zen

In December 2006, on a golf course on the outskirts of New Delhi, the Zen Estilo was launched by Maruti Suzuki India after a
fashion show by designer Tarun Tahiliani. The Estilo, as it is now known, was launched ostensibly to replace the ageing Zen whose
sales had begun to fall sharply. But Maruti priced the Estilo within a few thousand rupees, at every specification level, of the
WagonR. The two cars, then, like now, have the same engine and, in terms of other specifications, are fairly similar, though the
WagonR is slightly larger.
At the time, Maruti's Managing Director Jagdish Khattar faced queries on how the company would manage two similar products.
Several journalists and industry analysts concluded that the newer Estilo would cannibalise sales of the successful WagonR, which
was then the second-highest selling model in the Maruti stable, moving over 8,000 units a month.
Khattar pooh-poohed the doubters and argued that both the Estilo and WagonR would succeed because they would both bring in
buyers into the showroom. Mayank Pareek, Maruti's Head of Marketing and Sales, today confirms that the strategy has worked for
the country's larget carmaker. "Once Estilo sales stabilised, they averaged around 5,000 units a month. But WagonR sales, far from
being impacted, went up to 10,000 units a month from 8,000 units earlier. So, in essence, we almost doubled overall sales from
when Maruti Suzuki had only the WagonR."
It almost sounds counter-intuitive: Two products sharing the same price tag doing better than just one earlier. But it worked for
Maruti. In fact, it worked so well that in 2009, the company tried it again when it launched the Ritz - a car that shares the same
platform, engines and price tag of the immensely successful Swift. In this case, while Swift sales haven't increased, primarily
because there is no capacity for Maruti to increase production, the Ritz has managed to carve out a niche of its own. Sales of the
Swift, between 10,000 and 12,000 vehicles per month, were augmented by the 5,000-6,000 monthly unit sales of the Ritz.
Pareek harks back to history: "Cars are like any other major consumer product. The days of Henry Ford saying you can have any
colour as long as it is black are long over." Today, it is clear that consumers want choice and if Maruti cannot give them that choice,
they will go to other manufacturers, says the Head of Sales and Marketing. In case of premium products, such as the Apple iPhone,
or luxury cars, companies can survive with just a single product, but in the larger market there is little choice but to give your
customers their choice. "Yes, adding models leads to manufacturing complexity but it also ensures that we run our factories at 110
per cent capacity rather than 75 per cent," Pareek adds.
The additional sales that Maruti has garnered from the Estilo and the Ritz together is over one lakh units a year, sales that most
other automotive manufacturers would give an arm and a leg for. And the sales have not come at the cost of the existing models in
the same price bracket - the WagonR and the Swift, respectively. So, how did they do it? The logic Maruti gives is that fresher
models and a bigger product line-up bring more people into the showroom. "Very few people walk into a car showroom without an
intention to buy," says Pareek. More cars give people more incentive to walk into a showroom, and more products there mean that
people are more likely to walk out with a Maruti product.
Maruti conducts a "Brand Track" on every customer who buys its cars in 16 cities, and every Monday, Pareek sits with his team and
discusses the results. The survey helps them position their vehicles effectively. "Even though the cars might be in the same price
and size segment they may not be in the same mind space," argues Pareek. The cars are clearly distinguished, targeting different
types of consumers in every aspect from product design to the advertising message.
The Swift and the Ritz might cost the same and share the same engines, but according to Pareek, the Swift is aimed at younger,
single buyers, a message reinforced by its advertising slogan "You're The Fuel" and advertising, which highlights the car's
performance. The Ritz, on the other hand, has the slogan "Why Make Choices" and is aimed, says Pareek, at the rational, younger
family buyer, who does not want scintillating performance but values economy and space.
"The idea we try and follow in our marketing is to clearly define every product and not follow industry 2 convention. We could create
segments or reinforce segments in the process," says Pareek. Of course, not everything goes to a "marketing plan" and there are
regional differences. In Kolkata, and in the rest of eastern India, the Estilo outsells the WagonR, for instance. And Pareek jokes that
managing models is a lot easier than managing colours, "Not everybody buys silver."
The costs of launching a new model are still quite significant. New metal dies and tools have to be made, which coupled with
advertising costs involve a capital expenditure of over Rs 500 crore just to launch a vehicle. However, in the case of both the Estilo
and the Ritz, Maruti managed to save costs by keeping some components the same, especially engines. However, Pareek mentions
that with his competitors launching new products - in 2010 the Ford Figo, Chevrolet Beat and VW Polo - all targeting the same price
bracket as the Swift and the Ritz, Maruti had no choice.
The costs of not launching a car could be higher than the costs of a slow-seller, because, as Pareek argues, a new car still brings
people into the showroom. "There are people who did not think they liked the WagonR, came into the showroom because of the
Estilo and left with a WagonR. Some may argue that is cannibalisation, and it well may be, but it increases my sales figures and
keeps a sale out of our competitor's books."
No other Indian automotive manufacturer has such a strategy. While several two-wheeler makers offer similar models within a
narrow price-range, Hero Honda in particular, the closest an automaker comes is General Motors with the Chevrolet Beat and the
Aveo U-VA, even though the cars are in slightly different price-points. Unlike Maruti, and its two main rivals Hyundai and Tata
Motors, most other carmakers are barely able to use their production plants to capacity. However, Pareek believes that as India's
market grows and the "common platform" philosophy becomes more popular among automakers, the costs of launching a similar
model will come down. And the opportunity lost by not launching one will increase.
COMMENTARY-1

Maruti knows there isn't an "Indian market"
JACOB KURIAN, former COO, Tanishq, and Partner, New Silk Route Advisors

In how many markets around the world has a company consistently held on to a nearly 50 per cent market share even after the
arrival of global majors? Extremely rare, though India has two home-grown champions who have managed this extraordinary feat
- Maruti and Titan. There is much in common in their strategic approach, but for now, let's see what makes Maruti tick.

Maruti gets priority in new product development because India is the largest market for Suzuki. It can tailor products sharply
focused on Indian market needs. Even as its competitors are still trying to understand the "Indian market", Maruti has peeled the
next layer and understands that there isn't an "Indian market".

It has figured out that India is a loose amalgam of diverse mini markets - often complex and contradictory - but large enough to
target with tailored products. It is this clarity, of each product targeting a different market segment despite being at the same price
point, which has driven Maruti's product strategy. Besides, Maruti has ensured that the post-purchase experience remains
trouble-free by offering easy service and affordable parts.

On the branding side, Maruti has continued to strengthen the mother brand. At the same time, it has created an array of sub-
brands that allows it to psychographically segment the Indian consumer. For the market leader, maintaining its dominant share is
very important, both to keep the competition out and costs low.

As long as Maruti captures new customers or retains old ones, it means incremental revenue and margin. But can this logic be
extended infinitely? Obviously not. There is a cost to product development, inventory, spares and demo cars. But the waiting lists
show that Maruti is running a lean and demand-pull based supply chain, avoiding the problems of forecasting accurately for a
wide product assortment. So let's salute Maruti as it continues to defy conventional logic and the doomsayers who have been
predicting a precipitous collapse in its market share.

COMMENTARY-2
Product freshness is the key
DILIP CHENOY, former Director General, Society of Indian Automobile Manufacturers, and CEO & MD, National Skill
Development Corporation
The challenge in the marketplace is to bring customers to the showrooms. Bringing out and positioning new products that offer
choice to consumers hold the key. Positioning and price points are also important. A major plus of this strategy is the availability
and positioning of products in the segment and in the minds of customers as distinct and separate from what is available in the
market or within the Maruti stable.
While the numbers do not show the extent of cannibalisation, the true impact of the multiplicity of products in the same price and
feature band cannot be accurately determined. The mere fact that demand outstrips supply is not because demand was high but
because of production constraints. The positioning of products and sub-dividing the categories worked in Maruti's case but the
impact has been varied in different regions of the country.
So one could argue that given the current situation, perhaps, cannibalisation has been avoided. But this may be only to a certain
extent and the freshness of the product as well as its uniqueness that drive sales need to be maintained. That would be key to the
future. The challenge for Maruti would be to maintain or increase existing market share. If other companies can do around 50 per
cent in the two-wheeler category in many markets across the world, Maruti could do it in India.
If the main aim of Maruti is to increase sales and retain market share, in addition to launching new products, it should also look at
increasing product development out of India. Aspirations are changing and products and features that will be in demand in the
future are going to be significantly different from what customers have been satisfied with till now.
A lot more value addition and engineering would have to be market (India) driven. A significant gap in the effort to retain the
customer within the Maruti stable is the absence of options at the higher end of the market where they do not have anything in
India beyond the Swift DZire. As the market grows at both the bottom and the top end, unless products are developed to address
those segments, Maruti might get caught in the middle.
When you run Corporate India's largest, most ambitious and most celebrated rural initiative, you better know the following:
1) That adversities could crop up unexpectedly.
2) That some adversities can be turned into opportunities.
3) And that every little opportunity has to be made most of.
It was so with ITC, the company behind the e-Choupal initiative that had reached four million farmers in six states in six years till
2006. At one point, the company was opening 5-6 e-Choupals a day and had a target of reaching 100 million farmers. That hit a
roadblock of sorts in 2006-07. The very basis of the e-Choupal's core business-commodity sourcing from farmers directly-was
endangered with the government clamping down on companies trading with farmers directly. The trigger for the government reaction
was the spike in wholesale price inflation, which rose close to double-digit figures in case of some commodities in 2006-07.
Though the impact varied from state to state, the larger foreboding was loud and clear: The acts of government taken in the national
interest could hobble e-Choupal's anchor business, even if temporarily. What does the company do then? Roll out plans for Version
3 of e-Choupal that will add at least two more anchor businesses to start with and deepen the engagement with individual farmers
way beyond what was being done in Version 1 and 2. "The idea is to discover new anchor businesses and try and insulate the e-
Choupal model from the risks of reversal in government's agri reforms," says S. Sivakumar, Chief Executive, Agri-Business, ITC,
and the man who scripted the e-Choupal model of business.
Technologically, it would mean adding mobile phones to the existing channels of Net-based computers and Choupal Saagars, the
one-stop shops catering to all the needs of the rural community. As the company scoped around for new opportunities, it found
many-some emerging from the adversities that have got it rethinking. These opportunities not only make transition to Version 3
possible, but also help modify the existing strengths of Version 1 & 2 (see box above). It's spotting of these opportunities and turning
them into current and future businesses that has become a case study in persevering with rural India.
Opportunity:Farmers willing to invest more
Response: Offer them services they really need, and are willing to pay for
Though the average farm productivity is still low in India, the last 10 years have seen an unprecedented rise in farmers' income. This
has been driven by a record increase in the price of agricultural produce (government's minimum support prices for food grains
alone have risen by 30-90 per cent in two years) and a good run with monsoons-this year's deficiency notwithstanding.
Executive Summary: Once a household name, Dutch consumer electronics major Philips has slipped over the years to become
an 'also ran'. Its repeated attempts to rekindle its mojo have failed. Will its attempt at repositioning its products at the youth work?
This case study looks at what went wrong and what the company needs to do in order to succeed.

In April 2010, when Philips Electronics India Ltd announced its plan to outsource its TV business toVideocon Industries, the
decision came as no surprise. The five-year pact, under which Videocon is handling Philips's TV manufacturing, distribution and
sales in India, is aimed at restoring the profitability of the TV business. Philips was once a dominant player in the segment, with a
market share of around 15 per cent in the early 1990s, but business eroded as Korean and Indian brands grabbed market share. As
volumes fell, the company struggled to run its TV factory in Pune efficiently. It took the third-party route to manufacture CRTs and
imported LCD screens, but this didn't help. Then the company licensed the unit to Videocon.
The downfall of Philips's consumer business - especially TV - began in late 1990sThrough the arrangement, Philips will get royalty
income based on turnover. Videocon's economies of scale in manufacturing and its strong distribution network will help the Philips
brand reach more outlets and reduce the cost per unit.

The downfall of Philips's consumer business - especially TV - began in late 1990s. The reasons were beyond the control of the
management. The entry of Korean chaebols such as Samsung and LG started eating into the market share of older players such
as Onida, Videocon and Philips. Philips decided to stick to its usual strategy: relying on technology rather than strengthening
distribution and marketing. It didn't want to compete with the Koreans on pricing, and thought the superior technology of its products,
be it picture or sound quality, would stand out. "We took a conscious decision not to cut prices," says Kris Ramachandran, former
CEO of Philips Electronics India.

In no time, the strategy flopped. The slow-moving Philips couldn't sustain its
top position and its market share fell to some 3.5 per cent by 1999. After
losing its relevance in the consumer business, Philips did take some steps to
address the situation.

In early 2000, it roped in PwC to revamp its consumer products portfolio, set
up new processes and overhaul the supply chain. After this, it launched a new
range of CRT TVs under the brand name EyeQ. "The idea was to Indianise
products to suit local tastes," says Rajeev Karwal, who headed Philips's
consumer electronics division in 1999.

The new sets had 300 channels, as opposed to 60 channels in older ones.
High-end plasma TVs were also introduced. "The earlier TVs were more
suited for Europeans, who like subtle colours. Indians, on the other hand,
have a fondness for saturation and bright colours. The later versions of our
TVs focused on targeting this issue," says S. Venkataramani, Non-Executive
Director, Philips India.

In lighting, Philips has historically been the segment leader in India, with a market share of around 30 per cent
"Philips was strong in innovation, but lacked aggressive marketing," says Karwal. "When I joined Philips, I brought in fresh blood to
challenge internal systems. A country like India requires go-to-market strategies. We tied up with dealers and proved that the
technologies of our Korean counterparts are no superior to ours."

Philips also rejigged its skills portfolio. Its workforce went from more than 11,000 in the early 1990s to around 3,500 by 2005. From
six legal entities, it became one legal entity. "The focus was on reshaping the company to ensure sustainable, profitable growth,"
says Ramachandran. A 2001 survey by ad agency JWT further helped Philips improve its brand image. Although the brand was
iconic in India for several decades with customers associating the transistor radio and incandescent bulbs with the Philips name, the
survey found that people did not associate the brand with high-end technology.

To revive its past glory, Philips's product offerings have undergone a sea change
So from 2001 on, most of Philips's ad campaigns emphasised the advanced features of its products. Gradually, the company
reclaimed some lost ground. The TV market share went up to eight per cent in 2002.

Although Philips sustained its TV market share at around six per cent in the following years, it lost the way when it shifted focus from
TVs to lowmargin products such as DVD players, MP3 players and headphones.

When the consumer electronics and appliances market exploded - it went from Rs 20,000 crore in 2005 to Rs 33,000 crore in 2010 -
Philips's revenues from the consumer business declined - from nearly Rs 1,091 crore in 2005 to Rs 659 crore in 2010. The revenue
mix got overhauled. From over 42 per cent of turnover in 2005, the consumer business fell to some 28 per cent in 2010.

According to some senior executives, this was partly because the CRT division was given less importance at a time when the CRT
market was growing in India. "Since the parent company exited the CRT industry in 2006, the Indian arm, too, showed little interest
in the business, and it affected growth momentum," says A.D.A. Ratnam, President of Philips India's consumer lifestyle division.

While the consumer business hit a brick wall, exponential growth in the lighting and health care segments kept Philips going. In
lighting, the company has historically been the leader, with a market share of more than 30 per cent - more than twice that of its
nearest competitors, Bajaj Electricals, Havells, Wipro Consumer Care and Lighting, and Surya Roshni.

"Whether it's CFL or LED technology, Philips is a pioneer in bringing lighting solutions to India," says Nirupam Sahay, President of
Philips's lighting division. "We have a big distribution network and reach out to one million electrical and non-electrical outlets."
LOW-VOLTAGE BRAND

THE PROBLEM
The companys brand image has declined over
the years, and has very little recall value among
youth

THE CAUSE
Despite its technological strengths, the company
failed to market its products well, which hurt its
brand perception

THE CHALLENGE
The company rolled out multiple strategies to
overcome its problem, but they failed in a market
dominated by fleet-footed Korean companies

For professional lighting, Philips's client portfolio includes corporate and government customers such as Asian Paints, McDonalds
India, Cognizant Technologies and Kolkata Municipal Corporation. In 2005, lighting accounted for slightly over 34 per cent of
revenues. In the past five years, the company's dependence on this segment has grown - it now accounts for 51 per cent of Philips's
revenues.

But even the lighting business has seen plenty of ups and downs. To streamline this segment, the company had to shut down a
factory each in Kolkata and Mumbai in the late 1990s. Later, the dumping of Chinese lighting products affected its market share.
Timely government intervention in the form of anti-dumping laws helped CFL manufacturers.

Today, Philips gets a big chunk of its revenues from audio video multimedia (AVM), which includes DVDs and home theatre
systems. In fact, it leads the DVD market with a share of over 24 per cent. This, though, could be shortlived. Sector experts say
changes in the AVM in-dustry will keep Philips's consumer electronics business under threat.

"The DVD market is dying," says Deepa Doraiswamy, Industry Manager for electronics and security at Frost & Sullivan South Asia &
Middle East. "The transition to store movies and music on a pen drive is already occurring at a fast clip." Still, Philips is doing all it
can to revive its past glory. Product offerings across all three categories - consumer lifestyle, lighting and health care - have
undergone a sea change. Starting with the launch of MP3 players in 2009, Philips has come out with new products, many of which
target youth.

"India has a huge young population, so we decided our target customers should be 15 to 30 years old, because that's where buying
is going to happen," says Ratnam. "We have to get into the lifecycle of consumers earlier." It has launched devices priced as low as
Rs 150. "The focus is to make products that are not overengineered and are easy to replenish," says Ratnam. "Youngsters don't
want to hold on to a product for 10 years."

Philips has revamped its personal care portfolio, and introduced shavers, body groomers and epilators. It roped in John Abraham
and Kareena Kapoor as brand ambassadors. This is the first time the Philips brand has been promoted by celebrities in India.

Since 2009, Philips has opened 75 exclusive 'light lounges' in 40 cities. They sell decorative home lighting products priced between
Rs 575 and Rs 45,000. Besides, Philips has 750 'light shoppes' - shop-in-shops in stores such as the Future Group's HomeTown
and Lifestyle International's Home Centre.

In 2011, Philips acquired leading appliances maker Maya Appliances, which owns the Preethi brand of kitchenware. "For each
segment, Philips is trying to redefine the market," says Rajeev Chopra, Philips India's Managing Director and CEO.

Philips's record inspires little confidence in its comeback attempt. Philips lacks a clearcut strategy for India, says Karwal, the former
MD. "They are like a bull in a China shop." Will the current strategies work? Does Philips lack a clear vision in India? Does it need to
focus more on marketing efforts?

'All Is Not Lost For Philips'

The mantra for Philips's rejuvenation is more relevant products, better price points,and the will to fight: Y.L.R. Moorthi
Philips is first a technology company and then a marketing company. The reverse is true of Samsung and LG (though they
enormously improved their products in the last decade). Philips should emulate the marketing aggressiveness of the Korean
majors. Heres how. The one thing that sets the Koreans apart from not just Philips but all other competitors is their speed of
execution. Even tried and tested players like Nokia are not able to take the heat. The Korean majors brought their best products
globally with little or no time lag to India. They managed to put up manufacturing plants in record time. They showcased their good
products through savvy marketing (Golden Eye TV and umbrella health branding by LG). They recruited dealers
at an astonishing pace in the early years. In the 1990s, it was Videocon that headed the table for dealer promotions.

In the new millennium, the Korean duo launched a promotion broadside that left little to chance. It touched all stakeholders
dealers, customers and even shop boys. All these are object lessons in marketing for competitors like Philips. Besides, there is a
certain law of gravity in electronic hardware. Prices of electric goods always fall, be they laptops, VCRs, audio gadgets or mobiles.
A company that doesnt prepare itself for constant product upgrades and a simultaneous price squeeze will fall by the wayside.
The Koreans excelled at this balancing act to lead the charts.

That said, all is not lost for Philips. At one point of time it was the benchmark of innovation in audio. Also, inspired leadership
intermittently did boost market share in categories like DVD players for them. There are also bright spots like the lighting business
and the acquisition of Preethi. Though a multinational, Philips is seen as a home-grown brand like Bata, Surf or Lifebuoy.
Strangely, they never quite leveraged this strength. Thus the mantra for Philips rejuvenation is more relevant products, better
price points, aggressive marketing and the will to fight. Maybe we can encapsulate the Philips story in just one line: past imperfect,
future tense.

Y.L.R. Moorthi, Professor (Marketing), IIM Bangalore

'Milking A Dying Cow?'

Philips tried to revive its profitability by focusing on the bottom line and neglecting its strength: innovation: Ankan Biswas
As a brand, Philips was very strong in India till the end of 1990s. A 1997 survey showed that brand awareness was higher for
Philips than Coca-Cola. Today, the Philips brand has little significance among youth the most important market. Its brand
dilution happened globally, at a different pace in different regions. Although it started as a lighting company, consumer electronics
became its face. It was R&D, not marketing, that gave the brand its strength. Inventions such as the cassette tape, CD and 100Hz
TV kept Philips in a leading position in consumer perception.

As the market became competitive and margins razorthin, Philips started losing money in consumer electronics. Philips CE tried to
revive its sagging profitability by neglecting its strength: it focused on the bottom line and marketing without strengthening
innovation. Its consumer electronics patent pool steadily eroded over the last decade. It tried one strategy after another but failed.

Many of its divisions were connected with consumer electronics, such as semiconductors and components. Philips got rid of these
as they did not fit into its new game plan. The last nail in the coffin is the licensing of the TV brand to its lesser competitors. The
strategy of milking a dying cow does not augur well with consumers.

Philipss strategy today is to become a leader in health care, and retain its top position in lighting with new technologies such
as LED. Managing LED will bring back challenges similar to those of the semiconductor division. Philips used its global strategy in
the Indian market scenario where the dynamics are different. While Korean brands invested in manufacturing in India, Philips
closed its plants. While the Koreans developed India-specific models, Philips tried to introduce expensive models with a bit of
tinkering, ruining a once vibrant brand. The brand transformation of Philips is a lesson for all marketers.

Ankan Biswas, Chairman, Digital Broadcast Council, Consumer Electronics and Appliances Manufacturers Association
Double trouble
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?
N. Madhavan Edition: April 28, 2013
Ain't no time to disco for India's auto sector
Car sales fall first time in a decade

VW Vento and 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?

In January 2012, Japanese auto major Nissan's 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, Nissan's 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 manufacturer Volkswagen's sedan Vento. It sold 3,474 units in India in October 2011. A month later, carmaker
Skoda launched its sedan Rapid. Vento's 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 differences, made in the same factories, but sold under
different names. So too are Sunny and Scala, or Vento and Rapid.

Welcome to the strategy of crossbadging , 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 engineering, design and product development costs, to achieve economies
of scale, to reduce the lead time in bringing a new product to the market, 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
Rs 300 crore to develop a car for India. But cross-badging requires merely tooling changes - an investment of less than Rs 20 crore.

It would have cost Renault India a lot more time and money to develop 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
crossbadging 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 - Nissan's master franchisee in India.

But does it? In India, both attempts so far have been failures. 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 Sunny's 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 attribute 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 countries 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 Rs 5.61 lakh today, a Pulse with similar features is
priced at Rs 5.76 lakh. Few will see sense in paying more for essentially the same car simply to flaunt the Renault label.

The same applies to the sedans, Scala and Sunny. Volkswagen did the opposite, pricing Skoda's 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. "Crossbadging 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
proposition to the consumer."

Others claim the Indian market is not yet mature enough for this particular strategy. "Indian customers 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
entrenched and aggressive players.

There are no shortcuts like crossbadging to brand building, large investments are essential. "It is financially prudent and more
effective to spend heavily on developing one brand," adds Subbu. He feels Renault and Nissan would have fared better if they had
common dealerships and service centres and had sold their respective brands under the one roof rather than cross-badging each
other's products.

"It is a strategy that is best avoided in India," he adds. Nissan itself is alive to crossbadging's limitations. "Crossbadging can at best
be a temporary strategy to enhance product line-up and make dealerships profitable, but if used over a long period of time, it will
lead to brand erosion," says Toshiyuki Shiga, COO, Nissan Motor Co.

Globally too, cross-badging, though long practised, has not always been a success. In recent times the only instance of cross
badging working is that of the Subaru BRZ and the Toyota Scion FR-S, both launched in the US this year. But there were specific
reasons for this. This sports car was developed jointly by Subaru and Toyota Motor Co, thereby producing, according to auto
experts, a better vehicle than either could have done individually. Subaro took care of the engineering, chassis and power train while
Toyota handled the design. It was not a case of taking an existing model and cross-badging it. In contrast, General Motors in the US
has tried cross-badging all too frequently - and is paying for doing so. "Excessive cross-badging is one of the factors that contributed
to General Motors' bankruptcy," says Kakade.
Cross branding fails because it takes away the powerful rationalising argument that justifies consumers' decision to make a
choice: Professor Abraham Koshy
NO FOOLING THE INDIAN CONSUMER

Why has the cross-branding strategy not worked in the automobile market in India? The similarity of the features in cross-branded
products, despite the products belonging 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 buying is a
high-involvement process for the consumer, she is willing to spend time, effort and energy to arrive at the decision.

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 behaviour 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 phenomenon. At this point
in history of automobile industry in India, cross-branding is driven essentially by production and manufacturing considerations than
by consumer logic.

Professor Abraham Koshy, Professor of Marketing, IIM-A

For crossbadging to succeed, manufacturers first need to establish their brands well in the market: Rakesh Batra
WHO KNOWS THE MOTHER BRAND?

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 multibrand showroom, looks at competing brands and understands the ethos of the different brands. For
crossbadging 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)

Rakesh Batra, National Leader, India Automotive Practice, Ernst & Young

Why do you think the cross-badging strategy fails in India? Write to btcasestudies@intoday.com or post your comments at
www.businesstoday. in/casestudy-cross-badging. Your views will be published in our online edition. The best response will win a
copy of the Harvard Business School Press pocket mentor. Previous case studies are at www.businesstoday.in/casestudy.
Coming in from the cold
Japanese air-conditioner maker Daikin Industries rolled out a well-crafted strategy to capture a larger size of the
market. This case study takes a look at its remarkable turnaround story.
Sunny Sen Edition: Dec 22, 2013
TAGS: Daikin | Daikin turnaround story | Daikin Industries

Daikin India's Managing Director Kanwal Jeet Jawa who spearheaded the transformation Photo: Aditya
Kapoor/www.indiatodayimages.com
Executive Summary: Japanese air-conditioner maker Daikin Industries fared poorly in the highly competitive Indian market till
2009. But then the company rolled out a well-crafted strategy to capture a larger size of the market. It succeeded in an incredibly
short period of three years. This case study takes a look at its remarkable turnaround story.
A dusty winding road, off the Delhi-Jaipur highway, leads to the sprawling 40-acre campus of Japanese air-conditioner (AC)
maker Daikin's India factory in Neemrana. The town is known more for its six centuries old fort-palace, a weekend getaway for
Delhiites.
For Daikin, Neemrana has its own importance. It is close to its component makers in the Rajasthan State Industrial Development
and Investment Corporation (RIICO) industrial belt. Also, Delhi, one of Daikin's key markets, is just 120 km away.
The Neemrana plant makes 1,000 ACs every day for residential, commercial and industrial use. In many ways, the hustle and bustle
at the unit signals Daikin's growing footprint in India. In 2009/10, Daikin sold 34,000 ACs in India, and ranked seventh among all AC
makers. By 2012/13, this figure had grown a spectacular twelve times in volume to about 400,000. About 85 per cent of its sales are
of residential ACs.
Daikin has also increased its revenues manifold - from Rs 440 crore in 2009/10 to Rs 1,800 crore in 2012/13. It is now the second-
largest AC maker in India after Voltas in terms of revenue, according to Registrar of Companies data available with the company. In
2013/14, the firm hopes to clock sales of Rs 2,200 crore. The AC industry is estimated to post a turnover of Rs 16,500 crore next
year, according to industry estimates, growing at 10 per cent annually.

The man who spearheaded Daikin's spectacular turnaround is Managing Director Kanwal Jeet Jawa. He has spent three decades in
the AC business, and has been with the company since April 2010. "We have a product range no one can match - from 0.75 tonne
to 2,700 tonne chillers," he says. But building a diverse product portfolio is only partly responsible for Daikin's success. The
company has devised a five-point strategy which revolves not only around products, but also people, service, systems and the
brand.

The brand itself has undergone a metamorphosis. In 2000, when Daikin set up its operations in India, it was a premium AC maker.
Its product prices were beyond the reach of the common man. Jawa realised this had to change if Daikin had to get a significant
share of the market. But it was a long haul. In 2004, Daikin bought out shares of the Siddharth Shriram Group, which owns the Usha
brand, to make the Indian unit a wholly-owned subsidiary. In many ways this was the turning point and Daikin began to focus more
on its Indian operations. "It took them a lot of time to understand India," says Jawa.

Daikin, then, imported residential ACs from Japan and Thailand*. However, costly imports did not allow them to scale up and
become a mass market player.

In 2009, at Daikin's headquarters in Osaka, the senior leadership put together a 150-page vision document, Fusion 2015, for the
company in India. A new core team of 15, including Jawa, was put in place for its Indian operations. The same year Daikin did a
survey on brand perception - 56 out of 100 people had not heard about the company. It started new campaigns to boost brand
visibility. But the new team went for the kill, when it slashed the product prices by 40 per cent in 2009 and launched a series of
products in the price range of Rs 24,000. The strategy worked and in 2010/11 Daikin doubled its revenue to Rs 850 crore.

This phenomenon was new in the consumer durables space even though it had been seen in other sectors. For instance, foreign
shoe brands, including Adidas, Reebok and Nike, had entered India at prices higher than domestic competition. They eventually
rolled out products at lower price points to boost sales, though still at a relative premium to local brands such as Action and Tuffs.
"Daikin has got the Indian ethos to AC making correct," says Harish Bijoor of Harish Bijoor Consults, a consulting firm specialising in
brand and business strategy. "In India, the value for money connotation is very huge, and the opportunity is in the mid-level
market."

Jawa also realised that Daikin had to be present in many more towns and cities. In 2010, he called a dealers' meet at the ITC Hotel
in Agra. About 350 dealers were invited and given the option to go to tier-II and tier-III cities by adding an additional dealership. "We
were at that time selling to only the super rich, which is a niche," says Jawa. Within a year's time the dealer network doubled. At the
end of the last fiscal, Daikin had 1,800 dealers. It expanded from four regional offices in the metros to 11 offices around the country,
and it also opened godowns and smaller offices.

"We were an engineering company and now becoming a marketing company, but we had to keep the engineering DNA intact," says
Jawa. Daikin then unveiled a product - R32 refrigerant - in 2012, which allowed Daikin to use a smaller compressor, coil and other
components, reducing the size of the AC by 30 per cent and offer it at only a 15 per cent premium over what its South Korean rivals
LG and Samsung did.

Meanwhile, the consumer durables industry was moving towards star rating, the standards set by the Bureau of Energy Efficiency.
The more the number of stars (the maximum being five), the lesser electricity would be consumed. Daikin then developed an
energy-efficient product which could sense the occupancy of the room, and regulate cooling and tonnage of output accordingly. It
was initially launched as a light commercial product, but it is now finding a place in large apartments and villas. With lesser
competition in this space - Mitsubishi and Toshiba are its only competitors - Daikin has a fair chance to be a leader. In China, Daikin
has already cornered 45 per cent of the light commercial product AC market. In India, it claims to have already got half of the market
and is aiming at 57 per cent by 2015.

The turnaround in Daikin's fortunes in India is in large measure an outcome of higher localisation. Till about two years back, Daikin
was only making commercial ACs and chillers in India, and was importing all its residential AC units from Taiwan and Japan. But
Jawa realised that to bring down price, it was important to rely on local component manufacturers.

Jawa had also learnt from experience. In 2010, a huge consignment of residential ACs got stuck in customs and needed to be
delivered urgently to its dealers. Daikin was in expansion mode, and Jawa could not afford to lose time. The moment the
consignment was cleared, Jawa got it airlifted and transported to various locations in the country, spending a big amount on
transportation. The only way he could avoid such a situation in the future was by making the ACs in India. He started procuring
components locally, and finally by 2012 Daikin stopped all imports and started manufacturing residential ACs at the Neemrana plant.
Except the compressor and the controller, everything else in Daikin ACs are made in India. This, Jawa says, also has helped in
reducing cost by about 45 per cent.

Daikin is now set to expand operations. It has already invested Rs 743 crore in the Neemrana plant. The plant can manufacture up
to five lakh ACs every year, but the current capacity will be fully utilised by the end of this fiscal. Jawa has already anticipated
demand surpassing supply. He has got Rs 300 crore sanctioned from the parent to double the plant's capacity to a million units and
take on other expansion plans in the country**.

The company has also opened 100 exclusive Daikin stores, and there are a few more in the pipeline. The company has demarcated
five acres of land in the plant facility for a training centre on soft skills and sales. For example, it is mandatory to pick up customer-
care calls within 11 seconds. "We have our own bible," says Jawa. Daikin employees call it the Blue Book, and they abide by it.

The Daikin management in Japan is obsessive about tracking growth. Every quarter, Jawa says, there is a review done by the
Japanese parent. Every month there is a review by the Indian management, and zonal offices do their weekly review.

Even though Daikin's growth is praised by some analysts, others look at it with scepticism. "This category is fast moving towards
commoditisation," says Arvind Singhal, Chairman of the consultancy firm Technopak Advisors. "How much of that growth is
sustainable is not known." This is largely because the AC industry per se can go through little innovation, say experts. It is also easy
to replicate any innovation, which leaves little room for differentiation. For example, energy-efficient inverter ACs are in the portfolio
of every company now.

There are other challenges before Daikin. The Korean consumer electronics majors, LG and Samsung, have a larger distribution
network and can reach out to many more people, especially in rural India. Other Japanese makers, such as Panasonic, have also
slashed prices of products which might hit Daikin. Also, the three competitors mentioned above have a wider range of products
which can give them an edge over Daikin, says Singhal.

Jawa is unruffled. He has only one thing on his mind - meeting the goals outlined in Fusion 2015. The original plan, according to
Fusion 2015, was to become the No.1 AC maker in India, in terms of revenue, by 2015. But the Daikin India chief has a slightly
different plan. He wants to do it a year before target. "Given the current run rate, we will be there before 2015," says Jawa with a
smile. And given his track record, it is difficult not to take him seriously.

It must develop a deep understanding of customer needs and behaviour: Siddharth Shekhar Singh, Associate Professor, Marketing,
Indian School of Business
'Daikin Must Become Truly Customer-Centric

Daikin's strategy for growth in India has clearly shown results. They have achieved success in a short time by focusing on the large
segment of valueconscious consumers. They are increasing brand awareness and selling high-quality products at competitive prices.
At the same time, they have expanded their distribution network to make their products available and improve services. They are right
in changing their orientation from engineering to marketing. It is not easy, and their success so far is remarkable.

Their main challenge would be to sustain leadership in a competitive market. They can do so by becoming truly customer-centric. They
seem to be following conventional wisdom in the industry regarding customer segmentation. They are changing elements of the
marketing mix to provide better value than existing products. For example, they launched energyefficient products that adjust cooling
by sensing room occupancy as light commercial products. However, people are adopting these products for residences as well.
Therefore, there might be an opportunity for more effective market segmentation.

Daikin must develop a deep understanding of customer needs and behaviour. They can start with the problem they intend to solve for
the customer and then understand how customers solve it. Their focus should be on the entire cycle of purchase, use and disposal of
alternatives to find hidden value elements. This knowledge would allow segmentation of customers in meaningful ways. They can then
offer superior value to each segment through new technologies and products, and other elements of the marketing mix. This approach
starts with the customer, not competitors. Overall, they are on the right path. However, the next phase of sustaining success would be
more challenging.

Siddharth Shekhar Singh, Associate Professor, Marketing, Indian School of Business

Executing a long-term strategic marketing plan, it has emerged as a significant player in the AC market: Omkumar Krishnan, Associate
Professor, IIM Kozhikode
'Daikin Has Aligned Strategy With Its Vision And Mission'

Since its entry into the Indian market, Daikin has succeeded in executing a long-term strategic marketing plan and has thereby
emerged as a significant player in the AC market. Being a global leader, Daikin was obviously focusing on one of the most promising
and emerging countries. The company had a solid action plan and transformed itself from an engineering company into a marketing
one. The important lesson from this venture is the alignment of strategy with the vision and mission of the company. This is mostly
dependent on the initial phase where identification and evaluation of opportunities in a marketplace is carried out.

The five-point strategy devised by Daikin India chief Kanwal Jeet Jawa was very crucial in repositioning Daikin as an affordable brand.
The incorporation of an Indian team helped this wholly-owned subsidiary to localise the product and reach out to a large number of
customers in a short period of time.

Localised production coupled with slashing of prices at the right time helped Daikin achieve a significant market share. Adopting this
strategy in the consumer durables industry based on the experiences of multinational sports apparel companies was a unique initiative
by the company which paid high dividends.

The intensity of a formal marketing plan was evident with the widening of the channel partnership using the same dealers which
eventually changed the niche market into a mass market.

Although large numbers of exclusive showrooms are being opened and a service training centre has been set up to support staff,
maintaining service quality will be a challenge in Indian conditions. The absence of stable power supply and associated problems are
still rampant in the country which will have an impact on the AC market which is growing at 10 percent. Hence the company should be
focusing on a more realistic approach than reaching the milestones ahead of time.

Omkumar Krishnan, Associate Professor, IIM Kozhikode


*An earlier version of the story had mentioned that the company imported residential ACs from Japan and Taiwan. It has now been
corrected to Japan and Thailand.
** The sentence has been updated to reflect that the sum of Rs 300 crore will also be used by the company to fund its other
expansion plans.
Executive Summary: In 2001, Volvo Buses India sold 20 coaches. By December 2011, 5,000 of them were running on Indian
roads. Volvo did not achieve this by toning down its products or cutting prices as multinational companies often do. It developed the
market and waited for it to mature. Volvo now has 76 per cent of the Indian luxury bus market. The company changed the way
Indians travel. Now, as the competition closes in, it is preparing to launch products that could transform the market - again.

A decade ago, buses were more or less a by-product of trucks. They were built on truck chassis. Body builders bought chassis
primarily from Telco (now Tata Motors) and Ashok Leyland. The difference between city and inter-city buses, or regular and
'deluxe' ones, was reclining seats and a stylish paint job.
That is how things were when Volvo Buses entered India. The Swedish company bid for a tender by the Delhi Transport Corporation
(DTC) in 1998 while showcasing its B10LE low-entry city bus in several cities. The bus drew much interest. Akash Passey, Senior
Vice Presidentregion international, Volvo Bus Corporation, who headed India operations then, says many people came to see it at
the 1998 Delhi Auto Expo. He laughs, recalling an animated discussion between two youngsters he overheard. "The older of the
two, in an attempt to explain how the bus loses height, said: 'When it halts, the driver jumps out and deflates the tyres'," he says.

The coach prompted more weighty concerns too: were India's roads and travellers ready for rearengine buses? What about prices?
Volvo city buses cost up to 10 times more than those used by state transport corporations. Meanwhile, the DTC tender was shelved.

Selling to state companies was proving tough, so in 2000, Passey changed tack. He imported two Volvo B7R inter-city buses from
Hong Kong and Singapore, and sent them out on a six-month demonstration drive. The B7R cost five times more than a 'deluxe'
bus. But he persevered. "I felt there was little reason why an airconditioned bus would not work in a tropical country like India," he
says.
THE ROAD TO SUCCESS

CHANGE STRATEGY
Volvo brought in its inter-city bus when it saw the market was not ready for a city bus

SELL THE CONCEPT, NOT JUST THE PRODUCT
Volvo engaged with all stakeholders - from operators to passengers to drivers - to sell its buses

USE MACRO CHANGES TO YOUR ADVANTAGE
When Volvo saw that increasing congestion and growing environmental awareness were making public transport attractive, it
brought back the city bus

CHANGE THE GAME
When the competition started to close in on Volvo, it introduced products that would increase the number of passengers


The changing economic landscape strengthened his resolve. The company approached private operators who ran inter-city 'deluxe'
buses and could price tickets higher. Volvo refused to compromise on product specifications . Passey points out that inter-city
buses are 12 metres long everywhere in the world.


Volvo departed from the industry norm by offering service support for the entire bus, and not just parts"
But in India, bus length was capped at 11 metres. "We got the regulation changed," says Passey. It was a good thing Volvo had a
wide range of products. "All I had to do was choose the one best suited for India," he adds. "I did not choose the most sophisticated,
because operators were used to frontengine buses, very little suspension and ordinary brakes."

To persuade operators that Volvos were profitable, the sales team drew up a lifecycle cost comparison. Volvos had a few more
seats than others - a disadvantage in the early 2000s, when states taxed operators per seat. But the biggest advantage was that
they could run for 22 hours without maintenance.

Operators were concerned whether Volvo would provide maintenance centres every 25 km, as was the usual practice. Passey says:
"We told them you don't need that with a Volvo. We'll give you one every 400 km." Volvo also departed from the norm by offering
service support for the entire bus, and not just individual parts. With maintenance hassles reduced, operators could focus on routes.
For example, Mumbai-based Neeta Tours and Travels, which had 20 Volvos in 2004, figured it could serve seven destinations. A
bus could leave Ahmedabad at 10 p.m., reach Mumbai at 6 a.m., then go to Pune and back, and then head back to Ahmedabad at
10 p.m. Operators could also focus on sprucing up service with hot towels and entertainment. This also meant they could raise ticket
prices by as much as Rs 100 on some routes.

Phanindra Sama, founder and CEO of redBus, a portal that sells bus tickets, says, "The Volvo phenomenon coincided with higher
per capita income, more awareness about luxury, and increasing migration to cities from Tier-II and Tier-III towns."

As Volvos could run farther than buses used till then, routes such as the 1,000-km Bangalore-Mumbai run became popular. Being
faster, they could depart later than a deluxe coach, yet arrive at the same time.

SPECIAL: Can Tata's Divo beat Volvo in the luxury bus market?

In 2001 - within a year of demonstrating the inter-city coach - Volvo sold 20 of them in India. That figure reached 1,100 in 2006, and
5,000 by December 2011. Volvo now has 76 per cent of the luxury bus market. The market itself, according to industry estimates, is
growing at around 10 per cent a year. Volvo expanded gradually, starting with South and West India. It was not until 2004 that it had
a countrywide presence. "It was of utmost importance to us to have service leading sales and not the other way round," says
Passey.

Volvo stuck to its product specifications. It got India to change a regulation that capped bus length at 11 metres
Volvo also reached out to not only operators, but also other stakeholders. It ran commercials in film theatres. Before launching the
B7R in 2001, it sought driver and passenger feedback. "We realised we wouldn't sell much if we sold merely the product," says
Passey. "We had to sell the concept of luxury bus travel." Eventually, state bus companies not only bought Volvos but also built
brands around them: Garuda in Andhra Pradesh, Shivneri in Maharashtra, Airawat in Karnataka.

The development of expressways such as the Mumbai-Pune one helped things along. Volvo became a ticket brand - something no
other commercial vehicle has achieved anywhere in the world - as passengers asked for Volvo tickets, rather than an operator or a
route.

More case studies

As with the inter-city coach, the success of the city bus was gradual. In January 2006, Volvo sold its first city bus to the Bangalore
Metropolitan Transport Corporation. Under the Jawaharlal Nehru National Urban Renewal Mission, Volvos now ply in 13 cities.

Volvo hopes to make second-tier city connections viable, as traffi c is set to grow in this segment
The company is again looking to change the market, especially with rivals such as Mercedes-Benz and Tata Motors tail-gating it. Its
14.5-m inter-city bus is the longest in India, with more space for passengers and luggage. Its 14.5-m multi-axle city bus is being
pitched as a solution for urban traffic congestion. With the 9,100 medium-haul bus (for distances of 300 to 400 km), Volvo hopes to
make second-tier city connections viable, as traffic is set to grow in this segment.

This move - changing the market when the competition closes in - is possible because of a previous strategic step. In 2008, Volvo
started manufacturing buses near Bangalore. It makes 1,100 buses a year, and hopes to raise production to 2,500 by 2013/14.
Sama of red-Bus says: "The fact that Volvo manufactures its own buses works to its advantage. Mercedes still depends on its body
maker, Sutlej."

Would any other bus company, had it entered India in 2001, have done as well as Volvo? Perhaps, if its product range was
comparable, and if it were patient enough to develop the market. After all, one of the crucial factors in Volvo's success in India is
that it has invested in changing the circumstances.

EXPERTS SPEAK

To fare better in the transport market, Volvo should offer a systemic solution: Geetam Tiwari
'THINK BEYOND BUSES'

Local manufacturers did not upgrade bus technology almost until 2004, because there was no demand for a better product. Given
this environment, Volvo's strategy of bringing state-of-the-art products and creating a market for long-distance luxury travel has
been commendable. Higher disposable incomes and other changes in the economic landscape have certainly contributed to the
success of inter-city travel driven by Volvo. But it was also because local manufacturers could not create this market successfully.

{quote}Urban public transport remains a challenge because it requires not just state-of-the-art buses, but also state-ofthe-art roads
designed for public transport. This means creating central lanes for buses, stops for level boarding, passenger information systems,
and making streets safe for pedestrians (because every public transport user is a pedestrian at the beginning and end of the
journey). Also, money cannot be recovered from fares alone. There is need for thought on financing public transport systems. To
fare better in the urban transport market, Volvo should offer a systemic solution, not just buses. It could form a consortium of
planners, operators, and IT service providers and offer comprehensive solutions supported by local or state governments.

As the urban population is going to double in 25 years - about 600 million people by 2040 - the urban transport market will grow and
could attract more investment. Growing environmental concerns and easy availability of information technology will fuel this growth.
So demand for good quality buses will grow. Most Indian cities will not be able to meet mobility demand without state-of-theart bus
transport. The country requires about 5,000 more buses a year. It is up to the government and the mobility service providers, and
not just vehicle manufacturers, to create a financially viable market.

Geetam Tiwari, Ministry of Urban Development Chair Professor of Transport Planning, IIT Delhi


Volvo's success lies in converting its belief that there was a market for luxury travel in India into a value proposition: Abdul Majeed
'FILLING IN THE QUALITY VOID'

The bus industry in India started with a focus on public transport, especially to cater to the common man. There were quality issues,
but no one really cared. Things began to change with liberalisation, as more people began to move from the middle class to the
upper middle class and above. They sought better quality travel. You needed to book months in advance for trains, and air travel
did not suit them. They were willing to pay a premium for bus transport, but no such service was available barring a few air-
conditioned buses.

{quote}Volvo was first to spot this opportunity. It firmly believed there was a market for luxury bus transport in India, for which
commuters would pay a premium. Volvo's success lies in converting this belief into a value proposition. Its buses were many times
costlier, and the operators needed to charge higher fares to make money. A comfortable journey that reduces travel time by a few
hours was what Volvo bus operators offered to justify the premium fares, and people bought into it. The rest is history.

What Volvo has demonstrated is that though Indians are traditionally cost conscious, there is a growing crop of customers who
demand quality. As road infrastructure improves and people get richer, the luxury bus segment, especially for inter-city travel, will
grow faster and larger. We are far away from a bullet train era, and the poor state of the railways would only catalyse this shift.
Volvo's success has triggered the entry of more players into the luxury segment. The Swedish company is best placed to take
advantage of this transformation, as luxury bus travel in the country has become synonymous with Volvo.

Abdul Majeed, Partner and Leader - Automotive, PwC