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2005, ICFAI Center for Management Research. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means electronic or mechanical, without permission. To order copies, call +91-40-2343-0462/63 or write to ICFAI Center for Management Research, Plot #49, Nagarjuna Hills, Hyderabad 500 082, India or email icmr@icfai.org. Website: www.icmrindia.org

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Product Management at Maruti Udyog Limited

Questions for Discussion:

1. What are the various factors that led to the success of the Maruti 800 (M800)?

2. Why did a majority of the new entrants choose to enter India by targeting the B segment car market?

3. What are the factors that led to the launch of Alto by Maruti? What is the role of Alto in the product mix of Maruti?

Analysis:

1. Many factors have led to the success of the M800. Before the launch of the M800, the Indian consumer had very little choice while buying a car. He either had to buy an Ambassador (Hindustan Motors) or a Premier. Both these cars failed to satisfy customer needs. They were not fuel-efficient and the engine life was short. Therefore, when M800 was positioned as a fuel-efficient small car the Indian consumer readily accepted it. The sleek looks and the fuel efficiency of the M800 when compared to the Ambassador appealed to customers.

The restriction on foreign players entering the Indian market also helped Maruti. The pricing strategy also attracted many Indians to buy their first car. Thus, the M800 went on to be a product and company success story.

2. Maruti had a product mix catering to economy (A segment), premium economy (B segment), lower mid-size segment (C segment) and upper mid-size segment. Although Maruti was the first player in the Indian market to introduce customers to a

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Product Management at Maruti Udyog Limited

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sleek, small car (M800), it did not move fast to produce and popularize models that would appeal to affluent customers. When the Indian market was opened to foreign players, Indian roads where flooded with the Maruti 800 and a few other models. Many of the M800 users who had their cars for more than 10 years were looking to buy a new car. They had the option of upgrading to a Maruti Zen or any other car available. Since the purchasing power of the Indian middle class was growing, by 1995 many new players felt that Indian consumers were ready to upgrade from economy cars. Consumer surveys projected a huge market for B-segment cars. The new players chose this segment as it offered better margins. The new models launched by players like Daewoo, Hyundai, Fiat and Tata provided the much-needed variety for the Indian customer. Therefore, many of their cars found success in the Indian market.

3. The opening up of Indian markets has led to the entry of many multinational auto majors with their internationally renowned car models. Most of these new entrants concentrated on the B segment small car market and they were successful as many M800 owners upgraded and many middle class customers directly bought a B segment car as their first car. Although Maruti had Zen in B segment, it failed to be a choice for the M800 owners who wanted to upgrade. Until then Maruti had been concentrating on its M800 model, targeting the low end market. However, it failed to concentrate on the growing numbers of the middle class Indians who had the economic power to buy a B segment car.

Looking at the success of competitors in the B segment, Maruti wished to fill the gap between the M800 and the Maruti Zen. It had launched the Alto at a price point between the M800 and the Zen. This was aimed at giving an alternative to customers who wanted to upgrade to a B segment car. The pricing of the Alto and the value given were also expected to attract first time buyers. This model also aimed at breaking the model fatigue associated with Marutis product line.