Attempt all the problems.
problem1) prepare brief notes on:
(a) Experience concepts in marketing
(b) prepare down the difference between a customer oriented company and profit oriented company. Which of them will sustain in long run? describe.
(c) Green marketing
(d) Country Analysis in Marketing
problem2) describe the rationale of segmentation in Indian market. What do you understand by behavioural segmentation? What are criterions used in it. Discuss its relevance in today’s market with exs.
problem3) Why must a company expand resources on positioning its product, when all that consumer desires is a solution to their need? Do customers really care about the image of the product or the company? Justify with exs.
problem4)a) describe the concept of customer value
b) Value Delivery is no Easy Task”, Justify using recent exs from Indian Market
Case Study: Carnation Auto
Carnation Auto is the company which deals in servicing cars, selling spares, accessories and also pre-owned cars. Company has been started by Jagdish Khattar, the former MD of Maruti Udyog Ltd, in order to reduce demand-supply gap in car servicing market. Its close competitors include MyTVS of the TVS group. Reliance Auto Zone of the Mukesh Ambani group and First Choice by Mahindra & Mahindra. Khattar plans to expand Carnation into a national brand, unlike its competitors.
Venture was started by Khattar in a year 2006-07 when he observed a noteworthy capacity addition by car companies. Companies like Volkswagen, Peugeot, Nissan and Ford had announced major investments in an Indian market. Though, there were no announcements regarding setting up of parallel service stations. This fuelled the idea for an independent service centre that was not attached to any particular company.
Khattar asked consultancy firm AT Kearney to conduct marketing research to explore the possibility of this venture. The report found that car manufacturers were investing more than Rs 30,000 crore in this market. Production capacity was stated to increase from 1.7 million cars in 2007 to 3.8 million cars in 2015, that would require an investment of Rs 15,000 crore by 2012 in sales and service infrastructure.
Khattar had learnt at Maruti that their channel partners were losing interest in maintaining the service infrastructure. Next generation of entrepreneurs was willing to invest in ‘clean’ jobs like real estate, IT or retail and not ‘dirty’ jobs like servicing and maintaining cars. The report also revealed that number of cars would grow to 19 million in 2015, up from 11 million in 2008, which would put a tremendous strain on the existing service infrastructure.
Research also revealed that more than half of car owners move out of authorized dealer network as soon as their car becomes 2 years old. These customers go to smaller garages in order to save money. But with advent of new regulations for emission standards imposed by Indian government, these small garages would not be able to keep up with the right tools for servicing cars. Khattar sensed an opportunity in this market. He felt that with right pricing strategy. It will be possible to get these customers who were going to the garages to get their cars serviced. Usually in a car market, first 2-3 years are not very significant from the perspective of servicing, as the vehicles are covered by warranty.
Also, during these years, vehicle does not suffer much wear and tear. Only after 2 years does vehicle suffer much damage. At this juncture, servicing becomes extremely significant, and at this time, more revenues could be gathered per vehicle. Khattar wanted to focus on market for more than two year old vehicles. He selects 28 cars that cost up to Rs 9 lakh whose repair and maintenance will be undertaken at Carnation. These cars were chosen on the basis of volume of sales.
His choice of service business got more credibility as surveys indicated that customers were increasingly dissatisfied with service standards of the authorized dealers. The world over there were several independent, third – party operators who had got ten into the service business in order to overcome this dissatisfaction. In many countries such as Germany, France and the UK, these third party operators have garnered a significant percentage of market shares. Insurance companies also supported khattar’s venture as the claims processed by the dealers was far more than the premia paid by the car owners. Therefore insurance companies also want greater transparency in the repair and servicing business.
Carnation Auto had to identify suppliers for spare parts to start its business. It identified small component suppliers to obtain parts as it is less risky for these businesses even if the OEMs (car manufacturers) stop buying form them. It also sources components from overseas suppliers. Generally suppliers are free to sell some components from overseas suppliers. Generally suppliers are free to sell some components and parts to the aftermarket. Mostly this is allowed for those components and parts that go under hood of the car such as piston rings. But for those parts that lend a distinct design edge to a particular brand of a car, and has a distinct design edge to a particular brand of a car, and has been developed in collaboration with the manufacturer, such as headlights, taillights and bumpers, this is not allowed. Carnation could however buy components from suppliers legally. In Europe, manufacturers who prevent third-party service providers from buying components from suppliers are subject to anti-trust proceedings. The only concern is that some components from suppliers and these would be bought from independent dealers, not from the OEMs. But parts of some cars such as the Honda City of Accord might not be available with independent dealers.
As Khattar expands his business, sales of authorized dealers will be cruelly affected. Already, margins are as low as 2-3 percent in India as compared to the range of 8-10 per cent globally. Worldwide, profit margins in spares and servicing could be as high as 50-60 percent. Though, as of now, the threat to the dealers is not very high as Carnation is yet to expand. Dealers also believe that customers would continue to go to authorized dealers as there is greater trust and assurance of genuine parts at these centres. In India, same degree does not exist with independent dealers yet. Carnation requires to build a strong and trustworthy brand in order to allay customer fears. Khattar offers warranty on all parts bought from Carnation in order to achieve greater customer trust.
Concept of Carnation can be extremely useful to smaller car companies which don’t have a nationwide service network. Such companies could tie up with Carnation to offer car services to customers.
The outlet of Carnation needs a capital of about Rs 4 crore. However Khattar has several opportunities to follow the franchising model (as several entrepreneurs are interested in becoming franchises), he is not interested in this model. The preferred model is the joint venture with the local businessman in each state, with Carnation having the majority stake in each JV. This JV would cover particular state. Several such joint ventures have already materialized. Carnation retains majority control in all of them. The objective is to ultimately target all major markets in metros, that already have a well-developed, service infrastructure and small towns which do not have well developed infrastructure, and small towns, customers buy cars from nearby cities, and take it back to city for servicing, which is inconvenient. Though car market had prospered tremendously in small towns and rural areas, service network leaves much to be desired. Except Maruti Suzuki, no other car manufacturer has such an extensive service network.
There are numerous challenges which Carnation faces. It is already clear from research findings that customers take their more than two – year old cars to local garages for repairs. This reflects their price sensitivity, which should be overcome by Carnation, whose services will be priced higher. Khattar knew from his previous experience that most authorized service centres look for the first opportunity to replace parts in order to generate higher bills. But Carnation’s proposition is to first repair, and then, if needed, replace. Carnation would also be open longer hours, and offers pick and drop facility for the cars which need to be repaired. It even plans to have service vans that can park in a neighbourhood and service all the cars there.
Advertising agency far Carnation is Ogilvy. The agency recommended the use of inserts in weekend editions of newspapers instead of buying print space. As of its belief in quality, Khattar expects that Carnation’s services would generate lot of positive publicity. Khattar’s name backed by his experience in a leading automaker is also an significant assurance for prospects. Hence, the inserts carry his pictures. The logo of company says, ‘A Jagdish Khattar Initiative’ Though this is reassuring, it is also risky as customers might think that this is a one-man show, whose future after the promoter is uncertain. Use of the tagline was recommended by the agency which found out through a dipstick study that Khattar’s credibility was extremely high amongst customers, who rated him higher than several other automotive stalwarts. As a result, his name was inserted in the campaign. The other objections can also be written off once Carnation is established as a trustworthy brand over a period of time. Hence, the use of Khattar’s name will be immediately useful initially.
Carnation Auto is also selling used cars. The differentiator for Carnation is that it buys and sells all brands of cars. It has also tied up with Dilip Chhabria to become his exclusive dealer. Company has also tied with DC to offer customization in a few car models like Wagon R, Honda City, Swift, etc., wherein customers could choose add-ons, designs and design the appearance of their car as per their preference.
a) AT Kearney’s report of there being a huge opportunity in a car service market prompted Jagdish Khattar to start Carnation Auto. Was AT Kearney not being too simplistic? Should Jagdish Khattar have not commissioned research on at least two other areas – How would customers perceive an independent service outlet? How would the independent outlet procure spare parts?
b) Was Oglivy right in suggesting that Jagdish Khattar’s name be used in the promotion material of Carnation Auto?
c) Analyze Carnation Auto Success / failure by searching reliable website and magazine.