Getting It Right, The Second Time

TURNAROUNDS

Few managers would dispute the challenge posed by less-than-happy customers in a competitive market. In categories such as automobiles and consumer durables, the task of keeping customers satisfied becomes even more daunting, as the key driver of sales is word-of-mouth recommendations by existing customers. So what do companies do when they initially deliver a not-so-ideal product experience?

In the Indian market, brands such as Akai have discovered that a dissatisfied customer is an easy ticket to obscurity. Akai, through its exchange offers, had managed to get a double-digit market share in the mid-1990s. But as quality concerns became loud and clear, the brand was on the verge of disappearing from dealer showrooms before it changed hands from the Mumbai-based Baron International to the Videocon Group in April 1999. Today, Akai, with a volume market share of 5 per cent as of December 2001, is crawling back into contention, but its dominance over the television segment is history.

In other countries, a recent example is that of US automaker Ford Motor Corporation. In this case the company's popular sports utility vehicle (SUV), Ford Explorer, had to be recalled after reports started trickling in of the Firestone tyres fitted in the vehicle. The complaints were of tyre bursts when the vehicle was in motion.

As a result Ford incurred an expense of $ 3.5 billion on two massive recalls. In this case there were two losers. After all, Firestone suffered as much of a loss of credibility (if not more) when compared to Ford. What these companies fear the most is the loss of customer confidence, particularly because consumers incur a substantial expenditure while purchasing big-ticket products such as cars.

The value attached to these products, in turn, leads to higher expectations and a failure on the part of a company in meeting these demands can lead to a severe backlash. So how do companies add more customers to their fold when their product fails to meet some customer expectations in the early stages?

THE INDICA LAUNCH

The Tata Indica, the Rs 6,803-crore Tata Engineering's maiden attempt at manufacturing passenger cars, is one example of a product which managed to renew itself after a traumatic sales decline in 2000-01. This is the story of a car that made a triumphal entry, saw a subsequent V-shaped dip in fortunes, and then pulled itself up by the bootstraps to re-emerge as a contender in the automobile sweepstakes.

When the Indica was launched in 1999, it sold 55,000-odd cars in its first full year of presence (April-March 1999-2000). Says Bijoy Kumar, Editor of auto magazine BS Motoring: "The car received a lot of hype even before it was unveiled. The media went gaga over it once it was displayed at the Auto Expo in 1998. The launch in January 1999 was also extremely good. The company's marketing officials had done their homework, and cars were available at dealers for 10-minute test-drives - and the buyers' reactions were quite favourable. With an attractive price, good styling and the economy of diesel, the car had a successful launch," he says.

But the following year drove home a different reality: sales dropped by 20 per cent and the car managed to sell only 44,000-odd units as initial customer complaints seemed to suggest that the car was brought too early to market, without some niggling details being ironed out.

"The problems initially were about refinement, fit and finish. Though the car had contemporary styling and handled Indian roads well, there were little problems with things such as fan-belts. I think the Tatas got parts of the car right, but not the entire car," says Bijoy Kumar, who thinks it was a mistake for Tata Engineering to have used the same engine for diesel and petrol versions. But, he admits, he didn't think the customer was too unhappy. "Indians are used to going to the garage once in a while," he says.

Compounding the Indica's problems was the Hyundai Santro, which, after initial customer wariness, was suddenly selling like hot cakes. Thus, for most of 2000-01, the Indica lost steam and auto industry pundits were wondering whether the car would slip into obscurity.

But the odds changed in 2001-02. Tata Engineering not only reversed the tide, but also surged close to its rivals in the B segment, small cars that exclude the entry level Maruti 800. The latest figures put out by the Society of Indian Automobile Manufacturers suggest a dramatic turnaround.

During the first 11 months of the year, the Indica notched up sales figures of more than 55,000 units, which is a leap over the 38,000-odd Indicas sold in April-February 2000-01, and more than the nearly 48,000 units which were sold during the same period in 1999-2000. In the 'B' segment, the Indica's market share has jumped from 17.4 per cent for the whole of 2000-01 to 22.4 per cent in the 11 months of 2001-02.

MARKET SHARE UP

True, the Indica is still behind the Hyundai Santro at 24.6 per cent (25.8 per cent last year) and the Maruti Zen at 23.8 per cent (24.1 per cent), but sales have grown far faster than either of its major competitors in the comparable period. Indica sales have grown at 43.3 per cent, compared with 7.6 per cent for Zen and 6.3 per cent for Santro.

From September 2001, taking sales of diesel and petrol cars together, the Indica claims top spot in the B segment. This position is not necessarily permanent, but there is no gainsaying the fact that Tata Engineering has had a second coming with the Indica.

This joyride was possible due to the Indica V2 (short for Version 2), which was launched in January 2001. The V2 hasn't just improved Indica's fortunes, it's infused a buzz of confidence at Bombay House, the Tata headquarters. Bijoy Kumar credits the resurgence more to smart marketing than major changes in the product or technology.

Of course, the company has a little difficulty in acknowledging the impact of the V2's success, if only because it detracts substantially from the earlier model. Rajiv Dube, Tata Engineering's general manager (commercial), passenger car business unit, is at pains to explain that the performance of the V2 has only enhanced an already successful Indica. "It is a bit of a myth that everything after the Indica V2 is superlative, and everything before it was nothing to write home about," he says.

CUSTOMER FEEDBACK But nothing can take away the fact that it's the V2 which has helped the Indica get back on track at a time when the market was zeroing in on models such as Maruti's Alto, the Wagon R, the mainstay Zen "" and the Santro. After all, Indica's sales had drastically fallen from over 5,000 vehicles per month till May 2000, to around 3,000 vehicles per month for nearly a year down the line. From May 2001, volumes began climbing steadily and since August, the V2 has consistently crossed the 5,000 vehicles-sold-per-month mark. And in the first two months of 2002, the Indica has powered its way with sales of 7,365 and 6,524 units respectively.

Still, the comparison with the earlier car did raise an issue for the company when the V2 was being launched in early 2001. Coping with the negative publicity was the major one. After its initial run of a year, some of the earlier Indicas had thrown up problems such as uneven tyre wear, belt noise and related problems. Customer complaints led to an image downgrade. "By presenting the V2 as an improved version, Tata would have created an image that there was something amiss in the earlier Indica," says a company source.

Positioning the V2, therefore, was a delicate issue. As M G Parameswaran, executive director, FCB Ulka, the agency that handles Indica's advertising, points out: "We had to build on "" and not debunk "" the previous version." From October 2000 "" three months before the V2 launch "" the agency and the client set a brainstorming process into motion. Every option was considered for the new campaign, ranging from commercials with a touch of humour, celebrity usage, car-owner testimonials, to continuing the launch theme of emotional play by showcasing more dreams.

Finally, the television campaign focused on fact-based communication to highlight the new features. In the television commercial, the V2 is respected by a group of what appears to be a Japanese technical team (Japan still being considered the Mecca of automobiles in terms of tech specs), after the vehicle is taken through a gruelling test drive.

But the V2 would not have hit big time had there not been at least some actual improvements to the product. According to Dube, this was achieved by filtering feedback from the consumer, dealers and service stations over time. To do this, the company started a loyalty programme. Called the Indica Club, this loyalty programme includes 30,000-odd Indica customers from a client base of more than 1.35 lakh.

These club members are provided several benefits based on Indica's advertising promise to offer more car per car. For instance, an Indica Club card-holder gets preferential treatment and discounts at retail showrooms of Titan and Tanishq, hotels belonging to the Taj Group, and some restaurants.

If customer clubs started an interaction process with the customer, events such as the Indica V2 Asha Bhonsle and Daler Mehndi concerts held in November 2001 in metros such as Mumbai and Bangalore for existing club members and also prospective customer helped in creating a bonding beyond the product. True, other car companies have customer-focused programmes "" such as free magazine subscriptions, annual painting contests and so on "" but none of them have a loyalty programme as sharply targeted as this.

What was critical about the Indica's loyalty programme is that it doubled up as an important database for Tata Engineering. As feedback flowed in from customers and dealers, the company got to understand the finer points of how to improve the car and the service, and what customers would expect from products of the future. Dube says the dependence on several sources of information ensured that the right changes were made.

If communication with the Indica Club members was continued through newsletters every quarter, the company also held 50 customer meets across 30 cities and towns in 2000, to get a feel of the market and the issues facing the brand. These initiatives were held for the first time since the Indica was launched "" and at a time when sales needed sprucing up.

Now, Dube says, customer meets will be a regular feature. These meets talk to consumers about product and service satisfaction, and other services such as the Indica Club. Additionally, Tata Engineering has instituted a panel comprising select dealers from across the country to chalk out plans and help in understanding the market. This panel is due for change every three years and is in addition to the bi-annual meets with nearly 100 Indica dealers across the country.

The company also monitored the feedback from other sources of information. For instance, the company got a reflection of the Indica's performance on the roads from the warranty data that came in every month. Simultaneously, independent customer satisfaction surveys such as the survey provided inputs in improving and developing the car.

The JD Power survey, in particular, showed a notable improvement in the Indica. The 2000 survey showed that with as many as 390 problems per 100 vehicles, Indica was only better off than Hindustan Motors' Ambassador. In the 2001 survey, however, the problems per 100 vehicles for the Indica dropped to 273 "" though it's still far away from the Santro which emerges on top in the small car segment with a score of 140 problems per 100 vehicles.

But on parameters such as fuel consumption, which has cropped up among he top five problems for small cars in both the years, the Indica and the Maruti 800 have topped the rankings as the most fuel-efficient cars.

Further, the JD Power study indicates that the Indica, which managed an APEAL (Automotive Performance Execution and Layout) score of 588 last year, has scored 742 in the recent study. The most visible improvements have been in riding, handling and braking where the Indica got no points last time, but has been given a 3.5 rating this year. Market feedback did help the V2 improving the product. For instance, the company introduced an entry-level power steering version of the V2, which was previously confined only to higher-end variants.

Quality control

Of course, this was not unique. Any established product would have to offer value additions to sustain the markets response and this is something which other players "" such as Hyundai Santro "" have also done. But for the V2, it meant a valuable improvement. As Dube says, "An entry-level power steering version has dual benefits. It increases the perceived value, and offers tangible benefit "" ease of driving." Today, the models of the V2 "" the DLS diesel and the LSi petrol "" offer power steering as a standard fitment.

Another insight thrown up by the market was on features that customers would value, such as a central locking system. Findings indicated that customers hated to have their cars ripped open as soon as they brought it, to retrofit an additional feature. Hence a factory-fitted central locking system would be more attractive as a standard feature. Thus, an intermediate model was introduced in the Indica with power steering and central locking.

The findings also threw up the nagging issues faced by the earlier version "" uneven tyre wear and belt noise. Daily reports from the field helped the company get a clear fix on the problems. For instance, Dube says that one important customer suggestion or complaint would be flashed across the country by e-mail to understand whether others also felt the same way. This helped in getting early feedback though it was in an unstructured manner.

The company also tackled the quality issues upfront rather than shy away from it. Dube says, "Our assurance to customers was, if there is a teething problem on our car, you don't have to worry about it "" we'll take care of it without any charge to you." He adds that the cost to the company was covered as a part of the warranty costs.

In an odd way, this attitude helped the company. As an analyst points out, "Sales did suffer due to faults in 2000, but the company put up a brave front by accepting the problems and dealing with them quickly." Dube, however, puts a different spin on the sales debacle. He attributes it to sales tax adjustments. For instance, as the sales tax was increased in May 2001 from 6 per cent to 12 per cent in the northern and western states (which contribute to nearly 60 per cent of the total cars sold in the country), the industry saw aggressive pricing by each manufacturer. First, market leader Maruti cut prices across its various models. Then a slew of new launches and upgrades followed "" Daewoo's Matiz Spice, Maruti's Alto and WagonR, and Hyundai's Santro Zip Drive "" all of which took the excitement away from the Indica. All these upgrades and new offerings made the Indica look ante-diluvian.

Where all new offerings followed Euro II norms and introduced multi-point fuel injection (MPFI) engines, the petrol Indica was the only new small car to be run on carburettors. This was rectified in May 2000 when the company launched the Indica 2000 with an MPFI engine. But during the course of the same year, the Indica had effected a price increase twice across the range "" first in January 2000, when it increased prices by Rs 15,000 to Rs 18,000, and then in August 2000, when it again increased prices by Rs 5,000 to Rs 8,000.

When the Indica was launched in December 1998, the entry price for an Indica Standard "" petrol "" was fixed at a no-frills Rs 2.63 lakh, far less than the Maruti Zen, Fiat Uno, Hyundai Santro and Daewoo Matiz all of whom featured in the Rs 3-lakh plus bracket. This was mainly to pull in the Maruti 800 customer.

Fuel for growth

Also, the three diesel variants of the Indica were priced on a par with the Fiat Uno in the Rs 3 lakh-plus bracket, which was far below the Maruti Zen diesel version that had a price tag of Rs 4.61 lakh.

While this aggressive pricing pulled in early buyers (one lakh-plus bookings in the first year of which nearly 60,000 customers finally bought the Indica), the perils of pricing played a role when the small car market went into top gear in 2000. Says an industry expert, "The Indica had given away its floor rates during the early days, hence it could not cut prices when competition did so."

Dube admits, "When the industry was in a price cutting mode, we increased prices." Today an Indica DLE (air-conditioned) version is priced at Rs 3.3 lakh (ex-Delhi) as opposed to the Rs 2.95 lakh tag at launch. But, he says, the company had little choice: "We had to be accountable for topline growth as well as bottomline profitability, unlike many who have to be accountable only by topline growth."

In fact, maybe it wasn't such a bad thing after all because the company was able to achieve a cash break-even in the first six months of 2000-01 only because it increased prices to improve net realisations when volumes were low.

So where does the Indica V2 go from here? Even today analysts say 80 per cent of Indica's sales come from its three diesel models, in a market where less than 20 per cent of small cars sold are diesel. Till date, this strategy has been the key to Indica's success as Indica's two diesel competitors, Uno and Zen, sell less than 1,000 cars between them per month.

Many feel this is a path that is lined with risks as it could be the next segment where competition could accelerate. And the cost advantage which diesel commands over petrol is expected to reduce after April 2002, when the country's administered pricing mechanism for petroleum is to be dismantled.

However, Dube cites the European market as a case in point. In Europe, where there is price parity between diesel and petrol, the market for diesel vehicles has been growing "" from 12 per cent to 14 per cent in the early-1990s to 32 per cent in recent times. Moreover, diesel vehicles are projected to touch 40 per cent of the total number of vehicles sold by 2010.

Another point in diesel's favour is that, litre for litre, diesel stretches the distance travelled over petrol by 25 per cent to 30 per cent. "Even if prices are equal you cannot take away the inherent strength of the diesel engine. Europe is going that route as diesel engines have less CO2 emissions which is critical. India cannot be immune to what is happening in the rest of the world," says Dube.

But industry analysts argue that it would be unfair to compare the European market with Indian conditions. They point out that the direct injection technology that has made diesel engines a rage in the West is too expensive to be used for small cars in India.

Nevertheless, the company has revamped its petrol offering this year with the recent introduction of three Indica V2 petrol models to take on its latest rival, Fiat's Palio. While the petrol version of the Indica has been differentiated with roof spoilers and a steel-tipped exhaust pipe, there are other strengths such as the 16-bit microprocessor, which is highlighted through a sticker on the rear of the vehicle.

Moreover, the 1405 cc engine could be the ideal way to hit at both the Palio 1.2 and the 1.6 versions.

Dube says, "Having established a position of strength in the diesel phase, we are focusing on the petrol segment which is the larger segment." While doing so the company would certainly like to put its memories of 2000 behind it.