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Old 26th April 2013, 16:06   #1
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Default Big Discounts, Cheap finance schemes : Do they destroy Brand Value?

I know people will raise their eyebrows by seeing the topic name. Some owners / people will not like it. Some will say what rubbish. But it just came to my mind due to one of my friend. Here is the story about what happened -

Few days back, one of my friend asked me about which is good car in the market to buy. He wanted a sedan car around 10 L. He is straight forward, non petrol head guy. Not a BHPian off course. He uses car to go from point A to point B mainly So we were having a chat & discussing about various cars available in the market. I mentioned him to check Skoda Rapid as well as it is having loads of discounts & schemes. Now surprise came. He said he don't even want to take a look at the car, forget buying. I was very surprised. I asked him why. He said its a "BAKWAS" car. Its a failed car in the market, not doing well & having lot of problems. Same with Vento as well. I asked him why he think so. The answer gave by him made me think. He said those companies are giving big discounts, schemes like pay half now balance later, 0% interest & all others. His logic is if company is doing well & their cars are good enough, they will never give such schemes. They are giving such schemes only because their cars are not good & that's why not selling in the market. He also mentioned that why other companies don't give such schemes in the same market.

His thoughts made me think. If common man like him thinks that way, are these companies not damaging their own brand names by announcing such schemes? In India, most of people who buys cars are non petrol heads. If they can think this way, its surely doing big damages for the company. Should big companies like VW/Skoda launch such schemes like pay half now & pay half later? What do you think guys?
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Old 26th April 2013, 16:15   #2
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Default re: Big Discounts, Cheap finance schemes : Do they destroy Brand Value?

Although we have discussed at lengths about the success/failure of VW and Skoda in India, I would still tend to agree with you. I too have come across a lot of people who have not much idea about cars but were convinced about the high cost of ownership of these cars. Most of them would have developed such opinions possible due to the reasons stated by you. Another thing that hurts the image is lack of free service even if that means only labour charges being waived off.
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Old 26th April 2013, 16:50   #3
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Default Re: Big Discounts, Cheap finance schemes : Do they destroy Brand Value?

For any sane guy who has experienced/owned a VW group car, this offer would look tempting. And we would contribute this to the extremely sluggish car market. Both the cars in question mentioned are highly capable overall but let down by a below par service network and 'presumed' high cost of ownership. The latter is an illusion as the service interval compensates for the same.

So rather than such broad statements which can be construed as "Another VW/Skoda bashing thread", advise your friend to think rationally and not be influenced by hearsay...
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Old 26th April 2013, 16:59   #4
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Default Re: Big Discounts, Cheap finance schemes : Do they destroy Brand Value?

I guess this issue does not restrict itself to the world of cars or automobiles alone.
The same logic can be applied for any product in the market, and the way public percieves them. In the end, it narrows down to the marketing startegy being used by the company/dealer/distributor.
From my point of view, offering discounts do not imply the product is not doing good/it's a bad product. Just that the manufacturer would like to increase the market share/brand awareness/offset existing piled up stock/prepare for a new model upgrade amongst a host of other situations.
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Old 26th April 2013, 17:21   #5
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Default Re: Are VW/Skoda damaging their brand name?

Quote:
Originally Posted by aniketi View Post
He said those companies are giving big discounts, schemes like pay half now balance later, 0% interest & all others. His logic is if company is doing well & their cars are good enough, they will never give such schemes. They are giving such schemes only because their cars are not good & that's why not selling in the market. He also mentioned that why other companies don't give such schemes in the same market.
This is a very stupid logic. Not a fair comparison but just to say how foolish his logic is, samsung's flagship galaxy phone range is available with 0% interest and 15% cash back. Is it because galaxy range of phone is a dud? infact galaxy range is a big success in India and abroad.
The fact is when there is lot of competition the companies have to do a lot more to sell. VW has its own finance arm, which gives it more flexibility for offering innovative finance schemes. Unlike discounts, in all these finance schemes the customer end up paying more, and the companies lose little.
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Old 26th April 2013, 17:25   #6
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Default Re: Big Discounts, Cheap finance schemes : Do they destroy Brand Value?

Your friends opinion didn't surprise me all that much, infact I feel there should be more people knowing this. Being a part of the marketing lot, no!, discounts do no affect brand value, brand perception and past ill-activities of a brand does. If you scan our very own TBhp site, there are pages upon pages of attrocities done to customers by the brand mentioned above. Its simply shocking to me that customers who pay unconditionally for a product have to endure that - misguided at every bend. Public memory isnt short by any means, the tag hangs in there and as a result any discount/scheme/accessories offered by the brand will be looked upon as a gimmick or a ruse to trick buyers again, and 9 out of 10 times the public wont go wrong assuming that. Yes in a way self-idealised finance schemes of brands matter zilch if the product has a shortcoming. People with a 7 figure budget ready in hand (which account for more than 50%) look for more than just "schemes".
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Old 26th April 2013, 17:41   #7
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Default Re: Big Discounts, Cheap finance schemes : Do they destroy Brand Value?

Quote:
Originally Posted by dkaile View Post
let down by a below par service network and 'presumed' high cost of ownership. The latter is an illusion as the service interval compensates for the same.
High cost of ownership actually depends on the service stations as well. However, there are enough dealer service stations who recommend to change the parts earlier than what is actually needed since their profits come from sale of spares and the associated service charges to replace it. For a non-petrolhead who might not have enough knowledge about how long these parts usually last, they will have to go with what the service advisor says. If you are a petrolhead and grills the service advisor, some of these replacements "can be done in next service also, sir".

This practice exists with most brands including Maruti and Hyundai but their parts are not built to last and hence priced cheaper anyway. So the pinch felt on the customer is relatively lesser when compared to VW/Skoda parts which might cost much more and would have lasted much more distance if both were replaced at the same interval due to the profit motive of the service stations. This effectively turns the perception of high spare cost to a reality for these folks.

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Originally Posted by mxx View Post
This is a very stupid logic.
However stupid the argument sounds, this is the average Indian car buyer to whom the manufacturers in India sell 90% of their cars. I don't think there would be more than 10% buyers who are actually petrol heads. It is a hard reality that all the auto manufactures have to face, whether they like it or not.

Last edited by zenren : 26th April 2013 at 17:47.
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Old 26th April 2013, 18:02   #8
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Default Re: Are VW/Skoda damaging their brand name?

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Originally Posted by dkaile View Post
So rather than such broad statements which can be construed as "Another VW/Skoda bashing thread", advise your friend to think rationally and not be influenced by hearsay...
You are right but those are his opinions & i can't control what he thinks. No body is bashing here. I already mentioned that it is his views only. My only point is if he can think that way, many others can also think similar way. That will damage branding of those products only. VW ads of pay half now & pay half later certainly has created negative branding in many peoples mind for sure. Lots of people thinks that they are not being able to sell cars, so offering such schemes. Also with such schemes, people also thinks that company is cheating them. Instead of that why can't they give discounts in cash.

Quote:
Originally Posted by mxx View Post
This is a very stupid logic. Not a fair comparison but just to say how foolish his logic is, samsung's flagship galaxy phone range is available with 0% interest and 15% cash back. Is it because galaxy range of phone is a dud? infact galaxy range is a big success in India and abroad.
The fact is when there is lot of competition the companies have to do a lot more to sell. VW has its own finance arm, which gives it more flexibility for offering innovative finance schemes. Unlike discounts, in all these finance schemes the customer end up paying more, and the companies lose little.
I understand what you are saying but its not correct comparison i guess. Not only Samsung, but all mobile companies like Nokia, BB, HTC & all others do the same way. Here only these 2 companies doing such schemes & no other company following them. So no point in comparing mobiles with cars.

Anyways, one thing is sure that recent schemes given by these 2 companies has surely made negative impact in many peoples mind. Peoples trust has surely come down. People were seeing these as premium brands but with such ads, people are thinking about the brand, resale value of these cars.
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Old 26th April 2013, 18:17   #9
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Default Re: Big Discounts, Cheap finance schemes : Do they destroy Brand Value?

Quote:
Originally Posted by zenren View Post

However stupid the argument sounds, this is the average Indian car buyer to whom the manufacturers in India sell 90% of their cars. I don't think there would be more than 10% buyers who are actually petrol heads. It is a hard reality that all the auto manufactures have to face, whether they like it or not.
This has nothing to do with being petrol head. This is about marketing, discounts, finance schemes

Quote:
Originally Posted by aniketi View Post

I understand what you are saying but its not correct comparison i guess. Not only Samsung, but all mobile companies like Nokia, BB, HTC & all others do the same way. Here only these 2 companies doing such schemes & no other company following them. So no point in comparing mobiles with cars.

Anyways, one thing is sure that recent schemes given by these 2 companies has surely made negative impact in many peoples mind. Peoples trust has surely come down. People were seeing these as premium brands but with such ads, people are thinking about the brand, resale value of these cars.
Ok, lets talk about cars then. Tell me one car company which is not giving discounts. Even maruti gives discounts (not on fast selling models like swift). Toyota and honda gives discounts. So does that mean these cars are crap? Take case of honda,they struggled to sell cars when the competition heated up, so they have to give discounts. their brand value never took a hit.
And here we are talking about finance, which unlike discounts is given in every sector/product(Even property market-like no emi till possession by top property developers)
When it comes to cars again even Mercs, bmws too gives finance schemes. Above said brands also provide different finance schemes
also read this http://www.thehindu.com/business/Ind...cle4386471.ece

Last edited by mxx : 26th April 2013 at 18:36.
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Old 26th April 2013, 18:23   #10
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Default Re: Big Discounts, Cheap finance schemes : Do they destroy Brand Value?

As they say "half knowledge is dangerous"! So, without knowing the economics of the auto market and the state it is in currently, its dangerous to deduce that the companies rolling out good offers don't have good products.
Looking at the fierce cut-throat competition, and the bad phase that the auto industry is going through at the moment, the offers are bound to come. Why not take them as good opportunities to buy cars now?
Brands like VW/ Skoda are not really the ones driven by volume (& prices), so even a small cut in sales volume hits them hard under the belt. Other brands like Maruti, which are completely driven by volumes & prices, who are actually commanding almost half of the market share, do have some cushioning against the bad phase. Whereas, automakers who fail to get going in this phase, may end up getting wiped out completely of Indian markets, IMO.

However, on the other hand, easy & cheap finance, fat salaries (esp. after the recent pay commissions - no offence really meant) etc. have somewhat diluted the brand images of cars. I remember that when we were kids, a Maruti 1000 or Esteem was seen as a social status. Even the Zen. They were rarely seen on roads, esp. in smaller cities. But the factors I mentioned above have put many cars in our reach. Most average income people can now afford a 5lac rupee hatchback easily. Needless to say that most cars under the 10 lac category have surely lost the 'exclusivity' factor & hence the brand image is not perceived as exclusive as it was used to. Not a bad thing to happen, but just it has resulted in a lot of traffic jams!

Regards,
Saket

Last edited by saket77 : 26th April 2013 at 18:28.
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Old 26th April 2013, 18:38   #11
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Default Re: Big Discounts, Cheap finance schemes : Do they destroy Brand Value?

In a market which is undergoing a lean phase every company comes up with it's own strategy to maintain, if not increase it's market share, to ensure that the stocks do not stagnate and the cash flow position remains positive. That is a difficult objective .
What these companies are doing is leveraging off their brand value. It's like saying we are making ourselves affordable so go out there and get one. I dont think brand value diminishes in any way with such offers.
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Old 26th April 2013, 18:43   #12
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Default Re: Big Discounts, Cheap finance schemes : Do they destroy Brand Value?

I have different perspective on this. I feel these schemes don't really affect a company's brand value that much. Generally when a common Indian buyer is in the Market for a car purchase, he is looking to land a sweet deal be it cash discounts, finance schemes or even free accessories.

The big cash discounts and finance schemes sometimes are what the deciding factor to go for a specific car from a general buyer's perspective.

Finally as they say every sale counts and these practises are nothing but ways to keep your inventory moving in the present market condition.
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Old 26th April 2013, 18:54   #13
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Default Re: Big Discounts, Cheap finance schemes : Do they destroy Brand Value?

It is highly unfair to say that if the cars are not good then the manufacturer will give disounts. Maruti brand is deep rooted in the minds of common man and except Hyundai nobody has climbed levels close to Maruti when talking of A segment cars. When a new car maker is entering India he has to be sure to what segment he can cater, this is where all European and US car makers have faltered. These companies have great cars but not in the price range for an average Indian who is happy to stick with Maruti or Hyundai which satisfy all his needs. Cars like Fabia, Polo, Vento, Rapid, Punto, Linea or the extinct Aveo-UVA, Aveo, Optra are all great cars but not in th reach of common man. What is disheartening is even after being in India for more than a decade they have not realised their mistakes and continue with them. It will be tough for them to sustain in the Indian market with ever increasing costs they are doing good to none with their lacklusture attitude. The current lean period in automotive industry combined with the low sales for VW, Skoda, Chevrolet is pushing them to offer discounts but again this strategy will not work in the long time.

Last edited by deehunk : 26th April 2013 at 19:00.
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Old 26th April 2013, 19:57   #14
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Default Re: Big Discounts, Cheap finance schemes : Do they destroy Brand Value?

Car is a depreciating asset for every car buyer, which means he still treats it as an asset rather than a commodity. The resale value determines the level of depreciation which is crucial for him during his next upgrade. Since most customers buying a 10L car would be upgrading, they would already have seen the importance of resale value. A car with better resale value might increase his budget during the next upgrade so that he can go a segment higher. So the average buyer is unlikely to fall for any car because of finance schemes if the brand has poor resale value. He knows he'll end up losing more than what he gains out of these schemes when he tries to sell it after a few years.

For those who intend to keep it for longer periods who might compromise on a product with lower resale value, the perception of high service costs would be a deterrent. With such lucrative schemes, some might interpret it as "lure the customer with discounts and then loot him through service" philosophy.

Quote:
Originally Posted by mxx View Post
This has nothing to do with being petrol head. This is about marketing, discounts, finance schemes
What I meant by petrol head (when it comes to car purchase) is the people who do not rely heavily on hearsay and perceptions and actually do enough research of their requirements before buying a car. That is a very small fraction.

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Originally Posted by aniketi View Post
My only point is if he can think that way, many others can also think similar way. That will damage branding of those products only. VW ads of pay half now & pay half later certainly has created negative branding in many peoples mind for sure.
VW ads of pay half now & pay half later as well as the Skoda ad of buy a Rapid and get a Fabia free after 5 years are the type of ads where the companies try to project huge savings for customers.

When a customer who has the potential to spend 10 lakhs sees these ads, the first thought in their minds would be why anyone would do this and if they might shut the shop soon. Since these brands already have a perception of high upkeep costs and low sales (number of these cars that they see on the road would justify low sales), they attribute it as the reason behind these offers. Since car purchase does not end with driving the car out of the showroom, the question of whether these companies would exist when he sells his car is crucial since that would also determine the resale value when he sells the car 5 years later.

Those half page and full page ads of VW or Skoda are definitely eye catchy and hence hard to miss. If those appear in the newspapers every alternate day and additional offers get introduced, people see the desperation of these companies. Why else would someone spend so much money on advertising and sacrifice so much as highlighted in these ads?
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Old 27th April 2013, 11:20   #15
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Default Re: Big Discounts, Cheap finance schemes : Do they destroy Brand Value?

I will refer only to the thread title and not the specific examples as I do believe that the title is true but this is followed by most car vendors at some point of time.

When one cannot sell a vehicle in the numbers expected or anywhere close to it either and if it happens to be a major vehicle for that manufacturer then it is indeed forced to give discounts and finance schemes.

But if the vehicle in question is not really the main cash cow of the company like say A-Star is to Maruti vs the Swift then it will opt for not doing dropping prices as it will effect the brand.

Honda surely had to face this when the Jazz did not take off and it was expected that Honda being Honda would not discount it but then after waiting for a couple of years it did being about an effective price drop in the Jazz - but it was too late and did not reverse fortunes.

TATA has done it in recent desperate times with the Aria, Manza and Indica - and it does not seem to have helped it much.

Even Merc, BMW and Audi offer finance schemes to tempt the buyer and that does not mean the vehicle is valued any lesser but it does mean that it is not moving out of the showrooms in the numbers expected and it does indicate a desperate step. During the last recession in the US every single vehicle was on a significant discount and an attractive finance scheme and it yet did not seem to help.

Vento and Rapid discounts does not take away from the vehicles but does indicate a tough market scenario.

It is better to judge the market correctly and go for aggressive pricing initially and to get market share and then later increase pricing - eg. XUV500, Duster. Honda too seems to have learnt that this is the better path with the Amaze and Skoda might just do the same with the Octavia III.
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