How does a market leader cope with mid-life anxieties about staying relevant in a changing demographic landscape? The company that put India on the automotive world map and has churned out millions of cars over the past three decades — Maruti Suzuki, which was grappling for an answer, seems to have found it.
“About two years ago, we had around 46-47% market share… the remaining 53-54% customers were not coming to us,” said R.S. Kalsi, the company’s senior executive director, marketing and sales.“In our research, we found that young customers – the third generation customers, who may already have a Maruti Suzuki vehicle in their family… they think of Maruti Suzuki as dad’s car or grandfather’s car,” he said. Mr. Kalsi is the man who spearheaded the strategy to target, and bring in, the premium segment of customers.
That is how the Nexa was conceived, he said. Nexa is company’s line of showrooms that sells its premium car portfolio.
“Staying relevant is very important. The idea is that we don’t get a sense of complacency… a market leader may have the tendency to get complacent,” he said.
This attempt by the company to change itself from the ‘not-so-premium automaker’ was met with scepticism from not just outside the company, but inside too. This was also not its first attempt at dominating the segment. Maruti Suzuki had earlier failed to capture the high-value segment with its Kizashi, and the Vitara.
“In the beginning, there are always apprehensions… Any disruption is painful in terms of investments, a little discontinuity in terms of business and sometimes people do not accept your vision,” Mr. Kalsi said.
The move was seen to be interfering with Maruti Suzuki’s core strength — the about 1,800-strong dealer network at the time. “We had planned to introduce 50 outlets in the first year and I was told: ‘You are compromising on the network strength’. I was told that it’s a gamble, some of my peers said if this project doesn’t go through my career may be at stake.” There were also apprehensions that sales of models unveiled through the new channel may be hit. This was followed by the S-Cross, the first model to be introduced via the channel, failing to gain traction initially. The crossover vehicle, first priced at ₹8.34 lakh-₹13.74 lakh, soon witnessed a price cut of about ₹2 lakh on select variants.
‘Gained footfalls’
However, as more models were introduced — Ciaz, Baleno and Ignis — and the channel expanded, footfalls into Nexa rose, which has also reflected in sales.
“After the first 50 showrooms were in place and fully operational, we saw the Nexa bet paying off. People were appreciating the [value of the] showrooms. It wasn’t a typical Maruti Suzuki experience… As for the dealers… for any new initiative, there a couple of people who are on board, the others wait and watch for the results before joining. This happened here also,” Mr. Kalsi said.
Shrikant Akolkar, research analyst (automobiles), Angel Broking pointed out, “The Nexa chain of retail outlets was launched in 2015... The financials have shown a remarkable improvement with 17% CAGR in revenue between FY15-FY17 compared with 7% CAGR from FY13-FY15. Margins have also risen from less than 14% in FY15 to more than 15% in FY17.”
Investors have also responded positively to the new strategy. “In the year the Nexa chain was unveiled, the share price of Maruti appreciated about 40%, and in the last two years it has given about 100% returns. That speaks for how the Nexa, as well as the main business, have helped Maruti Suzuki,” Mr. Akolkar said.
‘3 lakh cars this year’
Maruti Suzuki now has 280 Nexa showroomsand has sold 300,000 vehicles through the channel till now. Riding on the success of the channel, the company said it expected to sell 300,000 vehicles through Nexa in the current fiscal.
“There were pain points, we had to convince all stakeholders, including dealers and the internal team to come on board… but looking back now it has been a wonderful experience… By 2020 we are looking at 20% of out target of 2 million vehicles sales to come from Nexa,” Mr Kalsi said.
Abdul Majeed, partner, PwC, said, “There are two aspects for any firm: product and distribution. Distribution plays a very important in connecting with the customers… they had products (like Vitara) earlier but could not convey it to the customer through distribution.”
“Obviously, those buying entry-level vehicles are very different from those wanting premium vehicles… their thinking and aspirations are very different. Maruti Suzuki was very strongly associated with small cars..,” he added.
Mr. Kalsi agreed, saying, “We brought in a powerful portfolio of products in the last 4-5 years.” But that needed to be coupled with a great buying experience.
Digitisation was the first step. “About 75% of customers research online. We wanted to provide them with a seamless experience from where they left the research.
“Second, it is a pampered generation. They have travelled, been to the best restaurants... When they go to a bank, they deal with a relationship manager. Ours was a time when we used to stand in three queues just to withdraw money from the teller,” Mr. Kalsi said. Nexa helped combine these kinds of new-age experience.
When a customer returned to a showroom, the RM knew whether she prefers a cup of black coffee or orange juice, Mr. Kalsi said, adding that the experience went beyond buying. “For example, we have a lounge in the Delhi Airport that customers can use; the Mumbai one is in process. There are fashion shows we do...We keep them engaged.”
Besides the experience, it also helped the company focus. “Being a company with such a widespread product portfolio, we have to segregate the products as per the profile of the customer.”
For Maruti, the segregation was not just price-based. “Premium is not just price but also features and feel,” Mr. Kalsi said. For the company, the Nexa customer is “more sophisticated, mature, wants exclusivity, has exposure to a higher class of life and was earlier uncomfortable visiting our showrooms.”
The success has had a rub-off effect on its other showrooms. The company is currently re-branding its mass network of more than 2,000 showrooms to attract more customers.
But what if Nexa had not happened? Mr. Kalsi terms it hypothetical. “It is one of the most difficult things to say what would have happened if we had not gone with Nexa. You can see its advantage. We have 3,00,000 customers… and intend to sell 3,00,000 cars this year alone. We were at that point at 46% market share, today we are at 51%. We clocked a healthy 10% growth last year. This year, we are at 18%-plus in the first five months, while competition has seen marginal growth so far.”
