Case Study Cross Badging
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VW Vento Skoda Rapid
ExEcutivE Summary: Cross-badging,or selling the same car
with cosmetic changes under different brand names, has not worked so far in India. This case
study looks at where the problem lies: is the strategy at fault or the execution?
By N. MadhavaN
Cover story Cross-badging
n January 2012, Japanese auto major Nissans Indian subsidiary Nissan Motor India sold 1,855 units of its compact car Micra. The same month French carmaker Renault launched its compact
car Pulse in India. In February this year, Micra sales were down to 608 units, while Pulse sold 420 units.
Turn to sedans. In August 2012, Nissans sedan Sunny sold 2,757 units. In September that year Renault launched its sedan, Scala. By February this year Sunny sales had fallen to 1,191 units, while Scala sold 620 units.
And guess what? Nissan and Renault are not even competitors. They have been strategic partners since 1999. Micra, Pulse, Sunny and Scala are all products of the Nissan-Renault alliance.
Or take German car manufac-turer Volkswagens sedan Vento. It sold 3,474 units in India in October 2011. A month later, car-maker Skoda launched its sedan Rapid. Ventos sales have since fallen to 1,909 by February this year. Once again, Skoda is part of the Volkswagen group Vento and Rapid are from the same stable.
In fact, Micra and Pulse are essentially the same cars, with some cosmetic differ-ences, made in the same factories, but sold un-der different names. So too are Sunny and Scala, or Vento and R a p i d .
Welcome to the strategy of cross-badging, or selling the same car under different brand names a concept new to India, but used for decades in the United States and Europe to boost sales.
Automobile makers resort to cross-badging to save on engineer-ing, design and product develop-ment costs, to achieve economies of scale, to reduce the lead time in bringing a new product to the mar-ket, and to widen their product portfolio and get better returns with incremental investment, says Vijay Kakade, Director, Automotive and Transportation Practice, Frost & Sullivan. It costs at least `300 crore to develop a car for India. But cross-badging re-quires merely tooling changes an investment of less than `20 crore. It would have cost Renault India a lot more time and money to de-velop a compact car, or a sedan had it chosen not to cross badge Nissan models.
Indeed, reports claim Nissan will soon fill a big gap in its product portfolio it has no compact sports utility vehicle (SuV) by cross-badging the highly successful Renault Duster. Cross-badging offers a clear value proposition to
the manufacturers and helps them expand the market,
says Nitish Tipnis, Director, Marketing and Sales,
Hover Automotive Nissans master
f r a n c h i s e e i n India.
But does it? In India,
Minimum cost of developing a new car
both attempts so far have been fail-ures. Cross-badging did not expand the market; on the contrary, it shrank. The extent of failure is such that the combined volumes of Scala and Sunnys sales in February this year was 1,811 units, which is lower than the number Sunny alone sold 2,757 units before Scala was launched, says Kakade. The same is true for the Nissan-Renault products. While some at-tribute this to the slowdown, which is squeezing the entire industry, a closer look at the numbers shows that the fall in sales of the original brand is far higher than the overall decline in the market.
Why has cross-badging not worked? Examples from other coun-tries have established that brand loyalty is critical to the success of cross-badging. But neither Nissan (nor Renault) nor Volkswagen have been around long enough in India to win the fierce brand loyalty that cross-badging banks upon. Worse, while a fully loaded Micra costs `5.61 lakh today, a Pulse with similar features is priced at `5.76 lakh. Few will see sense in paying more for essentially the same car simply to flaunt the Renault label.
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Why has the cross-branding strategy not worked in the automobile market in India? The similarity of the fea-tures in cross-branded products, despite the products belong-ing to different companies and sporting different brands, is an important reason for lower consumer preference.
While buying automobiles, do Indians value the product more or the brand? There is no easy answer. Automobile buy-ing is a high-involvement process for the consumer, she is willing to spend time, effort and energy to arrive at the deci-sion. Consumers actively search for information from multiple sources and analyse it, comparing products and brands. The fact that a model and brand from one company looks very similar to another model and brand from a different company will spur the consumer to look for an explanation rather than search for the differences between the two. The differences in price points of the two further accentuate her need for an acceptable explanation. The similarity of the physical features overrule the brand value quotient. If physical features were discernibly different, the brand would act as a decisive force in consumer choice. Cross-branding strategy fails because it takes away from consumers the powerful rationalising argument that justifies their decision to make a choice that entails financial, social and psychological risk.
Will consumers be more tolerant of cross-branding behav-iour in future? Most likely, yes. Consumer familiarity with the product class and gradual acceptance of this new rule of the game will reduce resistance to the cross-branding phenome-non. At this point in history of automobile industry in India, cross-branding is driven essentially by production and manufacturing considerations than by consumer logic.
Cross branding fails because it takes away the powerful rationalising argument that justifies consumers decision to make a choiceProfessor AbrAhAm Koshy, Professor of Marketing, IIM-A
Cover story Cross-badging
Micra sales when Pulse was launched
1,855 unitsCombined Micra and Pulse
sales today ((Feb 2013)
no fooling the indiAn Consumer
Cover story Cross-badging
The same applies to the sedans, Scala and Sunny. Volkswagen did the opposite, pricing Skodas Rapid lower than Vento. But that left Vento customers feeling short changed, apart from lowering the resale value of both cars.
There may have been some gaps in communication too. Cross-badging offers clear value to car manufacturers but what about the customers, says Abdul Majeed, Partner and Leader- Automotive Practice, PwC. It is very important to communicate the value proposi-tion to the consumer.
Others claim the Indian market is not yet mature enough for this particular strategy. Indian cus-tomers have not evolved to a level where they understand the nuances of cross-badging, says B.V.R. Subbu, automotive entrepreneur and former President, Hyundai Motor India Ltd. Not only is the Indian consumer primarily value driven, but the auto market is also highly competitive with well en-trenched and aggressive players. There are no shortcuts like cross-badging to brand building, large investments are essential. It is
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India as an automotive market is still evolving. Consumers do not have a clear perspective on different brands, their premium positioning, etc. How many of us know the difference in brand value between a Micra and a Pulse? We are not a country where a customer walks into a multi-brand showroom, looks at competing brands and understands the ethos of the different brands. For cross-badging to succeed, manufacturers first need to establish their brands well in the market.
Cross-badging in India is being used primarily as a cost optimisation strategy, and to expand the product line-ups. Global original equipment manufacturers (oEMS) are lately appreciating that India is a different market and needs to be treated separately, which has resulted in a lot of iterations of their market strategy. While such iterations, coupled with the market slowdown, are leading to unprofitable operations in India, oEMs are trying to leverage common platforms, engines, etc, to sustain various brands they have established in the Indian market and to compete with the likes of Maruti and Hyundai. This in turn results in cross-badging of products.
Cross-badging in India can be used by manufacturers very successfully to increase the life cycle of their products, say, with the premium brand launching the product and the sister brand introducing the cross-badged product when the original product enters the mature stage of its life cycle. This would further help the oEM concentrate on and establish a strong customer base for just one brand product at a time.
(Views expressed are personal)
Who knoWs the mother brAnd?
For cross-badging to succeed, manufacturers first need to establish their brands well in the marketrAKesh bAtrA, National Leader, India Automotive Practice, Ernst & Young
Sunny sales whenScala was launched
2,757 unitsCombined Sunny and Scala
sales today (Feb 2013)
Cover story Cross-badging
financially prudent and more effective to spend heavily on developing one brand, adds Subbu. He feels Renault and Nissan would have fared better if t h e y h a d c o m m o n d e a l e r s h i p s and service centres and had sold their respective brands under the one roof rather than cross-badging each others prod-ucts. It is a strategy that is