PEST Analysis for Indian Luxurious Car Market

Transcription

1 22 PEST Analysis for Indian Luxurious Car Market Ramita Verma, MBA, M.Phil (Mgmt.), PhD, Asst. Professor, Swift Group of Colleges, Patiala (Punjab), India Shubhkamna Rathore, MBA, Phd, Asst. Professor, Swift Group of Colleges, Patiala (Punjab), India ABSTRACT In India s auto market the luxury cars are the fastest growing segment. In India Luxury car market grown at an accelerated pace in the past couple of years. Researches and studies have revealed that the luxury car market is growing at a steady speed of 25% per annum with more and more numbers of luxury cars entering Indian car market. India is one of the fastest growing economies of the World. With the consistent growth rate of 8-9 % for the last five years the disposable income of Indians has been growing in an impressive manner. Besides, the growth of HNI community in India is crossing mark of 25%, the highest in the World. Because of these factors the Luxury market of the World, which was centered around Europe, USA, Japan, China, and Korea, so far, has started shifting its focus on India. Besides, traditionally, India has always been known for her royalty. In this zest for Luxurious Lifestyle, both east and west find this as an opportune time to make India as a hub for the Luxury market of the World. Moreover, it is not only the luxury brands that are creating a benchmark in the Indian industry but also the affluent class people who are keen to splash cash for the cachet of exclusive cars. The impact of India's initiatives on economic liberalization and globalization (post 1991) was most apparent in the automotive sector. Moreover, the new age Indian was becoming more comfortable with his riches and flagrant display of wealth, which ushered in opportunities for global luxury carmakers in India. Analysts estimate that the luxury car segment would be growing at a rate of 28% annually. More than 7,000 luxury cars were sold in India every year and nearly 20 global luxury brands were competing for the market share. The Indian luxury car market has tripled its size in the past five years. It is expected to grow at the same pace for 2-3 years. This paper highlights the Pest analysis of Indian Luxury Car Market and to discuss the competitive scenario and the future of the luxury car market in India. Keywords: PEST analysis, HNI s, luxury car segment INTRODUCTION India being one of the lucrative hubs for the car market which attracts auto majors from all over the world. The recent growth in the luxury car market in India is much more than mere market dynamics in a particular car segment. It is a reflection of the changing lifestyle of the affluent class in the country. The Indian luxury car market accounts an impressive compound annual growth rate of approximately 25% between 2005 and 2009, though the base still remains quite low, representing around 1% of the total new car market. This expansion can be attributed to high economic growth which led to increased disposable income, finance-friendly government policies such as the relaxation of equity regulations and the reduction of import tariffs pertaining to the automobile industry. The economy was growing at 7% per annum and the information technology revolution in India had created a sizable professional class with huge purchasing power. REVIEW OF LITERATURE Marketers need to respect the fact that people and society can change over time. In the early 1980s, consumer consumption is somewhat conspicuous. Many firms ignored consumer input or publicly confront consumer group (Evans and Berman, 1987). In the 1990s, it is the era of value driven customers and suppliers. The consumption can nolonger be conspicuous. Consumers are exposed to more mass media. Commercial media become sources of useful information on the ever increasing number of products and brands. Personal sources of information diminish in importance. Marketers today need to understand that customer satisfaction is about attitude ; and customer value is about behavior (Butz and Goodstein, 1996:64). Goodyear (1996) suggests in the second stage (brand as reference) of her evolution of brand concepts and images3 that the marketers need the identification and differentiation of their products to reflect the consumer s goal of making a good selection from among competing brands. Since there exist differences in attitudes and specificity, what is a luxury car to some groups may be ordinary to others. Segmenting the luxury cars into physical categories regardless of brand association (attributes, benefits, attitudes) (Keller, 1993) can be very difficult to refer to in luxury sense. This requires marketers to identify brands to distinguish between them (Hoyer and Brown, 1990). While many brands seem to be qualified as luxury brands (e.g., Audi, Bentley, BMW, Jaguar, Lexus, Mercedes, Porsche, Rolls-Royce) by one third of industrial opinion, only some major brands (e.g., Audi, BMW, Mercedes,

2 23 Rolls-Royce) are considered luxury brands by the public majority. According to the Report of World Wealth by Capgemini and Merrill Lynch Wealth Management, most countries in the world have increased their HNI (High Net-Worth Individuals) count. While, India has more than doubled it maximum compared to any other country in the world. In 08-09, India had 84,000 HNI s which grew by 50.9% to take to the number to 1, 26,700 HNI Indians! in Indian HNI growth (past 5 years) Year of report India Asia- Pacific World , mn 8.3 mn , mn 8.7 mn ,00, mn 9.5 mn ,23, mn 10.1 mn , mn 8.6 mn ,26,700 3 mn 10 mn Source: Capgemini, Merrill Lynch Wealth Management The key factors contributing to the growth of luxury car market are raising economy and IT boom. Rising economy has given way to more disposable income which people are splashing over luxurious and high-end cars. With the boom in IT industry, youngsters are earning higher packages which enable them to enjoy a joyful ride in their favourite luxury car. Apart from that easy availability of loan and good finance schemes have also pushed youngsters and middle class people towards expensive and luxurious cars. Even the Government of India is supporting the entry of luxury cars by formulating policies such as the relaxation of equity regulations and the reduction of import tariffs on automobiles. These policies have reduced the price tags of top notch luxury cars, which have eventually led to the growth of luxury car market in India. Source: Raygain Technologies Pvt. Ltd. In India, the luxury car segment (Average Price Lakh) has been growing at an average rate of 20% or above during recent years; it seems to be least affected by the global financial crisis. According to the Society of Indian Automobile Manufacturers (SIAM) during worst recession period when world was facing low market demand trends, Indian luxury car segment grew at 23% to 6,671 vehicles. But financial year ended March 2010 has shown growth of automotive sector up by 25% to lakh vehicles. Major Luxury car in India Mercedes-Benz, BMW and Audi put together have around 85% market share. The German car brand Mercedes-Benz had first-mover advantage as it had started operations in India in 1995 and there was no direct competition in this category. Growth of Luxury Car Sales in India But the competition in the luxury car market will increase in next few years as more new players enter in to the market BMW 3,619 Mercedes-Benz 3,208 Audi 1,658

3 (January & February) Mercedes-Benz 842 BMW 709 Audi 558 Luxury car segment is going to change as there are many new cars lined-up for launch during the period with approximately 50 to 60 new models from major global brands. Tata Jaguar, Lexus, Bentley and Fiat are some of the players who would be seen as aggressive entrants with their high market experience. The market future will not only be driven by product itself but also services associated with it. While Mercedes-Benz, which has been in the Indian market since 1995, sold 3,208 cars in 2009, BMW, which came 11 years later, sold 3,619. BMW s market share rose from 9 per cent in 2006 to 33 per cent in 2007, to 40 per cent in 2008, and to 42 per cent in Audi, the third of the German trio, which started operations in India in 2006, has had a 58 per cent growth. It sold 1,658 cars in 2009 and accounts for around 20 per cent of the market. Mercedes-Benz has been on the slow lane for more than a year. Its market share dipped from 59 per cent in 2007 to 46 per cent in 2008, and to 38 per cent in But Merc, which still enjoys an unmatched reputation in the country, is stepping on the accelerator. In the first two months of 2010 it outsold BMW 439 cars in January and 403 in February against BMW s 368 and 341. IN THIS DYNAMIC FASHION PREFERENCES SHIFT FOR LUXURY CARS BECAUSE OF FOLLOWING REASONS With the Increasingly affluent population with high disposable incomes and an extravagant lifestyle of people. The growth of the economy is 8.8% this year compared to just 6.7% last year with this growth the confidence of the customer confidence is also increased. The target customer who used to over 45 (top level executives) earlier has changed to mid 30s (entrepreneurs and those have reached success at a young age) Today s generation believes in the Phrase Got it? Flaunt it! and many more new reasons to buy the luxuries cars such as gifts to daughter at marriage, festivities and also of flaunting one s wealth. Upgradation to higher end models because the prices fall after a very small period of time. Increasing demand from the rural areas which is in keeping pace with the economic growth and development CONSUMER BEHAVIOUR OF LUXURY AUTOMOBILES CUSTOMERS On the demand side, their customers are now far more knowledgeable and marketing literate. Brands are now perceived as part of their life, a representative of needs and wants in customer constellation. Most current owners of luxury cars tend to have purchased a car previously, the customer has potentially developed an attitude toward it. Here, an attitude becomes an evaluating judgement (desire or not desire) based on prior or present experience such as previous satisfaction from dealers or products and services (after sales and warranty), driving experience, and socioeconomic status of customers. It is also possible that an attitude can be developed based on prior information without experience, as when consumers develop preferences or biases for or against brands based on the brands images in the marketplace. This also depends largely on purchasing power of individual customers. Customers may have a favourable attitude towards some manufacturers luxury cars, but may lack the ability due to insufficient purchasing power or willingness to take buying action. Environmental factors for a company or an industry refer to variables and conditions around that company and industry that affect its working and performance, but which cannot be controlled. To understand, analyze and deal with environmental factors, "PEST" framework that classifies all environmental factors in the following groups. Political, Economical, Socio cultural, Technological,(Physical/Geographic). ECONOMIC ENVIRONMENT The economic environment consists of macro level factors related to the means of production and distribution of wealth. Economic environment is very dynamic and complex in nature. It does not remain the same. It keeps on changing from time to time with the changes in an economy like change in Govt. policies, political situation, buying capacity of the people. With the growing population of well heeled citizens in India emerges to be the primary cause. With the overall population being 1 billion, the 1% people who constitute the affluent society or the new Global Indians are estimated to be over 10 million, mainly because of the growing disposable income of India. It is a reflection of the changing lifestyle of the affluent class in the country. In India, the luxury car segment (Average Price Lakh) has been growing at an average rate of 20% or above during recent years; In effect to this, almost all the overseas manufacturers including Mercedes, BMW, Audi, Suzuki, and most recently Volkswagen have entered the

4 25 fray. Ferrari s announcement to roar into the India market from 2010 and Aston Martin s aspirations to enter the Indian market soon next year also signals that the market has just picked up pace and there are great possibilities for these indulgent vehicles to thrill the Indians. Change in attitude of the customer accounts for the sudden acceleration in the Luxury car Market in India, as the emphasis has been shifted from price consideration and affordability to design, quality and pleasure. KEY MARKET DRIVERS Increase disposable income,rising aspiration level,lower interest rates. POLITICAL ENVIRONMENT Political environment consists of factors related to management of public affairs and their impact on the business organization. Indian government auto policy aimed at promoting an integrated, phased and conducive growth of the Indian automotive industry. Allowing automatic approval for foreign equity investment up to 100 per cent, with no minimum. Political climate in a different countries producing an buying automobiles regarding policies on import, export and manufacture of automobiles and automobile components. This will also include policies on allowing setting up of manufacturing plants by foreign companies. Stability of governments: This may affect the future conditions in a country. Taxation policies: Indian government auto policy aimed at promoting an integrated, phased and conducive growth of the Indian automotive industry. Allowing automatic approval for foreign equity investment up to 100 per cent, with no minimum. DEMOGRAPHIC FACTORS Demographic factor is one of the key social factors. It affects lifestyle, consumer trends, the type of risk aversive behaviour, spending power and value per customer. The change of lifestyles and habits have a direct impact on the consumer expenditures. Consumer Demand: Now a days, consumers are very smart in selecting a car. They look for the best option available in the market. Their demands are highly efficient, affordable cost, reliable, comfortable and stylish models cars. Some consumers also consider that the cars should be environment friendly. CLASSIFICATION OF CONSUMERS OF LUXURY BRANDS According to a leading research company, the consumerpopulation in luxury markets can be divided into three categories: Functional- This segment comprises people who buy the luxury goods for their superior functionality and high quality. The people in this category decide to buy based on their logic, rather than emotions. In India, functional segment consumer-population is highest among the three segments. Rewarding- The status- symbol is the driving factor for this segment. The average age for this category is 35 years. People under this category are a major force behind the increasing sales figures of luxury cars in India. Indulgence- This category comprises the youngest lot out of the three categories. Currently, this category is experiencing highest growth in Delhi and NCR regions. Technological factors : Technology relating to automobile designs, technology of automobile manufacture and Technological developments that may increase or decrease with use of automobiles. The company is adapting new technologies and techniques to make its cars more famous among the customers. It is also introducing low priced luxury in the market. Socio Cultural Factors: Lifestyle and preferences of people, that impact their choice of types of automobiles. Social norms that impact the decision to own and use automobiles versus other means of transport This market growth also presents ample opportunity for relatively new entrants such as Jaguar, Land Rover, Rolls Royce, Porsche, Lamborghini, Toyota and Volvo to increase their market share, and further intensify the competition. CONCLUSION Growing number of young entrepreneurs in India inclined to drive luxury cars is brining about healthy demand for such cars. The Indian economy is raising a lot of interest globally given its statistics of the highest disposable incomes and increase in the number of millionaires. In a competitive market like US where most manufacturers have luxury car variants available, German manufacturer BMW has come out on top by selling 20,097 units this November. Japanese manufacturer Toyota Motors brand Lexus, came second with 18,240 units while compatriot manufacturer, Mercedes Benz came a close third with 18,208 sales. Lexus still leads the overall sales figures till date for 2010 but are closely followed by BMW and Mercedes Benz. Lexus sold 201,769 units from Jan-Nov 10 while BMW and Mercedes Benz sold 196,833 and 196,288 units

5 26 respectively for the same period. With its excellent R & D facilities to back the low cost labour, many multinationals have set up operations for this purpose. But now something more revolutionary is happening. India s top 10 luxury car models dominated by Mercedes Benz, BMW and Audi have seen a 57% surge in their sales between June 2009 May Audi A6, Mercedez Benz E Class and BMW 3 Series models saw more than 100% growth from last year. Volkswagen had sales of 1,876 cars from January 2010 August 2010, an increase of 66% of the same period last year. The future of luxury cars in India looks increasingly bright. It is expected to be the fifth largest automobile market in the world by REFERENCES [1] Hoyer, W. & Brown, S. (1990), Effects of brand awareness on choice for a common repeat purchase product, Journal of Consumer Research, Vol.17, No.2. [2] Iacobucci, D., Henderson, G., Marcati, A. & Chang, J. (1996), Network analyses of brand switching behavior, Journal of Research in Marketing, Vol.13. [3] Marquardt, S. BMW buys Rover; Britain goes ballistic, Automotive Industries, March [4] Motor Industry and Research Association (1997), The Emerging Asian Auto Markets 1996, UK: Hobbs the Printers. [5] [6] Urban, G. & Hauser, J. (1980), Design and Marketing of New Products, New Jersey: Prentice- Hall. [7] Kassarjian, H. (1971), Personality and Consumer Behavior: A Review, Journal of Marketing Research, November. [8] Morris, M. & Holman, J. (1988), Source Loyalty in Organizational Markets: A Dyadic Perspective,Journal of Business Research, Vol.16 (March), pp [9] Motor Industry and Research Association (1997), The Emerging Asian Auto Markets 1996, UK: Hobbs the Printers, pp [10] Sanyanusin, P. (1994), An Analysis of Demand for Passenger car in Bangkok. MSc, [11] Chulalongkorn University, Economics Graduate School, pp [12] Scheele, N. (1995), The luxury car sector of the future and Jaguar s part in it in D. Stirley & K. Read (ed.) MIRA Golden Jubilee: Fifty Years of Excellence. Warwickshire: MIRA, p.190