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BUSINESS
In a silent revolution driven by the consumer, the car industry is completely resegmenting its product offerings on the basis of price bands rather than size.
MUMBAI/NEW DELHI: What’s common between a Fiat Palio, the Santro Automatic, the Hyundai Getz, the Maruti Versa, the Indigo Marina, the Ford Fiesta and the Opel Corsa? Apart from the fact that these are automobiles, nothing much you might say.
You would be right - and wrong. Thanks to sharpening competition and manufacturers’ efforts to get their pricing right, all these automobiles - or some versions of these - are in the same price segment of Rs 5-6 lakh. Given a specific budget, you can get a fully-loaded hatchback, an off-roader, an automatic, or several three-box cars for round about the same price, give or take a few thousand.
In a silent revolution driven by the consumer, the car industry is completely resegmenting its product offerings on the basis of price bands rather than size and engine power alone. In the process, the old way of lumping cars in categories A, B and C (or A1, A2, A3) is of little relevance to the customer.
Till about two years ago, cars were defined by their relative sizes by the Society of Indian Automobile Manufacturers, or Siam. So you had a Maruti 800 in the A1 segment, the Hyundai Santro in the B (A2) segment, the Skoda Octavia in the D segment and so on. But today no segment is watertight. Many cars squeeze in through price gaps.
For example, segment A currently has only the Maruti 800 and Omni classified as such. But look at the price band around the Maruti 800, and you have the Alto looming large. Look at the numbers, and M 800 sales show a continuous decline. But with both Maruti and Hyundai introducing stripped down, non-AC versions of the Alto and Santro to encourage first-time buyers, the Rs 2-3 lakh price band is buzzing with action. Industry experts say that the customer is smart enough to go in for a stripped-down Santro against an air-conditioned M 800 at the same price.
Prefer to buy a fully loaded Maruti Swift hatchback with ABS, EBS and automatic aircon? Or would you prefer to buy into a bigger sedan like the Ford Fiesta with power steering and air conditioning? It may look like an absurd question, but take a look at the price tags new cars are sporting and you see the connection. You have the Ford Fiesta with a 1.4 litre petrol engine sporting a price tag of Rs 5.86 lakh and a Swift Zxi sporting a ticker of Rs 5.34 lakh in Mumbai.
Industry experts say that the SIAM classification based on the length of a car is a bit dated, since customers today are well aware of the kind of car they want and at what price. For example, Maruti Esteem buyers are customers who have most likely driven a compact car at some time, and now want to upgrade to a three-box version. Therefore, there is little overlap between those wanting to buy a high-end compact car such as the Swift or Getz and an entry-level sedan such as Esteem and Accent, even though pricing for these two segments largely overlaps.
DNA broke up car prices into six broad price segments between Rs 2 lakh and Rs 8 lakh, punctuated by a difference of a lakh (Rs 2-3 lakh, Rs 3-4 lakh, etc) and the results were surprising.
For instance if you are buying a car between Rs 5 lakh and Rs 6 lakh, you will have 30 options (including versions of the same car), and can choose between something as a big a Sumo Victa variant, an Accent GLE, an automatic Santro, a Maruti Versa or even a Mahindra Bolero. Different dimensions and engine options, but all within the same price band.
General Motors India president and managing director Rajeev Chaba has an interesting point to make. He feels that the Indian car market is yet to mature and car buying is done based on the three parameters of price, size and power.
“We are not a developed market even now, so a customer’s lifestyle does not usually dictate car purchase. About 70 % of car buying happens when the customer is happy with the price and size of the vehicle,” says Chaba.
Arvind Mathew, managing director and president, Ford India, concurs with Chaba. “Product, price and total cost of ownership drive the market,” Mathew told DNA. Interestingly, the Toyota Innova and the Honda City have sold very well in India despite being priced on the higher side.
But pricing still remains critical. “We sold 25,000 Innovas in seven months. This is a stupendous number and shows that if one gets the pricing right then there is always a market,” says K K Swamy, deputy managing director at Toyota Kirloskar.