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This caselet was written by S. V. Rama Krishna, ICFAI Center for Management Research. Caselets are intended to be used as a basis for class discussion rather than to illustrate either effective or ineffective handling of a management situation 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

Maruti Udyog Limited (MUL), one of the leading passenger car manufacturers in India, was established in Feb 1981 to develop a small car that meets the need for a personal mode of transport.

After thoroughly studying seven major automobile players in the world, the Government of India (GoI) selected the Suzuki Motor Company (now Suzuki Motor Corporation of Japan) as a strategic partner. Apart from being reckoned as the leader in the small car segment, Suzukis offer to transfer the latest technology and management practices to MUL encouraged GoI to choose Suzuki. In October 1982, the GoI signed a licence and a Joint Venture agreement with Suzuki Motor Company. This gave Suzuki 26% share of MULs equity.

Maruti started production in a record time of 13 months and rolled out the first car on 14 December 1983. The new car launched by Maruti was a runaway success with Indian customers preferring it to cars produced by Premier Automobiles Ltd (PAL) and Hindustan Motors (HM). Maruti created a revolution in the Indian market by introducing its 800 version that was positioned as a high quality, fuel - efficient, low - cost vehicle.

Maruti added two more products to its line the Maruti Esteem 1000cc (1991 in Lower C segment) and the Maruti Zen (1993 in B segment). [Exhibit 1 shows the various categories in the Indian passenger car market.]

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Product Management at Maruti Udyog Limited

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Exhibit 1

Category Models

Economy Segment (Up to Rs. 2.5 lacs) (A Segment)

Maruti Omni, Maruti 800

Premium Economy segment (Rs. 2.75-4.0 lacs) (B Segment)

Fiat Uno, Zen, Hyundai Santro, Daewoo Matiz, Tata Indica, Fiat Palio, Suzuki Wagon R.

Lower Mid-Size segment (Rs. 5-7 lacs) (C Segment)

Maruti Esteem, Daewoo Cielo, Fiat Siena, Hyundai Accent, Ford Ikon, Opel Corsa

Upper Mid-Size segment (Rs.7-10lakhs)

Suzuki Baleno, Mitsubishi Lancer, Opel Astra, Ford Escort, Honda City

Luxury Segment (Above Rs.10 lacs) (D segment)

Skoda Octavia, Honda Accord, Hyundai Sonata, Ford Mondeo, Mercedes C-Class

Premium Luxury Segment (From 30 to 60 Lacs)

Mercedes E & S Classes.

By March 1994, Maruti became the first Indian company to produce over one million vehicles. The Indian car market which had stagnated at a volume of 30,000 or 40,000 cars a year for the decade ending 1983 had by 1993 reached a volume of 1,96,820. Maruti enjoyed about 80% share of the market. For over a decade after MUL's inception, the government kept the passenger car market closed to new entrants.

After observing the success of Maruti in revitalizing a rather stagnant Indian automobile market and the passenger car segment in particular, global automobile giants started showing an interest in the Indian automobile market. These companies realized the growing might of the Indian middle class and commissioned surveys and studies to estimate the feasibility for their proposed projects and the volumes that they can achieve. Some of these companies began test running imported vehicles in India to evaluate their fit to Indian conditions.

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Product Management at Maruti Udyog Limited

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When the auto sector was completely opened up in 1995, MUL was entrenched in the Indian market, harvesting the benefits from economies of scale and scope. MUL had also developed a reliable supplier base to support its future growth. In the small car segment, where MUL had a strong presence, the entry barrier for new entrants was much too high. It was considered impossible for new players to compete with MUL unless they had a thorough understanding of the Indian market and technical competence.

However, two multinationals from South Korea, Daewoo (Matiz) and Hyundai (Santro), gradually got into the small car market. The competition in this segment intensified with the entry of Tata Engineering with its indigenously developed car, Tata Indica. Many other multinationals, however, stuck to the small but potentially more profitable mid-size and luxury cars.

Soon these players started eating into MULs share in the small car market. This sent clear signals to MUL that fuel economy was no longer the major value proposition for the Indian consumer. To arrest the erosion in market share, MUL launched new models like Wagon R and Alto in the B segment. The Alto, is a 1000cc small car whose features include a 16 valve aluminum engine. The car is intended to create a new niche between the basic 800 model (M800) and the Zen and will tackle the problem of model fatigue that is faced by the company's existing models.

At present, A & B segment cars account for over 83% of the total units sold in the passenger car market. In the entry level, A segment, MUL enjoys a monopoly status with its M800 model, which sold nearly 12,000 units per month in 2003. In the B segment however is very different. While MUL has three different models in the segment (Zen, Alto, Wagon R), commanding a combined market share of 43% in FY03, Hyundais Santro is the clear segment leader. The Santro currently clocks an average of 7000 units/month, with a market share of 30% in FY03. The other key player in the segment is Tatas Indica V2, with a market share of 26%. The C segment accounted for just 15.5% of the total car market in FY03, with Hyundais Accent being the market leader. Tatas Indigo is the latest entrant in this segment. MUL expects the competition within this segment to remain highly intense with a host of new model launches planned by Ford, GM, Honda, Hyundai and Telco. The premium-end D and E segments have a very marginal presence in overall volumes.

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Product Management at Maruti Udyog Limited

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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?