The power of 10

Why Hyundai is banking on the i10?

The launch of the i10 in October was about many firsts. Not only was Hyundai Motors' new small car the first automobile to have an international launch in India, it is also the only car manufactured in the country for export to over 70 markets. This year, Hyundai hopes to roll out more than 200,000 i10s from its Chennai plant "" but only half are destined for local markets.

The global ambitions are explained easily enough. But considering the Korean automaker already has two bestsellers in the compact car segment, why did it launch a third small car in India?

To begin with, Hyundai's first offering in India "" the Santro "" is still a very popular car. In its third avatar now, the Santro sold 136,000 units in 2007. That's a shade lower than the figure for 2006 (140,000), but still good. Then there's the Getz, a 2004 offering for customers seeking a more sophisticated upgrade. Company estimates place Getz's sales at 2,000 cars a month. So why an i10 and why now?

In many ways, Hyundai's strategy now mirrors that of market leader Maruti, which has as many as five models in the mini and compact car segments "" from the entry model 800, moving on to the Alto, Zen, WagonR and Swift. Industry analysts believe Hyundai, too, is following a multiple offering strategy to cater to different customer needs.

It now has the Getz for premium customers, the Santro to cater to the value-for-money seekers and those looking for a tried and tested vehicle, and finally the i10 for younger buyers.

It's not about imitating the market leader, though. This is a clear, market-driven strategy. In India, the small car segment accounts for over 70 per cent of the market.

Between April and December 2007, this segment sold more than 600,000 cars while the rest "" including the mid size, executive, premium and other segments "" together accounted for just 200,000 units. Besides, this segment is racing ahead at 20 per cent a year compared to the overall market's 14.8 per cent growth (source SIAM).

Which is why different offerings that will appeal to different customer groups "" remember, there is no "typical" small-car buyer "" is a strategy that will work.

"The Indian small car segment is growing very fast and is expected to continue to do so till 2010. We felt that the Santro alone will not be enough to satisfy this booming market and hence we have launched the i10," confirms Arvind Saxena, senior vice president, marketing and sales, Hyundai Motor India.

Industry experts agree with this approach. "The small car segment is so large that companies must offer multiple options to consumers. Companies do this by offering variants and different models. In the light of increased competition the move to launch a new car is a sound one," agrees Dilip Chenoy, director general, Society of Indian Automobile Manufacturers (SIAM).

How has Hyundai ensured that the i10 will not cannibalise Santro sales? Saxena points out that the new car is aimed at a completely different audience. While Santro is likely to be the choice of first-car buyers in the 30- to 40-year age group, the i10 is targeted at a younger customer group "" typically, those between 25 and 35 years.

"We have packed the i10 with features like a sun roof, sports car seating, airbags and other features that will appeal to a more younger audience," he adds.

Hyundai hopes to drive the differentiation further with the i10 ad campaign. The brand ambassador is the same as for the Santro "" actor Shah Rukh Khan.

But compared to the "married man" look in the Santro commercials, Khan sports a younger image in i10 ads. "We have tried to create a fast paced ad. Unlike the family situations we used for the Santro, this ad shows Khan driving the car around the race track. His clothes, his styling have all been aimed at youngsters," says Saxena.

The positioning, promotion and product may be different, but some degree of overlap between the Santro and i10 can't be ruled out. Hyundai's reaction? It is better for Santro to lose sales to another car from the Hyundai stable, rather than to some outsider.

That may well happen, believe auto industry observers. The Santro is over eight years old and despite regular image updates, the car doesn't have the wow factor anymore.

Hyundai, too, accepts that "" it has lowered Santro's sales targets for this year, from 136,000 to under 100,000. Internal research showed that close to 30 per cent of existing buyers were repeat customers "" while some had upgraded to bigger cars, many buyers were back for a second Santro.

With the Santro's fatigue factor increasing, there was a real danger that customers looking for a second small car would look outside Hyundai for something younger and exciting. The i10, therefore, is also an attempt to stave off any migrations.

But the i10 isn't only about the domestic market. Some auto experts believe that in a couple of years, the i10 will replace the Santro globally. By manufacturing the car only in India, Hyundai will be comfortably placed to leverage lower manufacturing costs to its advantage when that happens.

Hyundai claims its strategy is already working. Post launch of the i10, its combined sales in the segment increased from 14,900 in September to 16,330 in November (source: SIAM).

"We hope to increase our market share to 20 per cent and sell 16,000-17,000 cars a month," says Saxena. Of that, over 7,000 units will be i10.