 "Skoda hits the middle ground")
A number of international automakers have struggled to make headway in the highly competitive Indian car market. Global brands find it difficult to match the might of market leader Maruti Suzuki, which depends heavily on localisation to cut costs and offer consumers competitive products at enviable price points. Among a number of players which have struggled to fast-track their products and marketing strategy in the market is Czech auto brand Skoda.
Skoda entered the Indian market back in 2001. Cut to 2016, it’s back to the boardroom revising its India strategy. Growing competition from existing as well as relatively new entrants has seen Skoda revisiting its business strategy in India, where the car market is currently worth a whopping Rs 3,00,000 crore annually with 2.7 million units in 2015. Skoda’s market share is 0.6 per cent.
In a bid to propel its sales, Skoda has moved away from a “luxury” offering to the brand proposition of “value luxury”. This entails redrawing of the product portfolio and revision of price structures.
Driving home the urgency for the new positioning, Ashutosh Dixit, director, sales and marketing, Skoda Auto India, says, “As we internalise from sustainability and the future markets point of view, we realise that in terms of product portfolio and high engineering costs, we are not in a position to target the mass market in India.”
While zeroing down on its unpreparedness to compete in the mass market, the automaker also recognised that brand Skoda continues to be perceived as a “high quality” and “premium” brand. And it is this conviction which has inspired Skoda to appropriate the brand proposition of “value luxury”. It is now positioning itself between mass market and what consumers consider really expensive. But is there space for a player to occupy this middle space?
Kumar Kandaswami, senior director, Deloitte, uses the “chicken and egg” analogy for luxury brands which want to tap into growing aspirations of consumers. “Their volumes are small and they are not manufacturing locally, with high incidence of taxes. Going forward, at some stage when manufacturing starts happening locally and the cost comes down, cars which command a premium today will become far more affordable than what they are today. Say for example, if an entry level luxury brand costing Rs 30,00,000 comes down to Rs 25,00,000, more people are likely to buy the car. And this could open up huge opportunities for the so-called luxury value brands.”
According to Dixit, the new positioning allows the automaker to focus on two distinct groups of customers.
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The first is a group in transition. It comprises buyers whose social status is growing, and quality consciousness is increasing. They are not yet ready to pay a fortune for the luxury cars available in the market. However, they aspire for high quality and are willing to splurge on luxury which is accessible. The second set of customers can afford luxury brands but prefers an understated car. Although they have clear tastes and preferences, they do not want to be seen with expensive cars, Dixit reasons.
Skoda is looking at winning both groups by offering high quality with accessibility.
Having identified its core target segment, the automaker is making significant changes in its product portfolio mix and price points to meet customer expectations.
Dixit suggests that unlike competitors, Skoda is offering what it calls “equipped” car packing in more features and equipments. And it’s commanding a premium of five to 10 per cent over mass brands. Its product price points range from Rs 9,00,000 to Rs 31,00,000. Currently, 70 per cent of Skoda’s sales are coming from the top-end variants of cars such as Superb, Octavia, Yeti and the New Skoda Rapid.
With an eye on offering price advantage to customers, Skoda is adopting a “mix” strategy towards product development. Even as it brings key models from its European portfolio, the brand is taking steps to move toward locally engineered products. The New Skoda Rapid is a case in point. The strategy is helping the company save over 20 per cent in development costs.
Moving beyond the product portfolio, the company is extending its “value luxury” positioning to its retail network that includes infrastructure, processes and people. Skoda is upgrading its 65 dealerships with new look and imparting digital skills to its workforce at the shop floor as part of its Corporate Identity Corporate Design programme.
According to Kandaswami, the typical challenge for brands which address different segments of customers is how to differentiate the experience. “The brand experience does not begin and end at the front end. The brand has to run this through product design, sales service, and after-sales experience. A luxury buyer aspires to be at top end and wants to have a differentiated and richer experience. And this needs to be respected by brands which want to address high-end, luxury segment customers.”
Amidst challenges, one silver lining for Skoda, points out Dixit, is that the brand continues to command strong loyalty from its existing customers. About 30 per cent of its customers are repeat buyers. Strong loyalty helps Skoda avoid searching for new customers all the time and instead focus on introducing a novelty factor for buyers.
The automaker has set ambitious targets. From 15,000 cars currently, Skoda plans to end 2017 with 20,000 cars by registering a growth rate of 30 per cent. It’s pinning its hopes on the New Skoda Kodiaq — a seven-seater special utility vehicle (SUV) that will be launched in 2017.
Also, in the long-term, Dixit is hopeful that the Indian market will move towards more stringent safety regulations. As and when this happens, brands like Skoda which have greater focus on these aspects will be ready to race.
| Expert Take Scope for fulfilling aspirations As customers get more and more aspirational, they will always look for a feature-rich product. From a value perspective, it’s important to distinguish between notions of luxury and premium. They are two different things. Like other industries, the auto market too has seen the emergence of feature-rich products which denote luxury even though they may not be luxury offerings like a Porsche, BMW or Mercedes. In growing markets customers are increasingly becoming aspirational, so there is space for brands to fulfill them. |
Now, the question is how aspirational can the brand be? The answer is, yes we can have brands which do not compete with luxury brands but still offer value at lower price points and compete with luxury brands.
(Kumar Kandaswami, Senior director, Deloitte)