Car makers the world over are in a fix — how to get customers back to their showrooms. The liquidity crunch, depressed stock markets and fears of joblessness have dented consumer sentiment badly, though there seems to be a recovery of sorts in India. Synovate Motoresearch, the automotive research division of Synovate, the global market research company, has come out with its Tipping Point Study which seeks to address these concerns of automobile makers. Undertaken in 16 countries including India, the study tries to understand the current psyche of the customer and what can automobile makers do to address it. In India, it was carried out at two locations, New Delhi and Bangalore, in the month of May. Richard Rice, the global director of Synovate Motoresearch, spoke to Bhupesh Bhandari on what should be the road ahead for automobile companies. Edited excerpts:
Your survey talks about how to get customers back to the showrooms. How?
There are two things that we have looked at. One, when will customers get back, and two, how to get them back. What the appeal needs to be when they do come back, and very importantly, how they may have changed? It’s quite a moving target but we have gone through a long period of recession and people have started to change their thinking.
But what we see in India is not a recession but a slowdown.
Exactly. And that is where the difference in India has emerged from all the 16 different markets we have done. In India, customers have been less affected but nevertheless they have been affected. And we have seen some shifts in their behaviour and some shifts in how they will buy in the future. On the most conservative and negative side is the person who has said that I am actually worried about things, I am confused, I am hearing words like slowdown and is therefore delaying his purchase. All the other household expenses are also changing.
The next group is on the optimistic side of it and they are more cautious as opposed to confused. They have got a good view of the market and pretty much know what’s going on. And they are just hedging their bets. They are buying brands instead of superbrands. They will still buy vehicles but they could come down a segment or two and compromise on specifications. They are probably saving more than they used to. The cautious attitude is coming through.
The third group is what we call the entrepreneurs. They are the people who see the whole thing as somewhat of a challenge. They are optimistic and don’t see the impact of the downturn lasting that long or having as big an impact on them. These are not just the wealthy but the trait runs right across the pool. These are people who see it as an opportunity to change things and are willing to take risks. All the three are looking at motor car purchase differently and therefore the type of link that you need to make with each group is different. The one thing that overrides, though low key in India, is the very high level of resentment towards motor manufacturers — at last you have got your just rewards; you have been making far too much money for far too long and have not listened to the consumer and now look what’s happened to you. Consequently, a lot of manufacturers have cut their prices in other markets and the customers have said that’s not the answers we are looking for — that just tells us that you were making far too much money in the first place. In India, there’s less of that but there is a swing towards the concept of trust, more so on the local brands. What has happened in India is a sense of allegiance to local homegrown brands. A little bit of skepticism is there about some of the other brands which are coming to the market or have been in the market for some time. Very often, people look at a -Indian brand but may finally get back to an Indian brand.
But there are only two local car makers: Tata and Mahindra.
Maybe I was incorrect in referring to what I call the truly Indian brand. If you look at Maruti Suzuki, for example, it is extremely well established. It has a massive dealer network and a massive volume of vehicles on the road; it enjoys huge brand equity and gives huge employment upstream as well as downstream. That will be a vote for an essentially Indian band. There are underlying emotional issues that are driving rational behaviour.
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If you look at the latest sale numbers of Indian car companies, they look quite robust. All companies have reported good growth in July. There doesn’t seem to be much of a crisis here.
The monsoons haven’t come the way they were anticipated. We have seen that vehicle sale growth that has been achieved in the last four to six months has been more in the rural areas than in the cities. So that is the market that is currently under threat and that’s where this kind of behaviour could well start to come into play once again. The other shift we have seen is that though volumes have gone up, the model mix has changed dramatically. People are switching from mid-segment volumes to low-segment volumes. So how do you get customers to the showrooms?
It’s not about discounting, it’s not simply about the retail selling price. That will not get the customers back. People are looking for low prices but that does not address the fundamental emotional need of the customer, which is trust and confidence. When the customer comes to the dealership, it is the sales person, the service advisor, the dealer principal who can deliver the sense of trust the customer looks for.
In the Indian market, it is more around good value for money. It is what I am getting vis-à-vis what I am paying and not about just what I am paying. And what I am getting is not just the product — it is also the service and the brand. Customers in India are looking for businesses that are confident and bold but not too daring, who are bringing out new products. On top of that, what matters is how you structure your offering.
So, it is the brand that matters.
In a crisis, you turn to your family. Brands are like that. The minute you feel a little bit unconfident, you move close to the brand you know. One thing that has happened abroad, and not in India, is that huge brands have simply disappeared overnight. Companies need to tell customers they are here to stay. Don’t close dealers, make sure your parts are available and it’s business as usual. Pay all your suppliers early. It’s a powerful message to the market that there is cash in the bank. That’s the kind of activity that Indian customers expect — bold, confident but not extravagant. The value-for-money equation has moved very strongly to the value space. Value incorporates product quality and reliability, dealer accessibility and availability, parts availability, technical knowledge and the ability to repair the vehicle in the first go. In many cases, it is a good thing for manufacturers to experience a short downturn because sales people are forced to worry about their customers and deliver good service.
In that case, you could expect Maruti Suzuki to increase its market share further because it is a brand that is trusted the most?
It could well increase its market share further. Its business is loaded towards compact cars. However, in a downturn, people who are looking at not buying or people who don’t get loans from banks would be at the bottom end.
So, what are the key takeaways of your study?
Manufacturers have for the last decade done all the talking. Now is the time to listen. The world is changing very rapidly. You need to have your ear on the pulse of the customer. Companies have created a lot of expectations. They have 100 per cent control over most functions. Where they don’t have control is the dealerships. I would shift my focus to the dealers and how they deliver the brand to the customers. Word of mouth in this market is huge. It’s an environment where people have huge inter-personal contact. Cars are always a subject of conversation. Bad service always comes on tap. People say nasty things about the brand. That’s the danger.
Car makers make very less margins on sales; where customers get fleeced is spare and service. What you are advising is a tough act.
It’s going to get worse. Manufacturers will try to gain control over who services their vehicles and the way they do that is to make sure parts are not available outside the dealer network. They will work with the governments to stop non-branded parts from getting into the market. Manufacturers will say it is about the right quality and a trained technician using the right tool. Their job is to convince you that what you have paid is reasonable value for money. The extra you have spent is worth the money. It is a very challenging space to be in.
How many Indian companies have got their act right?
I am going to put my neck out here. Given what I have seen and what I know about the automotive industry, I don’t think very many manufacturers, if any, have actually made that link in terms of how important it is going to be for ongoing prosperity to deliver at the dealer’s level. Virtually all are measuring customer satisfaction, they are not talking about a fully-branded customer experience. In fact, very few manufacturers are doing it globally. One exception is Lexus. It is able to deliver it.
When you go for service, the focus is on the car and not on the customer. In the automotive market, our research shows, the emotional elements are far more important in terms of delivering brand loyalty than the rational elements – in some markets, as much as eight times more. It is far more than any other consumable you buy because of the services that you take it for. In car companies, you have people who do the marketing and you have people who deal with dealers. There is no cross-selling. The first manufacturer who does the crossover will see the difference. Consumer research on the two verticals doesn’t match up.
Is car dealership a profitable business?
In uptimes, I would love to be a car dealer.