Monday, August 4, 2008

Demand for Low Frills Models

In the interview to Business Standard , Mr Shinzo Nakanishi MD of Maruti Suzuki shared interesting insights into the preference of car buyers in India. To quote from the interview

MARUTI ALTO

"Ten per cent of Alto sales come from the standard model, 30 per cent from the model with air-conditioning, and 60 per cent from the premium model, which, apart from the air-condition, also has power steering and is the most expensive".

MARUTI 800

" At one time 30 per cent of the sales came from air-conditioned models and the rest was from the non air-conditioned model. Now it is the opposite — 70 per cent of the sales come from the air-conditioned car. Of the 60,000 units we sell every month, only about 4,000 are non-air-conditioned".

This interview was with reference to the entry of tata nano into the market in the next quarter..

I was trying to think about the reasons of why this should happen, because if one were to take this information on face value it would mean that today we don't have a market for a no-frills model in India.

The logic that maruti is giving is that the consumers have moved up the value chain and are now looking for more frills in their cars, which is true to a certain extent. One more reason could be the easy availability of car loans which help the consumers to upgrade from the base no-frills model to the next model.

But in the context of nano the target segment is would be those people who have not thought of buying a car unless it is as cheap as what is being proposed by Tata. So these car buyers who are willing to upgrade are anyway not the target customers, they are looking at a segment which has not been accessed till now and for them a no-frills model would make a lot of sense.

But then nano will also try to upgrade and push its customers to the next model with more frills as they would be making more margins there than the base model......

To read the full interview, Link

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