MM01
Marketing Management
(For CNM Cases)
Assignment – I
Assignment
Code: 2016MM01A1 Last Date of Submission: 30th April 2016
Maximum Marks: 100
Attempt all the questions. All the questions are compulsory and
carry equal marks.
Section-A
1.
Write short notes on:
(a)
Experience
concepts in marketing
(b)
Difference
between a customer oriented company and profit oriented company. Which of them will sustain in long run? Comment.
(c)
Green
marketing
(d)
Country
Analysis in Marketing (4x5)
2.
Discuss the rationale of
segmentation in Indian market. What is
behavioural segmentation? What are criterions used in it. Discuss its relevance in today’s market with
examples.
3. Why
should a company expand resources on positioning its product, when all that
consumer wants is a solution to their need? Do customers really care about the image of
the product or the company? Justify with examples.
4.
a. Discuss
the concept of customer value
b. Value
Delivery is no Easy Task”, Justify using recent examples from Indian Market
(10+10)
Section-B
Case Study: Carnation Auto
Carnation
Auto is a company that deals in servicing cars, selling spares, accessories and
also pre-owned cars. The company has
been started by Jagdish Khattar, the former MD of Maruti Udyog Ltd, in order to
reduce the demand-supply gap in the 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.
The
venture was started by Khattar in the year 2006-07 when he observed a
significant capacity addition by car companies.
Companies like Volkswagen, Peugeot, Nissan and Ford had announced
significant investments in the Indian market.
However, there were no announcements regarding the 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 the 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. The production capacity was
stated to increase from 1.7 million cars in 2007 to 3.8 million cars in 2015,
which will 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.
The 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 the number of cars will grow to 19 million in 2015, up from 11
million in 2008, which will put a tremendous strain on the existing service
infrastructure.
The
research also revealed that more than half of the car owners move out of the
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 the advent
of new regulations for emission standards imposed by the Indian government,
these small garages will not be able to keep up with the right tools for
servicing cars. Khattar sensed an
opportunity in this market. He felt that
with the right pricing strategy. It
would be possible to get these customers who were going to the garages to get
their cars serviced. Usually in the car
market, the first 2-3 years are not very important from the perspective of
servicing, as the vehicles are covered by warranty.
Also, during these years, the vehicle does not suffer much wear and tear. Only after 2 years does the vehicle suffer much damage. At this juncture, servicing becomes extremely important, and at this time, more revenues can be gathered per vehicle. Khattar wanted to focus on the market for more than two year old vehicles. He chose 28 cars that cost upto Rs 9 lakh whose repair and maintenance would 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 the 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
procure 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. Usually suppliers are free to sell some
components from overseas suppliers.
Usually suppliers are free to sell some components and parts to the
aftermarket. Mostly this is allowed for
those components and parts that go under the 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 can 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 will be bought from independent dealers, not from the OEMs. But parts of some cars such as the Honda City
of Accord may not be available with independent dealers.
As
Khattar expands his business, the sales of authorized dealers would be severely
affected. Already, margins are as low as
2-3 percent in India as compared to a range of 8-10 per cent globally. Worldwide, the profit margins in spares and
servicing can be as high as 50-60 percent. However, as of now, the threat to
the dealers is not very high as Carnation is yet to expand. Dealers also believe that customers will
continue to go to authorized dealers as there is greater trust and assurance of
genuine parts at these centres. In
India, the same degree does not exist with independent dealers yet. Carnation needs 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
attain greater customer trust.
The
concept of Carnation could be extremely useful to smaller car companies that do
not have a nationwide service network.
Such companies can tie up with Carnation to offer car services to
customers.
An outlet of Carnation requires a capital of about Rs 4 crore. Though Khattar has several opportunities to follow a franchising model (as several entrepreneurs are interested in becoming franchises), he is not interested in this model. The preferred model is a joint venture with a local businessman in each state, with Carnation having a majority stake in each JV. This JV will cover the particular state. Several such joint ventures have already materialized. Carnation retains majority control in all of them. The aim is to ultimately target all major markets in metros, which already have a well-developed, service infrastructure and small towns that do not have well developed infrastructure, and small towns, customers buy cars from nearby cities, and take it back to the city for servicing, which is inconvenient. Although the car market had prospered tremendously in small towns and rural areas, the service network leaves much to be desired. Except Maruti Suzuki, no other car manufacturer has such an extensive service network.
There
are several challenges that Carnation faces.
It is already clear from the research findings that customers take their
more than two – year old cars to local garages for repairs. This reflects their price sensitivity, which
must be overcome by Carnation, whose services would 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 necessary,
replace. Carnation will also be open
longer hours, and offers pick and drop facility for the cars that need to be
repaired. It even plans to have service
vans which can park in a neighborhood and service all the cars there.
The
advertising agency far Carnation is Ogilvy.
The agency recommended the use of inserts in weekend editions of
newspapers instead of buying print space.
Because of its belief in quality, Khattar expects that Carnation’s
services will generate lot of positive publicity. Khattar’s name backed by his experience in
the leading automaker is also an important assurance for prospects. Therefore, the inserts carry his
pictures. The logo of the 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. The 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.
Therefore, his name was inserted in the campaign. The other objections could also be written
off once Carnation is established as a trustworthy brand over a period of
time. Therefore, the use of Khattar’s
name would 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. The company
has also tied with DC to offer customization in a few car models such as Wagon
R, Honda City, Swift, etc., wherein customers can select add-ons, designs and
design the appearance of their car as per their preference.
5. Case
Questions:
a. AT Kearney’s report of there being a
huge opportunity in the 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 will customers perceive an independent service outlet? How will an 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. (7+3+10)
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