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Old 1st November 2011, 11:14   #46
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Default Re: Big Money + Big Talent = The overpriced market dud. How?

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Originally Posted by comfortablynumb View Post
Would you include the Thar also in this list? I am not privy to the expected and actual sales numbers, hence this question. If so, a few forum members who were instrumental in it's development can surely give us some inside "gyaan" as to why it was positioned as a niche product instead of a replacement for the Major, why it was priced the way it was etc etc.

Cheers,
Vikram
Niche products can succeed. But there are bare minimum things which a vehicle must have. For example, we have 45 degree temp in summers, rampant theft problem, and vandalism problem in cities. So unless somebody has a big farmhouse with guards, they would be scared of getting the Thar. People like those can afford a Q5, or an X3. they won't care about thar for show off. Those of us who live in apartments, cannot afford to have a vehicle just for fun. It has to be a vehicle which can go to office and shopping, and be left outside without the fear of somebody urinating inside.

So to sum it all up, they forgot it was not california, but India where they had to sell the Thar, and for a 6.5L vehicle, there are certain bare minimum expectations which have to be met.
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Old 1st November 2011, 11:28   #47
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Default Re: Big Money + Big Talent = The overpriced market dud. How?

One thing that is common to most of these (not all) is that they are not normal stereotypes. Majority of the buyers would go for safe' buys which fall in to well established/defined segments and categories.
  • Jazz - It is a not a regular hatch, nor a sedan or MPV
  • Aria - Looks like an MPV but what does typical buyer gain from 4X4 capabilities or premium pricing?
  • Kizashi- Falls in between C+ and D segment (in terms of size) but priced like a D segment car.
  • Yeti - Too expensive to be large hatch and too small for an SUV
When a product doesn't fall in to a stereotype, it will become a kind of niche. Niche products (any product, not just car) will always appeal to limited set of buyers.
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Old 1st November 2011, 11:30   #48
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Default Re: Big Money + Big Talent = The overpriced market dud. How?

MS Excel is such a wonderful tool that it actually converts a person with abject pessimistic outlook into a vibrant man with extremely positive outlook. How? With all the statistical data and numbers typed in various cells, a small tinkering of discount rate or sales price by 1% would suddenly shoot up the profitability and value by around 5%.

Moment you look at the larger number (rather than the larger picture), you start believing that the bigger number is actually possible, and that consumers will not be bothered about that 1% increase in price. Then, these hotshot managers will think, why not alter the numbers by 3 or 4%, so that larger number can increase by 15 or 20%.

And no body is an exception to the above lure. In fact, as part of our profession, when we do valuation of business or brands, we do all these tinkering to maker ourselves happy about a larger number, which the client wants. And the crazy mind will find justifications for the same which cannot be refuted!

Moreover, the basic data that is collected for valuation and pricing never accurate, and is subject to certain variation. We always have a range of values within which we operate. And needless to say, which extreme one will choose due to the above reasons.

I think this is the reason for these managers and hotshot honchos being MS "Excel"lent, rather Real World Excellent. And due to this, inspite of the products being terrific, poor strategy based on inappropriate premises results in such super duds.

My rupee to the discussion.

Last edited by GSM : 1st November 2011 at 11:32. Reason: Typo correction
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Old 1st November 2011, 11:39   #49
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Default Re: Big Money + Big Talent = The overpriced market dud. How?

nice topic
so the saying goes common sense is very uncommon.
there are many analogies in other fields also. eg.-reliance venturing into petol bunk business, mallya launching kingfisher airlines(now in deep trouble), maniratnam making RAVAN(said to be idea of his wife), and ramgopal verma's horror films after making many blockbuster and class movies like satya.

i think these people get carried away by their earlier successes and their ego soars high which results in such decisions. they seem to think whatever they do will be accepted by the people. i read somewhere " nothing fails like SUCCESS".
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Old 1st November 2011, 11:57   #50
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Default Re: Big Money + Big Talent = The overpriced market dud. How?

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Originally Posted by GTO View Post
My question is simple : How did the respective auto brands, with all the money, talent & research in the world, think they'd get away with it? What kind of research have they been really conducting? Did common sense ever figure in the brainstorming sessions? It's sad because each of the following cars brings a competent offering to its respective segment. Wasn't there one person of authority who put his hand up and said "Waitaminnut guys, I think we are completely missing the mark here"?
The major reason is
Groupthink - Wikipedia, the free encyclopedia

People who have worked in NPI teams would be aware of this phenomenon
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Old 1st November 2011, 12:22   #51
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Default Re: Big Money + Big Talent = The overpriced market dud. How?

Actually I dont think it can be explained in a single perspective

1. Before I start main points let me state that there are cars which really blew it with pricing - Aria, fiesta, fluence, old jazz, old fabia and few other. These cars definitely got the pricing wrong and nothing else

2. Competition or lack of it: Let us face it, compared to other markets -even non mature ones- the choice except in hatches is pathetic. All manufacturers see this as opportunity and do some very foolish pricing. No not really foolish, because sometimes it actually works out for some time. Example is honda city, everyone knew it was expensive but people bought that regardless till the competition came in with vento, verna etc. Then people saw reason, and so did honda and reduced the price.

3. Then ..I dont think the manufacturers understand the market very well. Maybe they know a thing or two in sub-15 lakhs segment but not above that.
This is a common approach : Introduce a model as CBU -> track the response -> and start skd/ckd assembly is sales are good.
What really happens: The CBU is introduced-> The product is very good, but being CBU very highly priced-> High price causes low sales -> the brilliant manufacturer understands that there is low demand for this vehicle and decides against local assembly-> remains as CBU, prices stay high-> sales stay low
Eg: crv, kizashi, grand vitara, xtrail

This is one things the other is...

4. Maybe the manufacturers are confused themselves what to do. In Indian market perception plays a lot of role, way more than logic, which is not easy to predict.
I would take a few examples to clarify this
case1-Yeti: Now yeti is a great vehicle and I believe everyone including the tbhp reviews agree on this. It makes more sense to most families in city and added benefit of practicality of softroader. Now the price, yeti is a ckd and with latest ckd definition the total duties and taxes add up to 60%. If you compare the price difference between several ckd models in India and say UK(uk because models with diesel are similar) what you notice is yeti is not priced too high considering the taxes. Here the only problem seems to be that of perception in our market -ie the price directly proportional to size, and not because of the absolute price per se. Obviously skoda wont sell for a loss just to sell cheap.
case2-captiva in comparison with fortuner: ex-showroom for captiva AWD with automatic transmission is slightly cheaper than a fortuner (without AT or ncap rating). Yes, not doubt fortuner has off road abilities but less that 5% (5% is a highly optimistic figure, people who do off-roading with a 25lkh on road priced car may not be more than 3% of fortuner owners) does offroading on a degree more than what captiva is captiva is capable of, so lets leave that aside. Now consider that captiva and fortuner is simlarly priced in markets they both exist together, so ckd fortuner is actually higher priced - to cbu levels as captiva is cbu. But, the fortuner still sells like crazy. This too is largely due to perception - brand perception in this case. Ofcourse brand is important in every market, but here it has more significance, and comes before other practical issues. So, in these cases , it is not just pricing, but pricing with respect to perceptions. Very different from other markets.

5. There is general trend in above 10lkhs segments : Japanese (honda, toyota) products are increasing the prices slowly at the same time european manufacturers with lower volumes are trying to aggressively price and increase local assembly.
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Old 1st November 2011, 12:48   #52
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Default Re: Big Money + Big Talent = The overpriced market dud. How?

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Originally Posted by GTO View Post
I want to stress on how top management seemed to lack common sense in their final decision. If it was so obvious to us laymen, how come it wasn't to them?
Bit off track, but This applies to Linea T-Jet also. NOT overpriced but certainly wrong strategy.
Skoda may afford to launch powerful petrol cars When diesel variants are doing OK but not Fiat at this stage.
Even if Linea t-jet is a great car but has very limited target audience.
When Fiat India's balance sheet is bleeding heavily there is no business sense to launch such a niche/halo car, and When everybody expected something else.
Fiat could have launched a Powerful(1.6) Linea even before Vento.
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Old 1st November 2011, 12:49   #53
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Default Re: Big Money + Big Talent = The overpriced market dud. How?

Very relevant thread.

Yes, car companies sometimes seem unusually myopic when it comes to launching some products.

The Kizashi from Maruti is the biggest example here. Average sale of 37 cars / month = nearly non-existent. I am yet to see a single Kizashi on the roads. Here is a really good looking sports sedan, but priced way above what it should be cometing with. If they wanted to overpice it anyway, they shoul've brought the AWD V6 version. Somehow it feels like Maruti themselves are not too serious about their premium products.

Also, car makers sometimes fail to ask themselves the question: "Why?" Why would any customer pay a premium for the product? Case in point: The new Fiesta (No offense to Fiesta owners). Ford had a wonderful product here, and the market was eagerly looking forward to it. Then at the last moment, Ford launched it with a very expensive price tag and an underpowered petrol engine. The previous gen Fiesta's 1.6 is much better.
What was the market research that went into this? They should've brought the 120 HP 1.6 here, as it would have significantly elevated the driving appeal. Performance was a Fiesta's core value.

Honda bit the bullet and reduced the Jazz' pricing. Now there's a waiting period for the Jazz.

At the other end of the spectrum, one case of major overpricing is the EVO X. Reputed to be the value seeker's performance car internationally, a price tag of over Rs. 60 lakh makes the Volvo S60 T6, BMW 330i and Audi A4 3.2 / 3.0 TDi seem like basement bargains.
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Old 1st November 2011, 12:56   #54
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Default Re: Big Money + Big Talent = The overpriced market dud. How?

Could we include the 1st Gen Fabia (top end at around 7Lacs, right?) in this list? Only the last year it started putting in some good numbers...

How about the Maruti gypsy? At 6Lacs OTR it makes a bigger joke than the Thar. If its nearly 2 lacs cheaper, it will close the 2nd hand jeep market for good! Afterall it is just a metal tub with a engine and drive train with 2 doors!

How about the infamous Telcoline (TL) 4x4 - it was nearly 9Lacs for a 4x4 DCPU 2.0 safari engine back in 2005!!

On hindsight - the same TATA (aria) management doesnt see there are many takers for a barebones safari 4x4, who are eager to get into some soft-roading on their own.
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Old 1st November 2011, 13:07   #55
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Default Re: Big Money + Big Talent = The overpriced market dud. How?

If these products have failed it has to be due to failure to completely understand the market and completed disconnect from the market. I just can't understand how,what easily occurs to us, goes unnoticed by the top management from these companies.

Im surprised by how Skoda has two dud's. The first-gen Fabia and also the Yeti, these are the same guys who turned the segment upside down with the launch of the Octavia back in 2001! Octavia gave Skoda a "luxury" car image in India and so they were able to price the Laura a segment higher though internationally it was an Octavia replacement and for a few years it ruled the segment. They worked magic with the Superb too, but with Fabia and Yeti they somehow lost the plot.
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Old 1st November 2011, 13:22   #56
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Default Re: Big Money + Big Talent = The overpriced market dud. How?

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Originally Posted by SPIKE ARRESTOR View Post
Nice thread GTO, let me add my experience here.

Yes it is true there is good talent at the top, but after a level the top bosses responsible for taking "executive decisions" are more involved in things which add less value to the product. Most of them act as figureheads only.

One prime reason for this is lack of profession knowledge (pertaining to the field). Many big honchos are MBA dudes, picked up from various domains (non-auto). I remember a pot bellied Vice President who did not know how to sit properly in his office chair, being invited to clear the final design of a driver seat for one of the "premium" products. What else do you expect from such actions?

Spike
Wouldn't the pot bellied top honchos be accountable for their decisions? Maybe for one or two jobs they can find a 'bakra' to put the blame on. The development cost of vehicles runs into crores - 700 to 800 crores for Indian vehicles, am I right? And for foreign manufacturers, introducing a vehicle in the Indian market means lot of money sunk. And no one questions these guys even then?

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Originally Posted by Guna View Post
One thing that is common to most of these (not all) is that they are not normal stereotypes. Majority of the buyers would go for safe' buys which fall in to well established/defined segments and categories.
  • Jazz - It is a not a regular hatch, nor a sedan or MPV
  • Aria - Looks like an MPV but what does typical buyer gain from 4X4 capabilities or premium pricing?
  • Kizashi- Falls in between C+ and D segment (in terms of size) but priced like a D segment car.
  • Yeti - Too expensive to be large hatch and too small for an SUV
When a product doesn't fall in to a stereotype, it will become a kind of niche. Niche products (any product, not just car) will always appeal to limited set of buyers.
Agreed on all above except Jazz - all sorts of innovative shapes have succeeded here like Swift and i20, in my opinion. So Jazz could also have been a success if Honda was earnest about the market

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Originally Posted by mxx View Post
Actually I dont think it can be explained in a single perspective
Perfectly agree with all the points here. But not only in India, no market in the world will pay a price above the perceived value of the product. So the companies with such a long history in other markets, instead of applying the common sense and learnings from the other markets to the Indian scenario after fine tuning the same, is just generalising the market research from elsewhere and doing a copy paste here
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Old 1st November 2011, 14:00   #57
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Default Re: Big Money + Big Talent = The overpriced market dud. How?

Or is it that people associate cars with the respective brands way too much for the manufacturer to succeed in all segments?
What I am trying to say is:-
Manufacturers like Maruti, Hyundai,Tata (with possible exception of Verna and Safari )are known as small segment guys. History says their venture to other segments, (if new Verna is excluded for time being) i.e segments > B have always met with failure. Even if these guys come with best of vehicles, I am not very sure whether people would want to spend anything more than 10L on M,H or T brands. They are not somehow associated with premium cars and lack the snob value which is associated with cars from C segment upwards.

Now if we take the case of Mahindra, I am not sure whether they have ever been successful in any segment other than SUV or jeeps or vehicles of similar sort. It really will take something ultra magical from Mahindra to come up with a car which can match Alto/Eon or Polo/Swift/Figo/i10/i20 etc.
Honda, well, they have been successful consistently in just one segment. That too only till the time Veran & Vento came. Honda can do something to all the segments if they want to. But pricing is one aspect they need to be very careful about. Price cut of 1.5L on Jazz must have hurt the existing Jazz customers a lot. Rightly so. Civic, Accord & CRV had its days in sun

Toyota, albeit with Liva & Etios, still is known for Innova and to lesser extent Fortuner. Not sure why Altis is not selling the way it should have been.

Except Superb, no other car from Skoda has met with "success" Czechers would have hoped for. Same is the case with sister VW too. Other than Vento & Polo, all other cars have been faring quite badly.
But VW & Skoda can definitely be associated with premium-ness too. So what could be the possible reason for the failure of cars from these manufacturers?

So it it that us customers tie a manufacturer to a certain segment?Or is it that, manufacturers seeing the success of a particular car, don't think about customer's aspirations, buying capability etc, price their vehicle to such an extent that the product is met with death before birth? Case(s) in point being Jazz and Fiesta. Oh, my colleague says Honda dealer informed him that Jazz has a waiting period of 9 months. Not sure how true is that.
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Old 1st November 2011, 14:00   #58
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Default Re: Big Money + Big Talent = The overpriced market dud. How?

I think the companies don't have strong basic principles definging their character. In other words, they have loose character. So it is the person at the helm on the day who walks the talk. The minority voices are considered dissidents and might be thrown away.
Mahindra on the other hand has established itself as a company offering bang for the bucks and not jumping too high at a time. Tata too provides value for money products however it jumped too high with Aria launch and fell flat on its face. It should have skimped on few gizmos and launched Aria below 11Lakh to make it look more value for money than it actually does. Brand value is to be built brick by brick.
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Old 1st November 2011, 14:03   #59
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Default Re: Big Money + Big Talent = The overpriced market dud. How?

Quote:
Originally Posted by SPIKE ARRESTOR View Post
...lack of profession knowledge (pertaining to the field). Many big honchos are MBA dudes, picked up from various domains (non-auto).

As someone rightly said, "the biggest shortage of all is the shortage of common sense."
One interesting case on M&M goofing up in Brazil.

Quote:
dallhatsue (2 months ago)

I am a dealer of the two brands in Brazil and I am hopeful that Mahindra & Mahindra will change its marketing policy of Mahindra and SsangYong brands in my country. Despite the Mahindra and SsangYong were good quality and great sales potential in Brazil, sales of Mahindra are pathetic, because the brand is totally unknown and does not invest in advertising. Moreover, prices are not competitive in a market where there are more traditional brands whose technology and design are more modern. SsangYong's sales are hindered by the constant lack of spare parts, total absence of advertising, lack of vehicles and, especially, the inefficiency of the official importer. SsangYong has not realized it could sell three times what currently sells in Brazil. But for that to happen, it needs to be bolder and more professionally . Meanwhile, the dealer network is becoming weaker, with constant losses and, above all, destroying the brand image.

Source
M&M thought Brazil will be a walkover for their SUVs. Little did they realize that unlike India, diesel is not the most desirable fuel in Brazil - most vehicles run on ethanol, and M&M went into the market there with their eyes closed to this fact. It is another story that they paid a consulting firm a huge sum of money to find out why M&M vehicles were not selling in Brazil, and the report pointed this fact out to them - by which time it was too late!
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Old 1st November 2011, 14:26   #60
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Default Re: Big Money + Big Talent = The overpriced market dud. How?

It is very interesting to know that Hyundai does not make it to the list. So does that mean Hyundai's marketing brains are well placed?

While Logan IMO is failure more due to the Renault(I really don't think Renault are serious about their business in India, I never liked their line up anyway) factor, Mahindra otherwise has been fine. TATA I think was trying to re-brand itself in luxury space by pricing the ARIA high, but they chose a wrong class of vehicle for that.

I think nothing could be commented about Suzuki and Honda except that it is sheer arrogance that anything they make would sell! Mitsubishi is a weird case!
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