now wants to create the cheapest segment – a $2,500 model. The Rs.1 lakh car may hit the market in 2008. Adds NDTV’s Siddarth Patankar, “There are different audience segments. On Tata’s part, there is a need to build on what the Indica has achieved. Retail outlets will play a key role in the success of the Rs.1 lakh car,” The car’s low buying and maintenance costs created another market – private taxis. “Tourists preferred the Indica as it was cheaper,” adds Ramnath.
The lack of competition in the small diesel car segment helped Tata Motors in another way. It got the space to learn from its mistakes. The evolution of the Indica was based on market feedback, and turned out to be cost effective as developmental costs were spread across a period of time. For instance, the V2 version (launched almost three years after the original) had more than 100 new and improved components. And Tata could do it as competitors failed to launch diesel versions in the compact segment.
However, the real learning curve dated back to 1988, when Tata Motors had decided that it will chase volumes in passenger cars. In that year, the company launched the 207 pick-up. The product led to the entry of other SUVs such as the Sierra, Estate, Safari, and MUVs like Tata Sumo. Many of these models were criticised by auto experts, but the slew of launches helped Tata Motors to research and experiment that enabled it to finally launch the small Indica.
Initially, Tata Motors launched the Indica with a 1495 cc petrol engine as well. Knowing that volumes would be generated by the diesel variant, the petrol model was meant to help the brand to stay within the ‘psychological confines’ of a small car. The consumer had to know that Tata Motors had also built a sophisticated petrol version. It’s a different matter that the Xeta, a small car launched later as a new petrol model, paid the price of being in the shadow of its diesel sibling. Today, Indica is perceived as the ‘only’ diesel car and Xeta just misses the petrol car buyers’ option. The same has happened with the more expensive models like Tata Indigo that Tata Motors has launched; most of them have not done too well in the marketplace. So, Tata doesn’t want to miss another chance to re-establish the high-end and luxurious image of his company. This may be one of the reasons why he has aggressively bid for the Jaguar-Land Rover acquisition. If he manages to grab this deal, it will catapult Tata Motors as a global player, with models across the price and technology spectrum. In one stroke, it will transform Tata Motors from being a maker of indigenous cars to one which makes world-class models that sell in developed markets.
In the next few years, Tata will be a global name to reckon with. It will possess the cheapest-ever model in its arsenal. It may sell Jaguars and Land Rovers. It may become the first-ever Indian firm to disrupt global manufacturing, just like what Infosys and Wipro have done in software services.
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Source : IIPM Editorial, 2008
An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).
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